AROUND THE WORLD OF ETFs

October 29, 2012

 

Schwab Cuts Costs On All 15 ETFs
Charles Schwab took the battle in fees to its arch rival Vanguard by cutting prices on all 15 of its ETFs by 25 to 60 percent, resulting in each of the ETFs becoming cheapest in their respective Lipper categories.

As an example, the Schwab U.S. Broad Market (NYSE Arca: SCHB) will now cost 0.04 percent, compared with its previous expense ratio of 0.06 percent.

Company officials said the moves, which became effective Sept. 20, brought the weighted average overall expense ratio of its ETFs down to 0.077 percent.

Some analysts speculate that Schwab’s bigger plan is to attract more clients and financial advisors to its overall platform, and once they have arrived, hope they make use of Schwab products and services that are more expensive than its low-cost ETFs, which can also be traded commission-free by Schwab clients.

The move definitely raises the bar on Vanguard, whose reputation rests largely on its low-cost funds. What Vanguard chooses to do remains to be seen, but it’s clear that Schwab’s low-cost strategy is working every bit as well as it is for Vanguard. Schwab, which launched its first ETFs in November 2009, had $6.33 billion in 15 separate ETFs as of Sept. 20, 2012, according to data compiled by IndexUniverse.

iShares Debuts Frontier Markets ETF
In mid-September, iShares rolled out the iShares MSCI Frontier 100 Index Fund (NYSE Arca: FM), a fund that serves up focused exposure to the least mature and least liquid economies globally.

FM tracks an MSCI benchmark that taps into equities from 20 frontier markets, including Argentina, Bangladesh, Croatia, Estonia, Jordan, Kazakhstan, Kenya, Kuwait, Lebanon, Mauritius, Nigeria, Oman, Pakistan, Qatar, Romania, Serbia, Sri Lanka, Ukraine, the United Arab Emirates and Vietnam.

The portfolio is heavily allocated to energy, financial and telecommunication names, and comes with an annual expense ratio of 0.79 percent.

iShares is the first ETF sponsor to create a broad frontier markets fund since Guggenheim predecessor Claymore launched the first-to-market Frontier Markets ETF (NYSE Arca: FRN) in 2008. But the new iShares also looks to be the first pure-play frontier fund, as the $142 million Guggenheim fund has heavy allocations to countries that some index providers consider emerging rather than frontier.

Vanguard Plots Rival To STPZ, STIP
Vanguard filed regulatory paperwork in late July to market a short-term inflation-protected securities index fund that would include an ETF share class that would compete with similar products from Pimco and iShares.

The prospectus detailed plans for the Vanguard Short-Term Inflation-Protected Securities Index Fund that would track the Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index, and invest in inflation-protected U.S. Treasury securities that have a remaining maturity of less than five years.

The fund would serve up four share classes, including an ETF share class that would cost 0.10 percent in fees, or half the price tag of competing funds.

The iShares Barclays 0-5 Year TIPS Bond Fund (NYSE Arca: STIP) and Pimco 1-5 Year U.S. TIPS Index Fund (NYSE Arca: STPZ) both cost 0.20 percent a year, and have assets of $358 million and nearly $1 billion, respectively.

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