Schwab Investment Management Services announced November 2 that it is launching its own lineup of Schwab-branded ETFs that feature very low expense ratios and which will trade for free on the Schwab advisor platform. Charles Schwab Corp. CEO Walt Bettinger said the move was similar to the launch 20 years ago of Schwab’s OneSource mutual fund platform. “When we looked at how ETFs are distributed,” said Bettinger, “we saw some limitations” that the commission-free trading could help solve, “making dollar-cost averaging possible in ETFs.” Bettinger noted that “15% to 20% of retail ETF trading goes through Schwab already,” and that the November 2 announcement was only “a first step” in the ETF arena.
This first step might well be a wise one, says Tom Lydon, president of Global Trends Investments, and editor and proprietor of ETFtrends.com. “From a strategy standpoint,” says Lydon, “Schwab’s timing is great,” since the move indicates that the firm is saying, “We’ve been looking at ETFs for a while now, we’re going to make a commitment to ETFs, it’s right for individual investors, it’s right for advisors. The first rollout will be broad-based ETFs, with very low expense ratios, and to top it off we’re not going to charge a commission, we’re going to subsidize that internally.”
Moreover, Lydon suggests that since most advisors do not believe we are in a recovery, and that the market’s performance since March is merely a “bear market rally,” any moving of clients’ money away from cash and fixed income into the equities market would likely be into a “more defensive posture,” and that the Schwab ETFs would be considered by most advisors to be low-cost, conservative core holdings.
The four ETFs available at launch in November were the:
o Schwab U.S. Broad Market ETF (SCHB), with an expense ratio of 0.08%
o Schwab U.S. Large-Cap ETF (SCHX), a blend fund, with an expense ratio of 0.08%
o Schwab U.S. Small Cap ETF (SCHA), with an expense ratio of 0.15%; and
o Schwab International Equity ETF (SCHF), also with expenses of 0.15.