The Schwab US Dividend Equity ETF (NYSE:SCHD) is outperforming the funds tracking the S&P 500 and Nasdaq 100 by its widest margin in years, as investors seek safety amid fears of an AI bubble. The fund has jumped 31.7% this year, while the Vanguard S&P 500 ETF (NYSE:VOO) and Invesco QQQ Trust (NASDAQ:QQQ) have returned 12.3% and 15%, respectively.
SCHD ETF Inflows Have Surged This Year
The ongoing SCHD ETF rally has coincided with a surge in demand among investors. ETF Db data shows that the fund has had over $24 billion in inflows since January, bringing its assets under management to over $116 billion.
The main reason behind the rally is that SCHD has become a safe-haven asset as AI jitters have escalated. It jumped to a record high this week as most companies in the AI industry, including neoclouds like CoreWeave, Nebius, and Micron, slumped.
AI companies fell because of several uncomfortable reports. One of them came from billionaire Ken Griffin, who warned that the AI bubble may burst soon. Another one was the recent Elice IPO in South Korea that flopped, with its stock falling by over 30%.
Meanwhile, Meta Platforms (NASDAQ:META) continued spending, with its free cash flow turning negative. It burned $2.12 billion during the quarter after making a positive cash flow of $10.6 billion in the same period last year. Meta shares have now tumbled by 18% from the year-to-date high.
Healthcare, Consumer Staples, and Energy are Driving SCHD Higher
With the AI trade cracking, investors have turned to traditional industries, which has benefited SCHD. According to Schwab’s website, healthcare companies make up the largest share of the fund, including Amgen, Merck, and Abbott Laboratories. The State Street Health Care Select Sector SPDR ETF (NYSE:XLV) has jumped 26% from its year-to-date low and is hovering near its all-time high.
Consumer staples have also boosted the SCHD ETF, with constituent companies like Procter & Gamble, Coca-Cola, and PepsiCo doing well. An ETF tracking the biggest consumer staples in the S&P 500 Index is also hovering near its record highs.
Additionally, energy stocks have soared by double digits this year and are now hovering around their record highs. Information technology companies account for a small portion of the SCHD ETF.
Separately, the fund has gained momentum as US bond yields retreat. The 10-year yield has dropped to 4.9% from its year-to-date high of 5.36%. SCHD typically sees stronger demand when yields are falling.
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