AROUND THE WORLD OF ETFs

August 23, 2010

Schwab Slashes Fees
Charles Schwab announced in mid-June it was cutting expense ratios on six of its eight ETFs, raising the stakes in its competition with other fund purveyors.

Schwab said its fees are now lower than those on any competing funds.

The Schwab Emerging Markets Equity ETF (NYSE Arca: SCHE) saw its costs slashed by a whopping 10 basis points to 0.25 percent a year, 2 basis points lower than the 0.27 percent fee Vanguard charges on its MSCI Emerging Markets ETF (NYSE Arca: VWO).

The other funds saw their expense ratios cut by 2 basis points to 0.06 percent for the Schwab U.S. Broad Market ETF (NYSE Arca: SCHB) and to 0.13 percent for the Schwab U.S. Large-Cap Growth ETF (NYSE Arca: SCHG), Schwab U.S. Large-Cap Value ETF (NYSE Arca: SCHV), Schwab U.S. Small-Cap ETF (NYSE Arca: SCHA) and Schwab International Equity ETF (NYSE Arca: SCHF).

Claymore Rolls Out Targeted-Maturity Corporate Bond ETFs
In early June, Claymore Securities rolled out a line of seven target-maturity-date investment-grade corporate bond funds, joining iShares in offering a strategy that hopes to revolutionize the way investors think about bonds funds.

The seven funds, each with a 24 basis point management fee, have maturity dates beginning at the end of 2011 and extending through the end of 2017, with each fund targeting bonds maturing in a specific year. Each of the funds will close upon maturity, with investors receiving the net asset value of all the bonds in the portfolio, effectively offering investors something similar, though not identical, to holding an individual bond to maturity.

Each ETF tracks one of the BulletShares USD Corporate Bond indexes created by Accretive Asset Management.

BlackRock’s iShares launched a family of similar products earlier this year focused on municipal bonds.

PowerShares, SSgA Roll Out Int’l Corporate Bond ETFs
State Street Global Advisors was the first on the scene in the international corporate bond space, with the launch of the SPDR Barclays Capital International Corporate Bond ETF (NYSE Arca: IBND) on May 20. The fund’s underlying index focuses on securities with at least $1 billion in market capitalization outstanding.

Although it has first-mover status, IBND wasn’t alone for long. A few weeks later, Invesco PowerShares countered with its own similar fund, the PowerShares International Corporate Bond Portfolio (NYSE Arca: PICB). PICB tracks the S&P International Corporate Bond Index.

Interestingly, PICB’s underlying index caps the amount of debt denominated in any single currency at 50 percent. In all, it invests in debt issued in 10 different currencies. By contrast, almost 90 percent of IBND’s portfolio is denominated in euros.

PICB is the cheaper of the two at 50 basis points, versus IBND’s 0.55 percent expense ratio.

USCF Debuts Brent Oil ETF
U.S. Commodity Funds added yet another futures-based energy commodity ETF to its lineup, with the launch of the United States Brent Oil Fund LP (NYSE Arca: BNO) in June.

Brent oil is produced in Europe’s North Sea, and gaming the spread between Brent and West Texas crude is a common commodity trader’s play. BNO’s investment objective is to track daily changes in percentage terms of the near-month contract price of Brent crude futures as traded on the IntercontinentalExchange, except when the near-month instrument is within two weeks of expiration. At such times, the fund’s focus will turn to the next futures contract set to expire.

USCF has several similarly structured products, including the well-known United States Oil Fund (NYSE Arca: USO) that tracks West Texas Intermediate crude oil futures prices.

BNO carries an expense ratio of 0.60 percent.

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