Schwab (SCHW - Get Report) is also well positioned to be a contender in an arena where cost is king. Earlier this year, Schwab announced its intention to launch its own line of proprietary funds. ( Schwab Jumps Into ETF Race) Schwab has shown no fear when it comes to offering cheaper alternatives: in May, Schwab cut the expense ratio of its Schwab S&P 500 Index (SWPIX) to 0.09%, a fee that is less than the Vanguard 500 Index (FVINX) fund.
We are entering an age of mega ETF issuers. Small ETF issuers have always dotted the landscape, grabbing for volume in previously untested territory. The booming popularity of ETFs, however, has large asset managers thinking bigger. BlackRock (BLK) acquired iShares recently, while Schwab and Pimco already offer a variety of securities.
New ETF strategies appear to be aimed at the longer-term investor who is looking for an alternative to mutual funds. This approach will be a double-edged sword for issuers. On the one hand, the low-cost structure of ETFs could draw more long-term investors into these products. On the other hand, long-term investors won't be trading in and out of these strategies, potentially depriving the funds of trading volume.
Low-volume ETFs have withered and died on the vine in the past. The advantage to being a Mega ETF Issuer like Vanguard is that you can afford to cultivate these products until they draw investors. ( ETF Investors: Look for Liquidity.)