Schwab's Game-Changing ETFs

From ETFs to mutual funds and online trading, Schwab is trying to ramp up the incentives to keep investors in-house. The commission-free trading for the new ETF products will undoubtedly attract investors looking to avoid the hefty transactional fees that can go hand in hand with active trading strategies.

While transactional fees have been a concern for many investors, Schwab's initial lineup fits the buy-and-hold profile, rather than churn-and-burn day traders. Words like "growth" and "value" are generally associated with long-term investment strategies, rather than with investors who are probably the most concerned about daily transactional costs.

The expansion of the ETF industry has both challenged the supremacy of mutual funds as well as driven down the cost of entrenched ETFs. Recognizing this important element of customer demand, Schwab listed the fees of its first eight ETF offerings alongside those of competitors in a recent press release. Fund fees either match or better fees offered by existing ETFs from issuers like Vanguard and iShares.

The Schwab U.S. Broad Market ETF and Schwab U.S. Large-Cap ETF have expense ratios of 0.08%. The Schwab U.S. Large-Cap Growth ETF and Schwab U.S. Large-Cap Value ETF, Schwab U.S. Small-Cap ETF and Schwab International Equity ETF all will have expense ratios of 0.15%. Finally, the Schwab International Small-Cap Equity ETF and Schwab Emerging Markets Equity ETF will have expense ratios of 0.35%.

While a one-stop shop for ETFs certainly holds appeal for investors made weary by the rapidly expanding size of the industry, it is increasingly important to examine all of the available options. Factors like liquidity and methodology separate even the most similar looking funds, and the true test of the new Schwab line-up will not be in its marketing, but in the open marketplace.

-- Written by Don Dion in Williamstown, Mass.

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