Charles Schwab has long been a big player in the investment
market with its wide variety of investing services and online
trading system. In the last few years, the company has taken to
expanding its focus on exchange-traded funds, offering a
diversified lineup of ETFs to investors.
This lineup of 15 funds not only trades commission-free for
Schwab clients, but it also offers up among the lowest expense
ratios in the ETF world, often times rivaling or beating out
similar funds from Vanguard and State Street (see
Guide to the 25 Cheapest ETFs
).
Apparently, this strategy has been a winning one for Schwab as
the company has seen great success, pulling in just under $8
billion in AUM while also possessing one of the highest average
levels of assets for any ETF issuer currently on the market.
In fact, no one product has less than $150 million in assets,
while eight have more than half a billion in assets, suggesting
that this low cost model has definitely paid off for the company so
far.
Yet, if that wasn't enough, Schwab recently revealed that it was
slashing the costs on all of its ETFs, making them the cheapest
offerings in each of their respective categories. As a testament to
their commitment to the low-cost approach, the company now has two
ETFs, the
Multi-Cap Core Fund (
SCHB
)
and the
Large-Cap Core Fund (
SCHX
)
that have expense ratios of just 0.04% per year, making them the
cheapest ETFs in any category (read
Ten Biggest U.S. Equity Market ETFs
).
With such incredibly low fees, it is questionable if Charles
Schwab can actually make a profit on its ETF lineup. Instead,
it has been speculated that
Schwab is looking to pull in advisors and clients with this low
cost ETF lineup and then sell them on other company products that
are more expensive, thus expanding the broader Schwab business in
that route.
This is a pretty interesting strategy and it has immense
ramifications for the broader ETF world as well. After all, it
seems unlikely that other issuers, who purely are in the game of
ETFs, will be able to compete on price with more diversified
companies that are willing to use ETFs as loss-leaders to get more
investors into their web (read
Five Great Commission-Free ETFs on TD
Ameritrade
).
Either way, this is a great development for ETF investors as it
suggests as though the fight for the title of 'low cost king' is
heating up meaning that cheaper products could be coming down the
pike from a number of issuers. This could be especially true if ETF
assets continue to flow into low cost options in a particular
category, giving issuers further impetus to reduce costs across the
board (read
Five Cheaper ETFs You Probably Overlooked
).
While it remains to be seen how long it takes or which issuers
make their move next in this space, the trend is certainly a
positive development after a somewhat rough summer for the ETF
industry. A number of ETFs have closed down as of late while
trading volumes were pretty low during August.
Still, total assets in the space remain at an elevated level and
issuers are putting out new products all the time. Add into this
trend the fight for low cost products and investors should overall
be quite happy with the current state of the ETF industry, despite
some of the growing pains that we have seen as of late.
For investors looking for more information on Schwab's changes,
we have highlighted the company's products below, by AUM, along
with their new expense ratios:
|
Ticker
|
ETF
|
New Expense Ratio
|
|
SCHB
|
US Broad Market ETF
|
0.04%
|
|
SCHX
|
US Large-Cap ETF
|
0.04%
|
|
SHHF
|
International Equity ETF
|
0.09%
|
|
SCHA
|
US Small-Cap ETF
|
0.10%
|
|
SCHE
|
Emerging Markets Equity ETF
|
0.15%
|
|
SCHP
|
US TIPS ETF
|
0.07%
|
|
SCHD
|
US Dividend Equity ETF
|
0.07%
|
|
SCHG
|
US Large-Cap Growth ETF
|
0.07%
|
|
SCHV
|
US Large-Cap Value ETF
|
0.07%
|
|
SCHH
|
US REIT ETF
|
0.07%
|
|
SCHZ
|
US Aggregate Bond ETF
|
0.05%
|
|
SCHM
|
US Mid Cap ETF
|
0.07%
|
|
SCHO
|
Short-Term Treasury ETF
|
0.08%
|
|
SCHR
|
Intermediate-Term Treasury ETF
|
0.10%
|
|
SCHC
|
International Small Cap Equity ETF
|
0.20%
|
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SCHWAB-US SC (SCHA): ETF Research Reports
SCHWAB-US BR MK (SCHB): ETF Research Reports
SCHWAB-EMG MKT (SCHE): ETF Research Reports
SCHWAB-US LC (SCHX): ETF Research Reports
(SHHF): ETF Research Reports
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