For three years, the Vanguard S&P 500 ETF (VOO +1.62%) was one of the best performers in the U.S. equity market. Its overweight in tech and growth stocks was more than enough to deliver stellar returns for investors who simply wanted exposure to the entire market.
This year the market has rotated into value, defensive, and dividend stocks while the broader market has struggled to stay in the green. As of March 27, the Schwab U.S. Dividend Equity ETF (SCHD 0.50%), which invests heavily in these kinds of stocks, was up 11% year to date, while the Vanguard S&P 500 ETF was down about 1%.
That's a meaningful gap in a short period, and it's almost a perfect reversal of what happened from 2023 to 2025. But can the 2026 trend continue?
Image source: Getty Images.
What's driving Schwab U.S. Dividend Equity ETF outperformance in 2026
This ETF is performing well due to its energy and defensive exposures. In its 2025 annual reconstitution, it nearly doubled its allocation to energy before it went on its current run. Overweight positions in consumer staples and industrials also contributed. These changes weren't necessarily viewed positively by investors as they happened, but they proved lucrative during the months that followed.
After the Schwab U.S. Dividend Equity ETF completed its most recent reconstitution in March, here's what the "new" portfolio looks like today.
| Sector | Allocation |
|---|---|
| Consumer staples | 19.2% |
| Healthcare | 18.6% |
| Energy | 16.5% |
| Industrials | 11.6% |
| Technology | 11% |
| Financials | 8.8% |
| Communication services | 7.1% |
| Consumer discretionary | 6.5% |
| Utilities | 0.1% |
Data source: Schwab.
Energy is still a major part of the portfolio, but it's down from its previous 20% allocation. Consumer staples and healthcare account for 38% of the fund, giving it a defensive lean. Technology's weighting is modest, but it's been growing over the past few years.
Overall, the fund looks mostly the same now as it did before its reconstitution, when it was generating big returns.
NYSEMKT: SCHD
Key Data Points
Why the Vanguard S&P 500 ETF still makes sense
The one thing that we've seen throughout 2026 is volatility.
With few exceptions, the U.S. stock market featured a fairly steady path of positive returns. The opposite has been true this year. Value, defensive, and small-cap stocks sharply outperformed the S&P 500 in the first two months of the year. But March has seen a sharp reversal of that trend. If the conflict in Iran gets settled, it's quite possible we could see another reversal later this year.
Since the Vanguard S&P 500 ETF essentially just buys the entire U.S. large-cap stock market, investors who own it don't need to worry about capturing these swings at the right time. By owning everything, you insulate yourself against owning the wrong thing at the wrong time.
NYSEMKT: VOO
Key Data Points
The Schwab U.S. Dividend Equity ETF owned nothing but defensive dividend payers and ended up badly underperforming the S&P 500 for three straight years. Granted, the opposite can occur as well, but it's impossible to tell when the pendulum is going to swing.
SCHD vs. VOO: Which is better?
There's little question that the economic environment is deteriorating. Gross domestic product (GDP) growth slowed substantially in the 2025 fourth quarter. The unemployment rate is slowly drifting higher. Inflation remains elevated and stubborn. That's to say nothing of the Iran war, which is complicating things further.
Although the timeline is unclear, it's likely that volatility will retreat and stock prices will move higher once the Iran conflict is resolved. That could trigger a return to the environment we saw pre-war, namely, outperformance from value and dividend stocks. Even if that doesn't happen, a slowing U.S. economy usually favors defensive stocks.
The Schwab U.S. Dividend Equity ETF could benefit from either of those environments. That's why I think it's the better buy today.
