Charles Schwab launches ETF-based target date retirement funds

Aug 25th, 2016 | By | Category: ETF and Index News

Charles Schwab Investment Management has unveiled a new series of target date mutual funds constructed using low-cost Schwab ETFs as underlying investments.

Charles Schwab launch series of ETF-based target date retirement funds

Marie Chandoha, president of Charles Schwab Investment Management.

The Schwab Target Index Funds include funds with target retirement dates between 2010 and 2060 in five-year increments, and are aimed at US investors.

The new funds are the lowest-cost target date mutual funds available to employer-sponsored retirement plans, with an across-the-board expense ratio of just eight basis points (0.08%) and no minimum investment requirements regardless of plan size.

Outside of retirement plans, the funds are also among the lowest-cost target date mutual funds available to individual investors at 13 basis points (0.13%) with only a $100 minimum investment.

“Today marks an important day of democratization for employers, retirement plan participants and self-directed individual investors,” said Marie Chandoha, president and chief executive officer of Charles Schwab. “With Schwab Target Index Funds, every retirement plan gets the same low price with no investment minimums. That means plan participants no longer have to pay for a more expensive target date fund just because they work at a smaller company.

“On the retail side, we’re proud to offer individual investors a professionally managed retirement solution at an exceptionally low price. As the latest example of Schwab’s long history of driving down costs, these new funds are important milestones for our industry, and great news for retirement savers.”

The target date funds are composed of Schwab’s market-cap-weighted equity and fixed income ETFs, each of which has the lowest operating expenses in its respective Lipper category. Lipper categories are compiled by financial data vendor Thomson Reuters and seek to provide meaningful comparisons across peer mutual funds.

Low fund costs are a key aspect for potential investors in retirement funds, second only to the fund’s five-year performance record, according to a recent survey by Charles Schwab.

“At a time when some asset managers are inundating investors with confusing, complex products, we’re experiencing greater demand for our straightforward, transparent products that deliver great value on their own or with professional management built in,” said Chandoha. “Schwab ETFs function as key ingredients we draw on to develop affordable managed solutions like Schwab Target Index Funds. We think this is uniquely powerful and relevant against the backdrop of changing client expectations.”

The asset allocations in the funds are adjusted annually and become more conservative over time according to a predetermined “glidepath”, reflecting both the need for reduced investment risk as retirement approaches and the need for income after retiring.

The glidepath for the longest-range fund (Schwab Target 2060 Index Fund), begins with an asset mix of approximately 95% equity ETFs, and 5% dedicated to ETFs covering fixed income, cash and cash equivalents. At their target retirement dates, each fund reaches approximately 40% equity ETFs, and 60% fixed income, cash and cash equivalents ETFs. Each fund then continues reducing its allocation to equity ETFs for an additional twenty years to reach its most conservative and final allocation of approximately 25% equity ETFs, and 75% fixed income, cash and cash equivalents ETFs.

“Our new Schwab Target Index Funds provide automatic diversification and ongoing professional management at remarkably low prices,” said Jake Gilliam, Senior Multi-Asset Class Portfolio Strategist at Charles Schwab. “Coupled with our long track record, we believe these new funds will have strong appeal to employers, retirement plan participants and individual investors.”

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