Schwab 4Q ETF Assets Shrunk Amid Pivot to Cash

The issuer’s ETFs fell 6% to $1.5 trillion under management.

Charles Schwab Corp., the fifth-largest issuer of exchange-traded funds, said assets managed by its ETF unit dropped 6% in the fourth quarter as dismal returns in stocks and the worst year on record for bond markets sent investors fleeing to better returns from cash.  

Total ETF assets declined to $1.5 trillion from $1.6 trillion in last year’s fourth quarter. Equity mutual funds and ETFs recorded $5.9 billion in inflows in the fourth quarter, while fixed income products shed $14.2 billion, according to an earnings release.  

Active ETF and mutual fund managers encountered their worst year on record, as investors shied away from those more expensive alternatives. Mutual funds shed over $1.1 trillion in 2022, trumping the $13 billion that exited the year prior, and marking the greatest outflows the investment vehicle has seen, according to Bloomberg data.  

Meanwhile, ETFs brought in $614 billion in 2022 compared with the record $900 billion the previous year, according to ETF.com data. Rising interest rates and falling stock prices pushed investors to put their money into cash and other safer alternatives Schwab executives said. 

“As rates rose from the ultra-low levels observed during the most recent period of the Federal Reserve’s Zero Interest-rate Policy, clients allocated a growing portion of their assets to higher yielding cash and fixed income alternatives,” Peter Crawford, chief financial officer at Charles Schwab, said in an earnings release.  

He cited the movement into cash and fixed income as the cause of the 17%, or $115 billion, decline in Schwab’s balance sheet year over year.

Revenue from Schwab ETFs, equity and bond funds as well as collective trust funds rose 4.7% to $531 million in 2022 compared with the year prior, Schwab reported in a statement. At the same time, the firm’s average expense ratio shot up 3 basis points to 0.14% year over year.  

Still, the firm’s overall revenue in the fourth quarter jumped 17% to $5.5 billion, buoyed by a 33% increase in the bank’s net interest income. That number remained short of the $5.54 billion expected by analysts polled by Bloomberg.  

Shares of the Westlake, Texas-based firm fell 3.2% to $80.97 during midday trading.  

Contact Shubham Saharan at [email protected]