Schwab’s 2Q ETF Assets Rise as Investors Return to Stock Investing

Charles Schwab Corp., the fifth-largest ETF issuer, said exchange-traded fund assets jumped 23% in the second quarter as investors shrugged off recession fears and rate hike concerns to seek stock market gains.  

Exchange-traded fund assets held in Schwab accounts rose to $1.7 trillion, roughly matching the expectations of analysts surveyed by Bloomberg. ETFs in Schwab accounts, including both third-party and Schwab funds, pulled in $31.2 billion over the quarter, with more than half of that coming in June, a month that saw the S&P 500 gain nearly 5.4%. So-called third-party accounts held $1.4 trillion in Schwab assets, with $293 billion in company accounts. 

By comparison, mutual funds—excluding money market funds—saw outflows of $19.1 billion for the quarter. This continued a trend, with mutual funds seeing net outflows from Schwab accounts in every month in the past year except January.  

Investors jumped back into riskier investments during the quarter, during which the S&P 500 gained 7.9%. Investor fears subsided as the regional banking crisis faded, and job creation and consumer spending indicated a solid economy despite rising interest rates and recession worries.  

Low-risk money market funds, while still garnering $30.7 billion in inflows for the quarter, were outpaced by ETF inflows. They had received more quarterly inflows than ETFs during each of the previous three quarters.  

Revenue, EPS 

Schwab’s overall business contracted year over year, less than analysts had expected. Adjusted earnings per share fell 28% to 75 cents, beating the consensus estimate of 71 cents.  

Revenue slipped 8.5% to $4.7 billion, still topping the $4.6 billion analysts expected.  

Schwab shares were 13% higher midday Tuesday. 

A big problem for Schwab’s business is the issue of so-called cash sorting, in which investors have been moving cash out of lower yield sweep accounts and into higher yield accounts, increasing costs. The big driver here was higher interest rates, which made alternatives to sweep accounts, like money market funds and CDs, much more attractive. 

Contact Gabe Alpert at [email protected]