Charles Schwab has slashed the fees on its range of exchange-traded funds (ETFs) in a bid gain market share. Each of the firm’s 15 NYSE-listed funds is now the cheapest – as measured by operating expense ratio – in their respective Lipper category.
Since launching in November 2009,Charles Schwab’s range of in-house ETFs have grown to over $7.2 billion AUM.
The company, which is perhaps best known for its discount brokerage services, launched its own range ETFs in November 2009 and was the first to offer commission-free online trading of ETFs in client accounts.
Since then, the firm’s in-house ETFs have grown to over $7.2 billion in assets under management (AUM) as of August 31, 2012.
Walt Bettinger, Charles Schwab CEO, said: “In this period of uncertainty in the markets, the expenses investors pay are the only sure thing. As a long-time advocate for investors, we want to offer our clients a truly low-cost way to build a diversified portfolio.”
Bettinger continued: “It shouldn’t cost a lot for investors to do the right things with their money. Our roots are in building great tools and products for clients at affordable prices that improve the investing experience, from discount brokerage services and online trading to advice products like Schwab Managed Portfolios and commission-free online trading of our ETFs. We’re committed to being at the forefront of the ETF industry and to making the ETF investment equation simple and smart, whether the investment is small or large.”
Marie Chandoha, President of Charles Schwab Investment Management, added: “For investors, one of the keys to long-term success is constructing well-diversified portfolios that address their goals as cost-effectively as possible. We believe Schwab ETFs are a great tool for this because they provide our clients with exposure to core asset categories, and have a history of being tax efficient and performing in line with their indexes. Today’s announcement lowers one more barrier for investors who use our ETFs as the building blocks of their portfolios.”
Whilst the headline fee is important, investors should consider the overall total cost of ownership, as investors bear other costs beyond the management fee. Most notable of these is the cost associated with the bid/ask spread. For example, while the expense ratio on Vanguard’s broad-market core equity fund, the Vanguard Total Stock Market ETF (VTI), is 0.06% versus 0.04% for the comparable Schwab US Broad Market ETF (SCHB), an investor would lose roughly 0.05% to buy and then sell the Schwab fund versus only 0.02% for the more liquid Vanguard fund.
Investors should also consider the impact of tracking error – the difference between the performance of the fund and the performance of the benchmark.