NEW YORK (
its first four proprietary ETFs Tuesday in what could prove to be a game-changer for the ETF industry.
The new low-cost, equity based ETFs will rival similar funds from established issuers like iShares and Vanguard while offering commission-free trading for Schwab customers.
Schwab U.S. Broad Market ETF
Schwab U.S. Large-Cap ETF
Schwab U.S. Large-Cap Growth ETF
Schwab U.S. Large-Cap Value ETF
mark an important moment in the development of the exchange traded fund industry, as issuers shift their target from large institutions towards an aging baby-boomer demographic and individual investors looking for a more hands-on approach to investing.
Lower fees, preferable tax treatment and a growing distrust for mutual fund managers and Wall Street insiders have aided in the explosion of the ETF industry. As electronic trading and the lightening-fast dissemination of information continues to demystify the financial world, investors are demanding to be where the rubber meets the road: actively managing transparent funds or a choice of long-term strategies with cheaper price tags.
Following in the footsteps of Vanguard, Schwab's first ETFs mimic the design and methodology of popular mutual fund picks. Vanguard offers the
Vanguard Total Stock Market ETF
Vanguard Large Cap ETF
Vanguard Growth ETF
Vanguard Value ETF
Also slated for launch in the near future are three international funds and a small-cap offering. The
Schwab International Equity ETF
Schwab International Small-Cap Equity ETF
Schwab Emerging Markets Equity ETF
Schwab U.S. Small-Cap ETF
are expected to follow soon.
More than simply launching a line of ETF products, Schwab appears to be expanding its brand. ETF issuers like iShares and PowerShares have been diligently building the breadth of their products to become one-stop ETF shops. Schwab is aiming to be a one-stop shop for financial needs.
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.
At the time of publication, Dion did not have any positions in the funds mentioned.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.