Quarterly Commentary on SMRT™ & SIRT™

INGA RACHWALD:  Hello, and welcome to the 2025 Schwab Target Date Collective Investment Trust Update. I’m Inga Rachwell. I’m an investment portfolio strategist supporting Schwab Asset Management, and I support our Schwab Managed Retirement Trusts and Schwab Index Retirement Trusts. 

So 2025 can be characterized by a series of stranger things happening across the global economy. Last year brought no shortage of jump scares, all of which served as a good reminder of the importance of diversification, and the fact that markets are fickle and can swiftly switch direction without warning. 

In 2025, all asset classes in Schwab’s Target Trust Series experienced positive returns. Performance in the longer-dated trusts was buoyed by standout returns in the international equity markets, and emerging markets, in particular, capping off what was only the third time international equities outperformed domestic equities over the last 10 years. Areas like US small-caps and REITs underperformed the broader equity markets, as elements of the real economy and labor markets remained weak, detracting from performance relative to peers. We did, however, see US small-cap performance experience a strong surge following its August lows, with that optimism continuing thus far in 2026. Additionally, in 2025, passive market cap equity index funds generally outperformed actively managed equity funds. The latter held back by a more defensive stance during a year of strong equity market performance. The exception here was fixed income, where active managers generally perform well. 

So 2025 served as a quintessential reminder of the importance of diversification to keep investors from getting turned upside down. So let’s take a couple of examples. 

First of all, sector differences. For example, looking at the composition of the broad international equity markets versus the US equity markets, you can see some sizable sector differences, particularly as it relates to financials and technology. 

Second example, market timing. It is very difficult to predict when different parts of the market will shift performance. The sudden resurgence of US small-caps we saw since August of 2025, after years of underperformance, and the reversal of massive outperformance of the Magnificent 7 relative to the rest of the broad US equity market are just a few examples. 

Another one, looking at inflationary environments. If you look at the historic divergence in asset class performance during various types of market environments, inflationary environments are a good example, where it’s not a one asset class size fits all scenario. As you can see from this chart, asset class performance largely depends on the source of inflation, a data point that isn’t always readily known until later in the cycle. 

So as we turn the page on 2025, remember the role of diversification is so critical to support the goal of providing sustainable savings for retirement, while minimizing the potential for investors to get caught offsides by some of those stranger things that inevitably play out in the markets. 

Thank you for joining our 2025 recap. For questions, contact your Schwab representative, or visit our website at schwabtrustbankcollectives.com for more information about the trusts.

Disclosures

Diversification, asset allocation, and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets.. Past performance is no guarantee of future performance. As a reminder, Schwab Asset Management's glidepath for its Target Date Trusts is designed to provide sufficient savings to fund and sustain typical investor withdrawal needs for at least 20 years into retirement.

The material in this presentation is based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete. Errors and omissions can occur. None of the information constitutes a recommendation or a solicitation of an offer to buy or sell any pro duct or service from Schwab Trust Bank or any of its affiliates. Please review the trust and participation agreement, Schwab Trust Bank CIT Fact Sheets and other disclosure materials before making any decision to invest in the Trusts.

The Schwab Managed Retirement™ Trust Funds, Schwab Indexed Retirement™ Trust Funds, and Schwab Institutional Trust™ Funds (each a "Trust", collectively the "Trusts" or "Collective Investment Trusts (CITs)) are collective investment trusts maintained by Charles Schwab Trust Bank (CSTB), as trustee. They are available for investment only by eligible retirement plans and entities. Charles Schwab Trust Bank's Collective Investment Trusts are not insured by FDIC or any other type of deposit insurance; are not deposits or other obligations of and are not guaranteed by CSTB or any of its affiliates; and involve investment risks, including possible loss of principal invested. The Trusts are not mutual funds and are exempt from registration and regulation under the Investment Company Act of 1940 (the "1940 Act"), and their units are not registered under the Securities Act of 1933, or applicable securities laws of any state or other jurisdiction. Unit holders of the Trusts are not entitled to the protections of the 1940 Act. The Declaration of Trust and Participation Agreement contain important information about Trust fees and investment objectives, risks, and expenses of the underlying investments in the Collective Investment Trusts maintained by CSTB and should be read carefully before investing. The decision to invest in the Trusts should be carefully considered. The Trusts' unit values will fluctuate and may be worth more or less when redeemed, so unit holders may lose money. The Trusts are not sold by prospectus and are not available for investment by the public. The Trusts' prices are not quoted in newspapers.

Trust Affiliations

The Charles Schwab Corporation provides services to retirement and other employee benefit plans and participants through its separate but affiliated companies and subsidiaries: Charles Schwab Trust Bank (CSTB); Charles Schwab & Co., Inc.; Schwab Asset Management®, the dba name for Charles Schwab Investment Management, Inc.; and Schwab Retirement Plan Services, Inc. Trust, custody, and deposit products and services are available through CSTB, Member FDIC. Brokerage products and services are offered by Charles Schwab & Co., Inc. (Member SIPC). Schwab Retirement Plan Services, Inc. is not a fiduciary to retirement plans or participants and only provides recordkeeping and related services to retirement plans. Schwab Asset Management is an investment adviser registered with the Securities and Exchange Commission and provides investment research, advice, and fund administration services to CSTB and the Funds.

Schwab Asset Management®, the dba name for Charles Schwab Investment Management, Inc., is the investment advisor for Schwab Funds. Schwab Asset Management also provides non discretionary advisory services to the Charles Schwab Trust Bank (CSTB) Collective Investment Trusts (CITs). Schwab Funds are distributed by Charles Schwab & Co., Inc., Member SIPC. Schwak Asset Management, Charles Schwab & Co., Inc., and CSTB are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation.

The Charles Schwab Trust Bank CITs™ select investments based on advice received from, or products offered by industry-recognized investment management firms ("sub- advisors"). The Trusts access investment strategies through various investment vehicles including, but not limited to, collective investment trusts, mutual funds, and/or exchange- traded funds and may also access strategies through sub-advisors engaged by Charles Schwab Trust Bank to advise one or more separate accounts of a Trust. The Trusts may invest in securities directly managed by Schwab Asset Management, including Schwab ETFs, and from which Schwab Asset Management earns advisory fees. Exposure to some strategies may be indirect through investment in other Charles Schwab Trust Bank CITs. The Schwab Managed Retirement Trust™ invests in the Schwab Institutional Large Cap Value Trust™, Schwab Institutional Large Cap Growth Trust™, Schwab Institutional Small Cap Trust™, Schwab Institutional Diversified International Trust™, and Schwab Institutional Core Plus Fixed Income Trust™.