Comparing ISCB and SCHA Small-Cap ETFs: A 2026 Investment Guide

The iShares Morningstar Small-Cap ETF (NYSEMKT:ISCB) offers a higher dividend yield and greater exposure to industrial firms, while the Schwab U.S. Small-Cap ETF (NYSEMKT:SCHA) provides lower costs and significantly greater liquidity. Both funds target the U.S. small-cap market, granting investors exposure to companies outside the S&P 500. This analysis evaluates their differing methodologies, sector concentrations, liquidity, and return profiles as of July 10, 2026.

Snapshot: Cost & Size Comparison

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Schwab ETF is more cost-effective with a 0.03% expense ratio, while income-focused investors may prefer the iShares fund’s higher 1.3% dividend yield compared to SCHA’s 1.0%. Despite its larger assets, SCHA outperforms ISCB in absolute returns over the past year.

Performance & Risk Metrics

Over a five-year period, SCHA achieved a growth of $1,452 from a $1,000 investment, compared to $1,383 for ISCB. Both ETFs demonstrated resilience through market volatility, with max drawdowns of 30.8% and 29.9% respectively.

Portfolio Holdings & Sector Allocation

The iShares Morningstar Small-Cap ETF tracks an index of U.S. small-cap stocks, holding 1,580 companies with a focus on industrials (18%), technology (16%), and financial services (16%). Key holdings include Okta (0.37%), Sterling Infrastructure (0.33%), and Guardant Health (0.32%). Launched in 2004, it emphasizes diversified exposure across sectors.

The Schwab U.S. Small-Cap ETF follows the Dow Jones U.S. Small-Cap Total Stock Market Index, with 1,725 holdings concentrated in technology (22%), healthcare (16%), and financial services (15%). Its top holdings are SanDisk (5.79%), Lumentum Holdings (1.27%), and Revolution Medicines (0.76%). Established in 2009, it leans toward growth-oriented sectors like tech.

Choosing Between SCHA and ISCB

There is no definitive “better” ETF for all investors. SCHA’s lower fees and superior returns may appeal to cost-conscious investors, while ISCB’s industrial focus suits those seeking exposure to traditional sectors like manufacturing. Both funds have outperformed the S&P 500 over the past year, suggesting broad small-cap strength. The optimal choice depends on your portfolio’s diversification needs and risk tolerance.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Guardant Health, Lumentum, Okta, and Sterling Infrastructure. The Motley Fool has a disclosure policy.

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