※ “Maeng Jin-gyu’s Global Money Flow” is a “member-only” financial investment content that reporter Maeng Jin-gyu of Korea Economic Daily publishes every Friday on Hankyung.com. You can read more content by registering as a member of Hankyung.com.

It has been found that the global net inflow of “Schwab US Dividend Equity (SCHD)”, a US dividend growth exchange-traded fund (ETF) that is popular among domestic investors, is rapidly declining. While domestic investors are buying steadily, they are being ignored in the local market. Even though the US stock market continues to rebound, recent returns have been sluggish, and the analysis suggests that this is due to the growing popularity of other retirement investment products such as covered calls and buffer-type ETFs.

Net inflow drops 72%… Koreans alone account for 23%

According to ETF.com, there was a net inflow of $1.579 billion (approximately KRW 2.0144 trillion) into SCHD this year. Among the 2,527 stock ETFs, the net inflow ranked 58th, dropping out of the top 50. Compared to the same period last year ($5,436.39 million), net inflows dropped by approximately 72%.

The net inflow of SCHD funds is declining rapidly. It peaked at $15.4079 billion in 2022, compared to $2.03921 billion in 2019, $3.119 billion in 2020, and $9.86662 billion in 2021. However, the following year, 2023, this amount was halved, to $6.86819 billion, and this year it was only $1.579 billion.

On the other hand, domestic investors continued to buy SCHD, and their share in total net purchases reached a double-digit range. This year, domestic investors purchased $357 million worth of SCHD. This represents 23.6% of the total net inflow.

The reason SCHD’s popularity is fading is that returns have been slow even as the U.S. stock market has boomed. SCHD is up just 7.6% this year. It hasn’t fared well compared to the U.S. S&P 500 (18.5%) or the NASDAQ (21.3%). Even when you extend the time period to the last five years, SCHD (60%) has underperformed markets like the S&P 500 (97%) and the Nasdaq (131%).

JEPI, a high dividend alternative, appears

Recently, covered call ETFs have replaced SCHD. Representative products are “JP Morgan Equity Premium Income (JEPI)” and “JP Morgan NASDAQ Stock Premium Income (JEPQ)”.

These are covered call products with the S&P 500 and NASDAQ 100 stock indexes as their underlying assets, respectively, and the dividend yield reaches 10% per year. In particular, JEPQ recorded a net inflow of $5.901 billion this year, ranking 9th in terms of net inflow among all stock ETFs. The advantage of being able to benefit from the rise of the Nasdaq index while receiving high dividends is considered to be the secret of its popularity.

There is an analysis in the securities market that the attractiveness of long-term SCHD investments is declining. If you are not a current retiree but an investor who collects SCHDs in the hope of receiving dividends in the distant future, it is better to reduce the proportion of SCHDs and invest in a representative US index.

Since SCHD's long-term stock price growth rate is low, using the “magic of compound interest” to invest in a representative index to increase the principal and then withdraw the principal as dividends or invest in a high dividend ETF is because the expected return is higher.

An executive at an asset management company said: “The advantage of SCHD is that it performs relatively well in falling markets and has a high dividend growth rate. However, the dividend yield over the past 10 years is only 3.3%, and there are many high dividend growth rates. double-digit dividend ETFs to replace it.

He then advised: “Ultimately, if you are investing in long-term savings, the representative index type can offset the risk of market decline, so if you are a young investor, it is advisable to reduce the proportion of SCHD and make long-term investments in the representative index type.

Journalist Maeng Jin-gyu maeng@hankyung.com