Schwab Q1 ETF Assets Jumped 7% on Rising Market

Charles Schwab Corp., the fifth-largest ETF issuer, said first-quarter proprietary ETF assets increased by 7% over the previous period to $343 billion as asset management businesses ride a wave of strong stock market performance.

The Westlake, Texas-based financial services conglomerate, which holds $339.9 billion in 30 exchange-traded funds, reported that its ETF assets jumped 22% jump from last year's first quarter. The gains were in stride with expectations from market analysts. Total ETFs assets, including non-proprietary funds, at grew to over $2 trillion, up 10% from the previous quarter and up 28% from a year ago.

Schwab is the second major ETF issuer to report first-quarter earnings, following New York-based BlackRock Inc., which reported a 22% increase in ETF assets over the past year. Overall, Schwab reported first-quarter net revenues of $4.7 billion, reflecting a 6% increase over the prior quarter. The company reported per share earnings of 74 cents, which beat estimates by a penny. 

“These are pretty positive numbers, and they continue to benefit from the market tailwinds,” said Michael Elliott, an analyst at CRFA. Elliott, who is bullish on Schwab, described the report as “positive,” thanks largely to “strong growth in asset management fees.”

Schwab stock jumped nearly 4% today and has gained 41% over the past year. Schwab shares are held in 222 ETFs, which hold 178.1 million shares. The largest allocation is the 5.3% held by the IShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI).

Schwab’s proprietary ETFs represent 17% of the $9.1 trillion in total client assets. According to the earnings report, total client assets grew by 9.6% during the first quarter and are up 28% from the first quarter last year.

Elliott said a key driver to Schwab’s financial performance is the net interest revenue totaling $2.3 billion during the quarter on an average yield of 2.02%, which is up from 1.9% during the fourth quarter but down from 2.2% a year ago.

That revenue stream, representing about half of the company’s total revenues, has been impacted by a gradual movement of money sitting in low-yielding cash accounts into higher yielding accounts as interest rates moved higher. But Elliott believes that trend is slowing and the $33.8 billion sitting in cash and cash equivalents is stabilizing after dropping from $37 billion during the same quarter last year.

“That cash realignment activity will continue to decelerate,” he said.