SCHA: Attractive Valuations Support Upside For U.S. Small Caps

Ivo Kolchev1.64K FollowersFollow5ShareSavePlay(12min)Comments(2)SummaryThe Schwab US Small-Cap ETF has delivered a strong start to 2026, benefiting from cheap valuations and larger exposure to the energy-exporting U.S. economy.While SCHA holdings are not as cheap relative to large caps as they were at the start of the year, I believe the trend of SCHA outperformance is likely to continue.This will principally result from earnings growth increasingly being driven by GDP growth dynamics, with the one-off boost to S&P 500 earnings from AI exposure fading after 2026.A high cyclical sector allocation is a principal risk in the investment case, especially so against the backdrop of rising recession risks for the U.S. economy.Investors' caution towards U.S. stocks ahead of the 2026 midterm may dampen SCHA returns even if the U.S. economy continues to perform well. Vladimir Zakharov/iStock via Getty Images Introduction U.S. small caps have outperformed their large-cap peers so far in 2026, supported by attractive valuations and larger exposure to the U.S. economy, which benefits from energy self-sufficiency amid the war in Iran. In contrast, notably higher valuations andThis article was written byIvo Kolchev1.64K FollowersFollowI ventured into investing in high school in 2011, mainly in REITs, preferred stocks, and high-yield bonds, starting a fascination with markets and the economy that has not faded despite the years. More recently I have been combining long stock positions with covered calls and cash secured puts. I approach investing purely from a fundamental long-term point of view.

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