Charles Schwab, the San Francisco-based discount brokerage firm
that began rolling out its own exchange-traded funds in November
2009, rolled out a high-dividend ETF that will undercut the price
on two dividend-focused ETFs from Vanguard Group.
The Schwab US Dividend Equity ETF (NYSEArca:SCHD) comes with an
expense ratio of .17 percent, just below the .18 percent cost of
both the Vanguard High Dividend Yield Index ETF (NYSEArca:VYM) and
the Vanguard Dividend Appreciation ETF (NYSEArca:VIG).
Schwab said its dividend-focused ETF, which will choose
companies that consistently pay dividends and have strong
"financial ratios" relative to their peers, is based on the Dow
Jones U.S. Dividend 100 Index. That benchmark is a subset,
excluding REITs, of the Dow Jones U.S. Broad Market Index,
according to regulatory filings Schwab has made.
Dividend-focused investments loom largely in an investment
universe fraught with anxiety and volatility as the developed world
stumbles toward an unclear future in the wake of the market crash
of 2008-2009. Getting a reliable payout is a welcome option among
investors tired out by the marketâs gyrations and frustrated by
low yields on many bond investments.
Vanguardâs VIG and VYM have gathered $7.6 billion and $1.88
billion, respectively. Another large dividend-focused ETF, the
iShares Dow Jones Select Dividend Index Fund (NYSEArca:DVY), had
$7.76 billion in assets and comes with a .40 percent expense. The
SPDR S'P Dividend ETF (NYSEArca:SDY) has $6.33 billion in assets
and costs .35 percent.
Competing On Price
That Schwab would undercut Vanguard is hardly surprising, as the
company has been clear that it does intend to compete on price in
the ETF market.
On its website, Schwab routinely displays prices of funds that
compete with its offerings, and company officials have insisted
that price does matter, particular since its funds tend to trade
efficiently with tight bid/ask spreads.
Vanguard is a bit more circumspect in the way it frames its
pricing strategy, saying that as a mutually structured company
effectively owned by investors in its funds, it runs its investment
vehicles at cost, which necessarily keeps expense ratios low.
The only other ETF provider that has been as explicit as Schwab
in terms of price is Scottrade unit FocusShares, which rolled out
its first ETFs in March 2011. The companyâs 15 ETFs together have
attracted almost $75 million in investor assets.
Schwab has slowly and steadily gathered assets since it began
rolling out its own ETFs almost two years ago. It had $4.35 billion
in proprietary ETF assets as of Oct. 19, according to data compiled
With SCHD, Schwab now has 15 ETFs, including seven focused on
U.S. equities, three on international equitiesâincluding the
Schwab Emerging Markets ETF (NYSEArca:SCHE)âand four targeting
the U.S. fixed-income universe.
Before the dividend ETF, its most recent launch was the Schwab
Aggregate Bond ETF (NYSEArca:SCHZ). That fund, the lowest-priced
ETF in its class, has gathered more than $100 million since its
July 14 rollout.
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