Schwab's ETF empire gaining on BlackRock and Vanguard

For the past 12 months, assets in the discount broker's funds grew 39.7%, to $47.9 billion

Jul 29, 2016 @ 12:32 pm

By John Waggoner

In the battle of ETF giants — Vanguard, BlackRock, and now Fidelity — don't overlook Charles Schwab & Co., which is emerging as one of the fastest growing ETF providers, according to S&P Capital IQ.

Investors poured a net $6.9 billion into Schwab's 21 proprietary ETFs through June 30, according to Morningstar, the Chicago fund tracker. For the past 12 months, assets in those funds grew 39.7%, to $47.9 billion.

But Schwab also functions as an ETF marketplace. The past 12 months, the San Francisco discount brokerage reported an 11.3% jump in ETF assets held in client accounts, to $287.4 billion.

Schwab has been more than willing to compete on expenses with Vanguard and others, and frequently has some of the lowest-cost offerings. Schwab International ETF (SCHF), for example, has a rock-bottom 0.08% expense ratio, vs. 0.13% for Vanguard Total International Stock (VXUS). Unlike the Vanguard offering, Schwab International ETF doesn't have emerging markets exposure.

Similarly, Schwab U.S. Aggregate Bond ETF (SCHZ), sports a 0.05% expense ratio, just a hair under the 0.06% expense ratio for Vanguard Total Bond Market ETF (BND). iShares Core U.S. Aggregate Bond (AGG) has a 0.08% expense ratio.

"We've been price leaders for some time,” says Schwab spokesman Greg Gable. “We have every intention of being competitive on price and we know price matters to investors in this space. We don't want price to be the inhibiting factor in someone choosing our products and a relationship at Schwab.”

Schwab's low costs and strong performance has gained the fund company some praise recently. Morningstar's Ben Johnson endorsed Schwab U.S. Dividend ETF (SCHD) on Friday, noting that it was the least expensive dividend-focused ETF on the market. “This fund's high-quality portfolio and low cost make it a suitable core equity holding,” Mr. Johnson wrote.

S&P has “overweight” recommendations on Schwab Aggregate Bond ETF, Schwab U.S. Broad Market ETF (SCHB), and Schwab U.S. Large-Cap ETF (SCHW), as well as Schwab corporate shares (SCHW).

Some of Schwab's newer, smart beta products have fared less well. Schwab Fundamental U.S. Broad Market ETF (FNDB), for example, has shed $1.7 million this year, despite gaining 6.93%. The fund, launched in 2013, has a relatively modest $201 million in assets.

Schwab still has a long way to go before it can match BlackRock, the current champion in ETF assets. BlackRock has $912 billion in ETF assets, according to ETF.com, versus $50.6 billion for Schwab, which ranks fifth among ETF providers. But its robust asset flows, its low fees, and its popularity among registered investment advisers puts Schwab among the industry's contenders for the crown.

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