If you had asked me this question at the beginning of 2026, my answer would have been no. Given where market sentiment was at, what was driving it, and where people were putting their money, I didn't see a clear path where defensive strategies, such as the one for the Schwab U.S. Dividend Equity ETF (SCHD 0.13%), could thrive.
The market was in a risk-on mood (as it had been for the prior three years). All that artificial intelligence (AI) spending by the big tech companies seemed to be yielding tangible results. While cracks were beginning to show in the labor market, the U.S. economy remained resilient, suggesting growth wasn't about to turn negative. It seemed like a good recipe for stock prices to move higher.
A lot has changed in 2026. AI infrastructure spending is becoming a dirty word (as evidenced by the recent pullbacks in Alphabet and Amazon stock following the announcement of capex increases). It's increasingly unlikely that the Fed will come to the rescue with rate cuts any time soon. Bitcoin is crashing.
All of this has meant that investors are no longer bidding up pricey growth stocks. They're looking for better value across different market segments.
That's been great news for the Schwab U.S. Dividend Equity ETF. The undervalued, high-quality companies that are outperforming right now are exactly the ones this ETF invests in.
Image source: Getty Images.
The Schwab U.S. Dividend Equity ETF always had a great strategy
To quickly review, this ETF tracks the Dow Jones U.S. Dividend 100 Index. The index's methodology considers a company's fundamentals, balance sheet health, dividend history, and yield. Stocks that demonstrate the best combination of these factors get selected for the final portfolio.
NYSEMKT: SCHD
Key Data Points
I've always believed this fund has one of the best, most well-constructed strategies among all dividend ETFs. Even the best strategies, however, sometimes fall out of favor. That's exactly what happened with this one. As equity markets continued to be driven higher by a narrow subset of megacap tech stocks, funds like this one, which focused on durable, boring, cash-rich companies that paid dividends, were left behind.
But if the significant market rotation that we've seen over the past several weeks is sticky, there's no reason to believe that the Schwab U.S. Dividend Equity ETF couldn't be a leader.
In fact, it already is! In 2026 so far (as of 2/6/26), it's the best-performing dividend ETF in the entire marketplace.
Source: ETF Action.
The fund's top four sector holdings are energy (19.9%), consumer staples (18.5%), healthcare (16.2%), and industrials (12.1%). Healthcare is only matching the S&P 500 year to date, but the other three are all beating the index by at least 10%. This ETF has been positioned across all areas that have benefited the most from this rotation.
Any market environment that focuses on fundamentals is one where the Schwab U.S. Dividend Equity ETF will likely thrive. After the "Magnificent Seven" rally and the AI boom, it looks like we're getting back there again.
