Schwab Cuts Fees on 2 Bond ETFs

Schwab Asset Management cut the expense ratios for two of its fixed-income exchange-traded funds, continuing this round of the ETF fee wars started by State Street Global Advisors last month. 

Schwab cut the expense ratios of the $50 million Schwab High Yield Bond ETF (SCYB) and the $11.6 billion Schwab U.S. TIPS ETF (SCHP) to 0.03%, down from 0.10% and 0.04%, respectively. The cuts bring them in line with Schwab’s other bond ETFs, all nine of which now cost three basis points. 

The funds continue the trend toward ever-lower fees in the ETF industry. At the present time, 0.03% is the floor for most bond ETFs. One exception is the BNY Mellon Core Bond ETF (BKAG) with a 0% expense ratio. For comparison, State Street’s cuts early last month brought three of its bond ETFs’ expense ratios to 0.03% and one, the SPDR Portfolio High Yield Bond ETF (SPHY), to 0.05%.  

“Fixed income has been in the spotlight for investors in a higher interest rate environment. We have seized the opportunity to expand our fixed income offerings, recently launching high yield and municipal bond ETFs, while also helping investors save on fees,” said Nicohl Bogan, director of product strategy and development at Schwab, in the firm’s press release. 

Fierce ETF Cost Cuts 

Schwab’s focus on fixed-income investing has come as higher interest rates have given yield-seeking investors an increasing variety of options to choose from, so firms need to work harder to stand out.  

The Schwab Municipal Bond ETF (SCMB), which launched late last year with a 0.03% expense ratio, already undercut Vanguard’s municipal bond offering, the Vanguard Tax-Exempt Bond ETF (VTEB), which costs 0.05%. 

“State Street reduced the fee on SPHY from 10 to 5 basis points at the beginning of August and immediately saw results, taking in over $700 million since that time,” said Nate Geraci, president of The ETF Store, an investment advisor. 

“Issuers have no problem exchanging brutal blows on fees, and this is simply the latest example of the mentality needed to survive and thrive in the ETF Terrordome," he said.