The price war between ETF providers continues, and the winners are individual investors. Charles Schwab has once again reduced the expense ratios on several of its already low cost ETFs. Here we look at several of Charles Schwab’s “core” ETF offerings and see if they are worthy to replace your current ETF investments.
Today, investors looking to limit their fees as much as possible have a new leader in low cost ETF offerings. It is almost comical the lengths fund companies are going to become “the cheapest” ETF provider. You will notice that most of Schwab’s expense ratios are just 0.01% lower than Vanguard’s.
But regardless, because of the title of cheapest ETF, Schwab has been making lots of headlines with these funds. So lets take a look:
Below we look at 4 of Schwab’s funds in depth, with a quick mention of other low cost funds available at the end.
For investors with an account at Charles Schwab, these funds all trade commission free.
Schwab U.S. Broad Market ETF (SCHB)
- Expense Ratio of 0.04% (Why does this matter? See our Expense Ratio Cost Calculator)
- Follows the Dow Jones U.S. Broad Market Index
- Current dividend yield of 1.7%
- Made up of nearly 2,000 individual stocks
The fund’s prospectus can be found here: http://hosted.rightprospectus.com/ETF/Fund.aspx?dt=P&cu=808524102
The fund’s webpage can be found here: https://www.schwabetfs.com/summary.asp?symbol=SCHB
The first fund from Schwab that we look at is their U.S. Broad Market ETF, sporting one of the lowest expense ratios you will see on ANY fund out there. For 0.04% per year, investors get exposure to nearly 2,000 individual stocks.
No other large ETFs track the Dow Jones U.S. Broad Market Index exactly, but many do offer similar competitors. Compare this fund to others such as:
Vanguard Total Stock Market (Ticker: VTI) – 0.05% Expense Ratio
iShares Core S&P Total U.S. Stock Market (Ticker: ITOT) – 0.13% Expense Ratio
iShares Dow Jones U.S. Index Fund (Ticker: IYY) – 0.20% Expense Ratio
Here is how they have performed recently:
This fund invests in a larger pool of American companies than a typical S&P 500 index fund. The U.S. Broad Market Index tracks an additional 2,000 smaller companies than the S&P 500. As expected, over longer periods this additional exposure to small cap stocks has led to higher returns, but expect slightly more volatility as well.
Schwab International Equity (SCHF)
- Expense Ratio of 0.09%
- Follows the FTSE Developed ex-US Index
- Current dividend yield of 2.52%
- Made up of 1,150 stocks
The fund’s prospectus can be found here: http://hosted.rightprospectus.com/ETF/Fund.aspx?dt=P&cu=808524805
The fund’s webpage can be found here: https://www.schwabetfs.com/summary.asp?symbol=SCHF
This fund is invested in developed international markets and is different than ‘emerging markets’ (see below). Countries included in this fund are Japan, UK, France, Germany and Canada to name a few.
No other notable “developed international” ETFs track the FTSE Developed ex-US Index exactly, but there are several similar competitors:
Vanguard MSCI EAFE ETF (Ticker: VEA) – Expense Ratio 0.10%
iShares MSCI EAFE Index Fund (Ticker: EFA) – Expense Ratio 0.34%
Here is how they have performed recently:
Schwab Emerging Markets Equity (SCHE)
- Expense Ratio of 0.14%
- Follows the FTSE Emerging Markets Index
- Current dividend yield of 1.7%
- Made up of about 650 stocks
The fund’s prospectus can be found here: http://hosted.rightprospectus.com/ETF/Fund.aspx?dt=P&cu=808524706
The fund’s webpage can be found here: https://www.schwabetfs.com/summary.asp?symbol=SCHE
This fund invests in faster growing countries like China, Brazil, South Africa, India, etc.
Traditionally this is a very volatile area to invest in. A broadly diversified ETF like this one sure helps.
Although this ETF may invest in companies located in much smaller countries, the companies themselves are actually quite large on average. 51% of this fund’s assets are in “Giant Cap” companies.
