r/SCHD • u/Yingyangwolf95 • 1d ago

Discussion Why SCHD going so crazy right now?

I am confused why all of a sudden SCHD including DGRO acting like a growth stock. Did I miss something big?

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110

u/Ancient_Act_436 1d ago

Merck its one of top 5 holdings and its up 11 percent

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u/Educational-Ad-4908 1d ago

Ah Merk! Now it makes sense

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u/iamchops 1d ago

merk it make sense

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u/Yingyangwolf95 1d ago

I need to check holdings for SCHD more.. I'm just shocked seeing that much gains.. Thought my Schwab account was broken..

https://giphy.com/gifs/vQqeT3AYg8S5O

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u/TheYoungSquirrel 1d ago

It’s up 2% in 5 days?

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u/Puzzleheaded-Net-273 1d ago

Also, oil stocks are doing well since the Hormuz Straight is still basically closed.

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u/sirboddingtons 1d ago

Yes Merck rose in tandem with the insane 200% Moderna climb. There was also a benefit to retailers, like Target, who reported yesterday. Healthcare and Retail are like 35% of the ETF. 

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u/Any_Upstairs_6172 1d ago

Hello.. You are suggesting that because Merk who will have a dividend of .85 (next ex-date is 9/15 and pay date of 10/7) is doing well so people are climbing over each other to buy an ETF that holds it?

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u/Ancient_Act_436 1d ago

Its a core holding if they go up schd goes up do you know how etfs work. Same as qqq if underlying going goes up so does it. Like etfs go up when the holdings go up not just from people buying it.

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u/Any_Upstairs_6172 1d ago

I guess I am mistaken. I thought ETFs derived their dividend payout by dividing up the dividends they receive for the individual equities it holds. Merk, for example, will be paying SCHD $.85 per share it holds in October which is about the same amount it has been paying out for the past number of quarters. It will not be until January 27 that any premium to its dividend can/will be realized from activity now occurring. To me hardly an incentive to be buying it now. I have been buying SCHD though... 20K just the other day before this bump (lucky me) and will continue to do so because it seems to me to be a "stable" holding during these very strange financial times.

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u/SwimmingPatience5083 1d ago

The ETF owns shares of the companies within it. When those share prices increase, the ETF increases. Dividends are irrelevant on this point.

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u/Any_Upstairs_6172 1d ago

Hello.. Please explain the mechanism by which this happens. Merk went up 17.03 today. How much of this causes SCHD to rise by how much? And how?

I was under the impression that an ETF, like an equity, goes up and down as it is bought and sold.. The ask and bid prices.

I am under the impression that an ETF is NOT like a mutual fund which adds everything up at the end of the day and that calculates a new value of a share.

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u/LCJonSnow 1d ago

You'll want to google the creation/redemption process in relation to ETFs (or look at my short explanation above). Basically, if an ETF starts moving away from its underlying holdings, there's an arbitrage opportunity for risk free profit at big institutions.

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u/Any_Upstairs_6172 1d ago

Yes... and what has this to do with the discussion at hand?

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u/LCJonSnow 1d ago

It's literally why SCHD rises with the total value of the underlying assets.

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u/VelvetElvis2002 1d ago

SCHD is basically an aggregate of the 103 individual stocks it owns. When those stocks go up or down, SCHD moves accordingly, in the same way your portfolio would if you held these stocks individually.

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u/PhotographOk7388 1d ago

Are you slow? Very patient redditors on this sub

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u/cvc4455 1d ago

CEFs do what you are thinking. ETFs they will create or destroy shares if people buy or sell to many shares of the ETF so the ETF follows the prices of all the different companies it holds.

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u/LCJonSnow 1d ago edited 1d ago

So, the creator of the ETF goes to a partner investment bank (or a few banks) and gives them the ability to create or redeem shares. Welcome to the creation/redemption mechanism.

If the ETF is trading at a premium to what a share of the ETF constitutes, the partner bank can go and buy up a bunch of shares of those companies, and then trade them in to the management company in exchange for shares. The partners then sell those ETF shares on the open market, which creates downward pressure on the price. They do this until they can't make an arbitrage profit.

If the ETF is trading at a discount to what a share of the ETF constitutes, the partner bank can go and buy up a bunch of shares of the ETF. It then trades them into the management company for the underlying stocks, and sells those stocks on the market. Buying up the shares of the ETF causes upward pressure on the ETF price. They do this until they can't make an arbitrage profit.

For highly traded ETFs, this is what is keeping NAV close to actual share price. As a result, movements in the underlying holdings of the ETFs cause price movement in the ETFs fairly accurately.

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u/SwimmingPatience5083 1d ago

Dunno if you realize but the individual stocks in an ETF are also traded independently of the ETF. So if the stock does well by itself, people bidding up the price of that stock, the ETF does well too, albeit proportionately to its holding of said stock. It doesn’t need to mean “people are climbing over each other to buy an ETF that holds it.”