Schwab lists first ETFs
Broker enters fast-growing business; clients trade online commission-free
By John Spence, MarketWatch Nov. 3, 2009, 2:56 p.m. EST

BOSTON (MarketWatch) -- Charles Schwab Corp. on Tuesday launched its first exchange-traded funds, a move that could alter the landscape of the fastest-growing segment of the asset-management business.
The financial-services giant, which boasts nearly 8 million brokerage accounts, listed four ETFs on the NYSE Arca exchange. The ETFs, which are baskets of securities that trade like individual stocks, feature low fees and represent a clear challenge to industry heavyweights State Street Corp (STT 42.21). Vanguard Group and Barclays Global Investors, which is being acquired by BlackRock Inc (BLK 221.01).

Schwab(SCHW 17.24) is trying to jumpstart its ETF business by offering commission-free online trades for its clients. Peter Crawford, senior vice president at Schwab, in a telephone interview Tuesday said the ETFs' low expense ratios and free trading offer "an incredible price" for investors. Schwab, which has about $1.3 trillion in client assets, will benefit from its strength as a mainline distributor of financial products, he said.

The inaugural Schwab ETFs that listed Tuesday are Schwab U.S. Broad Market ETF(SCHB 24.57), Schwab U.S. Large-Cap ETF(SCHX 24.53), Schwab U.S. Small-Cap ETF (SCHA 24.59) and Schwab International Equity ETF (SCHF 24.63). The first two have expense ratios of 0.08%, while the others charge 0.15%.
They undercut similar ETFs on price, and any pressure on competitors to cut fees is a welcome development for investors, experts say. For example, the largest ETF, State Street's SPDR S&P 500 ETF(SPY 104.65), has an expense ratio of 0.09%, as does the iShares S&P 500 Index Fund (IVV 104.97). The Vanguard Large-Cap ETF levies fees of 0.13%.

'Big increase in popularity'
ETFs burst onto the investment scene in the early 1990s and have grown quickly. As of Oct. 26, there were 789 ETFs listed in the U.S. with total industry assets of $718.8 billion, according to research from Morgan Stanley.

ETF assets have increased by about 33% so far this year and inflows have remained positive despite jittery investors yanking cash from traditional mutual funds. Traders are drawn to ETFs because the vehicles let them trade entire sectors in real time. Meanwhile, buy-and-hold investors like their low fees, transparency, tax efficiency and indexed approach. ETFs have branched out into new areas of the market in recent years such as currencies, commodities and bonds. "ETFs have seen a big increase in popularity," said Schwab's Crawford. "They've migrated from being used mainly by registered investment advisors and institutions, to retail investors. We saw an opportunity to come into this business." The ETFs will be overseen by Charles Schwab Investment Management, which is responsible for more than $200 billion in assets under management. "It's worth noting that, while new to ETFs, Schwab is a veteran indexer with a stable of passively managed index mutual funds," said John Gabriel, ETF analyst at investment researcher Morningstar.

'Keep the big boys honest'
Crawford, the Schwab executive, said the firm's ETF push will be helped by its client relationships, particularly its network of about 6,000 independent advisers. Even before it launched its own ETFs, Schwab was a major trading platform for the products and the company estimates between 20% and 25% of retail ETF assets are held by Schwab clients.
The company plans to roll out four more broad-based stock ETFs next month, tracking U.S. large-cap growth, U.S. large-cap value, international small-caps and emerging markets. The tracking indexes are maintained by Dow Jones and FTSE.

Crawford declined to comment on specific plans for additional Schwab ETFs, citing regulatory restrictions. However, he said the company will focus on "the major categories, which account for the bulk of assets," rather than niche products.

"There's nothing fancy about the new Schwab ETFs," said Gabriel, the analyst. There are already a "plethora" of similar funds on the market, so Schwab will compete head-to-head with industry leaders BGI, State Street and Vanguard.

"With little differentiation among ETFs offering similar exposures, Schwab's strong brand name and its product pricing will be critical to the firm's success in the budding ETF industry," Gabriel wrote in a recent Morningstar commentary.

"Investors should welcome Schwab's entrance into the ETF universe," he added. "While there's nothing earth-shattering about the exposures offered by the new Schwab ETFs, the relatively low expenses that Schwab plans to charge should at least keep the big boys in the industry honest."

The ETF business remains highly concentrated at the top. For example, BGI had ETF assets of $355 billion as of Oct. 26, for a market share of nearly 50%, according to Morgan Stanley. State Street's share is about 19%, followed by Vanguard with roughly 11%. However, new ETF entrants like Schwab and bond giant Pimco are trying to challenge that hegemony.

The other 25 ETF providers each had a 5.3% market share or less, and combined had about $147 billion in total assets, according to Morgan Stanley.

John Spence is a reporter for MarketWatch in Boston.

Adopted from http://www.marketwatch.com/

comments:

1) NAM6869: Just like Chuck's commecials there is nothing real here, including the company name. Charles Schwab sold this brokerage firm years ago. Remember nothing is free, that's just another way of trickery.

2) INDYPAT: Interesting that Schwab want to compete in the market place and not lose more $ to other firms to manage. Interesting twist with the no commission trading. If I trade short term I like the ETF with double or triple juice, short or long. Nice play to keep assets in house and provide customes with a value product.
3) ExMarketTrader: Just a quicker and easier way to lose money. They are hoping if it is easier for people to get in and out of stocks with "less" risk then the traders will come back. Inverse ETFs may be the only way to go but no one knows how long the government and banksters can keep this market going up.