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The Schwab US Dividend Equity (SCHD) ETF has cheered the recent macro events, including the Federal Reserve decision and the weak Non-Farm Payrolls (NFP). It has also done well as the price of crude oil retreated from over $95 to $80. 

Data by the Bureau of Labor Statistics (BLS) revealed that the economy added 150k jobs while the unemployment rate rose to 3.9%. Wages and the labor participation rate figures were worse than expected.

These numbers, together with the weak manufacturing and services PMIs, mean that the economy is not doing well. Therefore, there is a high possibility that the Federal Reserve will maintain interest rates at the current level for a while. Some analysts believe that the bank will slash rates in 2024.

The SCHD ETF, like other popular stock funds like the SPDR S&P 500 (SPY) and Invesco QQQ, do well when there are hopes that the Fed will slash interest rates. Indeed, the latter two funds had the best week this year.

For starters, the Schwab US Dividend Equity Fund is one of the most popular ETFs in the market. It is mostly popular among income investors who love its high dividend yield and dividend growth. The fund has had over 300% returns since its inception in 2011.

The fund is made up of 100 stocks, with the biggest ones being firms like Amgen, Verizon, Broadcom, AbbVie, Coca-Cola, Merck, and Pepsico. By industry, most companies in the index are in the industrials, health care, financials, consumer defensive, and technology.

Therefore, the SCHD ETF has outperformed the SPY even though the latter has a bigger exposure to technology companies. Indeed, SPY has done better because of companies like Nvidia, Meta Platforms, Tesla, and Netflix. Indeed, it has by far outperformed the RSP ETF, which is the equal-weight version of the S&P 500.

Bitcoin price vs SCHD ETF

The SCHD ETF is popular among income investors who tend to be more risk-averse. However, I believe that allocating some funds to Bitcoin makes sense for three main reasons. 

First, historically, Bitcoin has been a top-performing asset. Bitcoin has jumped from almost zero in 2009 to the current $35,000. At its peak, the coin was trading at almost $70,000 and is now attempting to retest those highs.

In the past five years, Bitcoin has jumped by almost 500% while the SCHD ETF has risen by less than 100%. Therefore, investors who bought Bitcoin earlier on are making more money than those who invested in SCHD.

Second, demand and supply metrics are supportive of Bitcoin. The current Bitcoin supply stands at 19.53 million. This means that there are over 1.47 million Bitcoins that are yet to be mined. This mining is set to get tough when Bitcoin halving happens in April 2024. 

Therefore, Bitcoin will likely see more demand from institutional investors at a time of limited coins. This trend will likely accelerate when the Securities and Exchange Commission (SEC) approves the spot Bitcoin ETF. For one, Bitcoin supply in exchanges has dropped sharply recently.

Despite 100% rally in 2023, so far its been firm hands. #Bitcoin addresses that have bought twice and not sold hits new ATH 844k. This amounts to over 3m BTC or 16% of circulating supply.

HODLers will make ETF investors pay up.

1/2 pic.twitter.com/mAEGmx4MnG

Third, and most importantly, Bitcoin has weathered numerous storms in the past. It went through the Mt.Gox collapse in 2014, the Covid-19 black swan event in 2020, the collapse of FTX, Terra, Voyager Digital, and Celsius. 

Bitcoin has also survived the current phase of high-interest rates. The Federal Reserve has moved rates from zero to a 22-year high of 5.50%. In the past, most analysts believed that Bitcoin would not survive in a high rates environment and it has.

Therefore, I believe that investing in Bitcoin is a contrarian thing for risk-averse investors who hold the SCHD ETF.

The post Making the case for Bitcoin (BTC) to SCHD ETF investors appeared first on Invezz

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