Schwab’s Debut Muni ETF Beats Vanguard on Costs

New bond fund’s 0.03% expense ratio lower than rival’s.

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Reviewed by: Shubham Saharan
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Edited by: Shubham Saharan

Charles Schwab Corp.’s debut municipal bond offering is giving exchange-traded fund behemoth Vanguard Group Inc. a run in the expense ratio department.  

The Schwab Municipal Bond ETF (SCMB) comes with an expense ratio of 0.03%, according to a company statement, making it the cheapest product of its kind on the market. SCMB’s closest competitor, the Vanguard Tax-Exempt Bond ETF (VTEB), has an expense ratio of 0.05%. 

The fund tracks the ICE AMT-Free Core U.S. National Municipal Index, and fills a hole in Schwab’s existing 27-fund lineup as the issuer’s first muni product. It began trading Wednesday on the NYSE Arca, where its shares dipped less than 1% to $50.12.  

The launch comes as "yields on municipal bonds are attractive" and investors are seeking low-cost options, John Sturiale, Schwab’s head of product management and innovation, said in a statement. 

The ETF’s launch comes at a lackluster time for the asset class. The ICE AMT-Free US National Municipal Index, which tracks the performance of U.S.-dollar-denominated, fixed rate, tax exempt bonds and its corresponding ETF, the iShares National Muni Bond ETF (MUB), have fallen nearly 10% year to date.  

Returns on other muni-focused ETFs have similarly tanked, with VTEB and the iShares Short-Term National Muni Bond ETF (SUB) losing as much as 10.7% compared with this time last year.  

 

 

Yields on 10-year municipal bonds soared as high as 3.24% in late September, the highest point since 2011. They currently trade at 3.15%. Bond prices move inversely to yields.  

However, that hasn’t kept investors from flocking to the asset class, with the three largest muni funds by assets under management—MUB, VTEB and SUB—picking up more than $14.5 billion in assets this year, ETF.com data shows.  

 

Contact Shubham Saharanat[email protected]

Shubham Saharan is a markets reporter at etf.com. Before joining the company, she reported for Bloomberg and the Financial Times. Saharan is a graduate of Barnard College of Columbia University.