Compare this fund to:
Vanguard FTSE Emerging Market ETF (Ticker: VWO) – Expense Ratio 0.15%
iShares MSCI Emerging Markets ETF (Ticker: EEM) – Expense Ratio 0.67%
Here is how they have performed recently:
Schwab U.S. Aggregate Bond (SCHZ)
- Expense Ratio of 0.05%
- Follows the Barclays Capital U.S. Aggregate Bond Index
- Current dividend yield of 2.1%
- Made up of over 1,400 different bonds
The fund’s prospectus can be found here: http://hosted.rightprospectus.com/ETF/Fund.aspx?dt=P&cu=808524839
The fund’s webpage can be found here: https://www.schwabetfs.com/summary.asp?symbol=SCHZ
This is your classic bread and butter bond fund, encompassing US Treasuries, Mortgage bonds, U.S. Corporate Bonds, and more. Even with today’s dismal interest rates, bonds still have a place in investors’ portfolios to add diversify and reduce volatility.
Compare this to:
Vanguard Total Bond ETF (Ticker: BND)
iShares Core Total U.S. Bond Market ETF (Ticker: AGG)
SPDR Lehman Aggregate Bond ETF (Ticker: LAG)
Here is how they have performed recently:
Schwab U.S. REIT (SCHH)
- Expense Ratio of 0.04%
- Follows the Dow Jones U.S. Select REIT Index
- Current dividend yield of 2.85%
- Made up of 88 individual stocks
The fund’s prospectus can be found here: http://hosted.rightprospectus.com/ETF/Fund.aspx?dt=P&cu=808524847
The fund’s webpage can be found here: https://www.schwabetfs.com/summary.asp?symbol=SCHH
REITs have received a ton of exposure over the last few years as interest rates have dropped. For a company to be considered a REIT (Real Estate Investment Trust) it must pay out a certain percentage of its profits in dividends. Therefore, REIT investors have seen above average yield (But that does not mean above average total return!).
Because of the higher dividend and current low rates, REITs have begun to take a position in many people’s portfolios. Typically experts advise 5-10% of your total portfolio in REITs.
If you do decide REITs are applicable for your portfolio, this is the cheapest fund out there.
Compare to:
Vanguard REIT ETF (Ticker: VNQ) – 0.10% Expense Ratio
iShares Dow Jones US Real Estate Index Fund (Ticker: IYR) – 0.46% Expense Ratio
SPDR Dow Jones REIT ETF (Ticker: RWR) – 0.25% Expense Ratio
Here is how they have performed recently:
Other funds available from Charles Schwab:
Other Domestic Equity ETFs:
Large Cap Core ETF (Ticker: SCHX) – 0.04% Expense Ratio
Large Cap Growth ETF (Ticker: SCHG) – 0.07% Expense Ratio
U.S. Large Cap Value ETF (Ticker: SCHV) – 0.07% Expense Ratio
U.S. Dividend Equity ETF (Ticker: SCHD) – 0.07% Expense Ratio
U.S. Mid Cap ETF (Ticker: SCHM) – 0.07% Expense Ratio
U.S. Small Cap ETF (Ticker: SCHA) – 0.07% Expense Ratio
Other International Equity ETFs:
International Small Cap ETF (Ticker: SCHC) – 0.19% Expense Ratio
Other Fixed Income ETFs:
Short Term U.S. Treasury ETF (Ticker: SCHO) – 0.08% Expense Ratio
Intermediate Term U.S. Treasury ETF (Ticker: SCHR) – 0.10% Expense Ratio
U.S. TIPS (Treasury Inflation Protected Securities) ETF (Ticker: SCHP) – 0.07% Expense Ratio
Conclusion
If I was a brand new investor today, it would be hard not to open up your brokerage account with Charles Schwab. They have shown that they are in it to win it with their ETFs, and offer a great selection of funds for dirt cheap expense ratios. For current investors, I doubt a 0.01% difference in expense ratios (as most of these are to their Vanguard counterparts) is worth the hassle and possible expenses on transferring brokers.
But I think what is important is the direction this industry is going. Investing is becoming cheaper and cheaper (and now nearly free!), a dramatic change from just a couple decades ago where a $100 phone call to your broker was the only way to buy or sell stock.
