Schwab’s aggressive pricing strategy is translating into asset inflows into its 15 ETFs.
The Schwab U.S. Broad Market (NYSEArca: SCHB) is perhaps the best example of Schwab’s successful approach to ETF pricing, having now seen its assets practically double since the firm cut the fund’s expense ratio by 33 percent last September. SCHB now boasts $2 billion in assets.
Costing now 0.04 percent—or $4 per $10,000 invested—SCHB offers diversified exposure to U.S. equities that’s cheapest in class. Tracking the Dow Jones U.S. Broad Stock Market, SCHB competes with funds like the $31.3 billion Vanguard Total Stock Market ETF (NYSEArca: VTI) and the $4.3 billion iShares Russell 3000 Index Fund (NYSEArca: IWV). VTI costs 0.05 percent, while IWV comes in at 0.20 percent a year.
When Charles Schwab decided last September to slash fees on its roster of 15 proprietary ETFs anywhere from 25 to 60 percent, it made them each the cheapest in their respective Lipper categories.
These funds have gone on to gather a combined $12.27 billion in total assets, ranking the San Francisco-based firm as the 10th-largest ETF provider in the country. SCHB has tallied gains of 16 percent year-to-date.
Schwab, which first entered the world of ETFs in 2009 with the rollout of four equities funds, has made it clear it’s going to compete on price, even if that means accepting some of its ETFs as loss leaders.
“We are a full service firm, so we can complement one business with another where some of the [other firms] can’t,” Schwab’s vice president of product management John Sturiale said in a recent interview.
“Anybody that can do the math can see that we’ve lowered the fees and it’s going to affect where we are at with our breakeven point in our funds,” he said.
The decision makes sense to a firm that focuses on the “totality of the relationship” with clients, as Sturiale puts it, looking to meet various client needs in-house.
Schwab’s expanding distribution network may also be playing an important part in the company’s quickly growing footprint in the ETF market.
In February, the firm launched OneSource, a broad free ETF trading program involving all of its ETFs and some 90 non-Schwab funds that eliminated commissions on ETF trading—an industry first for brokerage firms.
TD Ameritrade and Fidelity have their own versions of an ETF marketplace, but only at Schwab investors only pay the same expense ratios they would elsewhere, and don’t pay any commissions or short-term trading fees.
|ETF||Ticker||Sept-to-Date Inflows||Total AUM||ER|
|Schwab U.S. Broad Market||SCHB||$684.4M||$2.0B||0.04%|
|Schwab U.S. Large Cap||SCHX||$515.5M||$1.6B||0.04%|
|Schwab U.S. Large Cap Growth||SCHG||$167.1M||$705.8M||0.07%|
|Schwab U.S. Large Cap Value||SCHV||$159.5M||$629.9M||0.07%|
|Schwab U.S. Mid Cap||SCHM||$222.0M||$515.4M||0.07%|
|Schwab U.S. Small Cap||SCHA||$360.0M||$1.2B||0.10%|
|Schwab U.S. Dividend Equity||SCHD||$423.4M||$1.0B||0.07%|
|Schwab International Equity||SCHF||$468.4M||$1.4B||0.09%|
|Schwab International Small Cap Equity||SCHC||$78.6M||$261.8M||0.20%|
|Schwab Emerging Markets Equity||SCHE||$316.0M||$849.0M||0.15%|
|Schwab U.S. TIPS||SCHP||$36.2M||$551.0M||0.07%|
|Schwab Short-Term U.S. Treasury||SCHO||$78.3M||$295.4M||0.08%|
|Schwab Intermediate-Term U.S. Treasury||SCHR||$48.7M||$216.7M||0.10%|
|Schwab U.S. Aggregate Bond||SCHZ||$141.6M||$459.0M||0.05%|
|Schwab U.S. REIT||SCHH||$162.1M||$591.6M||0.07%|