Schwab Rolls Out ETF-Picking Tool

March 09, 2011

New Schwab product aims to guide investors through the growing thicket of ETF choices.

Charles Schwab, the San Francisco-based discount brokerage firm, launched a service today to assist clients in selecting ETFs, the latest attempt by the ETF industry to guide investors through an increasingly complex maze of potential choices in the exchange-traded product universe.

The service, known as the “Schwab ETF Select List,” comes in the form of a recommended ETF for each of 50 types of exposure defined by the brokerage firm. Choices include areas such as large-cap value stocks, intermediate-term Treasury bonds, crude oil futures ETFs and physical gold funds.

The service is being launched as the ETF market grows larger and more daunting to investors. A total of 1,135 exchange-traded products, including ETNs, are currently on the market, with hundreds more in registration. The glut of options has left some investors and advisors wondering which ETFs offer the best coverage.’s new “ETF Classification System” is another tool now at investors’ disposal to negotiate the rapidly growing ETF universe.

Charles Schwab, among the largest brokerage firms in the country, holds significant sway in the ETF world as both a brokerage firm and, more recently, as an issuer of ETFs. The firm had a total of $111 billion of client money in ETFs as of December 2010, including $3.55 billion in its own proprietary exchange-traded funds. It launched its first ETFs in November 2009.

The Schwab service comes at a time when advisors, attracted by the lower costs, tradability and niche investment exposures that ETFs can offer, are increasingly committed to finding ways to use exchange-traded products, according to a study Schwab commissioned.

Schwab's ETFs Held To Same Standards

The service screens ETFs for a variety of both qualitative and quantitative factors, Schwab said in a press release. The firm used well-known factors like total cost and risk, but also lesser-understood metrics like tracking error and volatility of bid/ask spreads.

The fact that the brokerage firm is also an issuer of ETFs raises questions about potential conflicts of interest regarding the selections. Schwab said in its prepared statement that the firm’s own funds are held to the same standards as other ETFs in the selection process.

The “ETF Select List” currently includes 11 of Schwab’s 13 ETFs as the top picks in their categories. Schwab ETFs, already among the least expensive on the market in terms of expense ratios, have the additional advantage of being part of the commission-free trading program Schwab offers clients who buy and sell the company’s ETFs.


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