Schwab Seeks To Offer Active ETFs

March 08, 2012

Schwab Plans files to add active ETFs to its growing platform of index-based exchange-traded funds.


Charles Schwab, the discount broker with a growing family of index ETFs, filed paperwork with the Securities and Exchange Commission to gain the right to market active ETFs as well, which would make the San Francisco-based company more of a one-stop shop in the world of exchange-traded funds.

The company cast a wide net in the “exemptive relief” filing, asking for permission to offer actively managed U.S. and internationally focused equity and fixed-income funds, funds that are combinations of the two asset classes and fund-of-funds ETFs as well. It also said that all “future funds” that are not fund-of-funds ETFs will operate as ETFs, and may also operate as feeder funds in a master-feeder structure.

The company, which launched its first proprietary ETFs in November 2009, now has 15 equity and fixed-income ETFs with a total of $6.27 billion in assets under management, according to data compiled by IndexUniverse. Along with Vanguard and FocusShares, Schwab offers some of the least-expensive ETFs on the market, and has made clear that low pricing is at the center of its ETF strategy.

While active ETFs have yet to take off, many firms have filed to offer active ETF strategies, notably big mutual fund companies whose reputations are built on active management. Many of those companies have filed the same sort of regulatory paperwork that Schwab has, leading ETF industry sources to speculate that the filings are more placeholders than clear indicators that concrete plans are truly in the works.

Instead, the numerous exemptive relief filings queued up at the SEC are viewed as evidence that many companies recognize that the ETF is here to stay and that they need to at least lay the groundwork necessary to bring ETFs to market when they finally take the plunge and begin to put funds into registration. Schwab mentioned “N-1” registration statements in the filing, but didn’t describe any specific strategies it had in mind.

The catch for many of the companies interested in rolling out active ETFs is that less than 1 percent of the $1.175 trillion now invested in U.S.-listed ETFs is in active funds. All the biggest, most liquid ETFs are index strategies, most notably the SPDR S&P 500 ETF (NYSEArca: SPY), which briefly crossed the $100 billion threshold earlier this year.


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