Brokerage firm's inaugural list of exchange-traded funds targets retail investors; 48 funds in all, 11 from Schwab.
Charles Schwab Investment Advisory Corp. has launched a select list of exchange-traded funds for retail investors.
Schwab is considering eventually offering similar lists for active traders or more-sophisticated investors, said Michael Iachini, director of investment management research at the advisory unit of the discount brokerage firm.
“We have talked about doing a list more geared for tactical traders or for advisers,” he said. “This is our first list.”
Schwab has spent the past few years building its ETF platform, which has $118 billion in assets — $3 billion of which are in the firm's proprietary funds — and had heard from customers that they could use help choosing which ETF is right for them, said Elizabeth Flynn, vice president of ETF platform management at Charles Schwab & Co. Inc.
The list is made up of 48 ETFs, 11 of which are Schwab's proprietary funds. To be eligible for the list, an ETF had to have at least $20 million in assets.
Schwab evaluated the ETFs based on a number of criteria such as tracking error, cost of ownership and bid/ask volatility, Mr. Iachini said.
The list covers investors' most popular, broad-based categories: U.S. equity, international equity, bond, sector and specialty. No more than one-third of the list can be from one provider.
Schwab defended the decision to include 11 of its own ETFs in the list by noting that Schwab Investment Advisory Corp. chose the funds.
“We have a fiduciary duty to the client,” Mr. Iachini said.
And because Schwab's ETFs are commission-free, they are substantially less expensive than other ETFs on Schwab's platform, he said.
“If a retail client invests $5,000 in an ETF and holds it for a year, that works out to 0.36% in commissions” Mr. Iachini said. “That's a lot of money for a client.”
Scott Burns, director of research at Morningstar Inc., said it makes sense that so many of Schwab's ETFs made the list, given their low cost.
“They are low-cost already, and the fact that you can trade them for free is significant,” he said.
