Exchange-traded funds (ETFs) have been all the rage this year as low-cost, passive investing stays in vogue. That interest on the part of investors has been benefiting Charles Schwab, which is enjoying double-digit growth in ETF sales through November.
Morningstar, which tracks inflows and outflows into mutual funds and ETFs, said that the San Francisco-based discount brokerage has $24.3 billion in new net ETF assets through November of 2017. That marks roughly 30% year-over-year growth. While The Charles Schwab Corporation (SCHW) still pales in comparison to BlackRock, Inc. (BLK) and Vanguard when it comes to ETFs, Schwab has surpassed State Street as it makes inroads in the market. Morningstar said that BlackRock had $198.4 billion in new ETF assets through November, while Vanguard had $127.7 billion and State Street had $15.5 billion in net new sales, according to Investment News.
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For some time now, ETFs have been exploding in popularity as all sorts of investors bristle at paying hefty fees to have actively managed investment vehicles. Currently, there are more than 1,700 ETFs for investors to choose from – and that's in the U.S. alone. While Schwab has not been the leading player in ETFs, it is trying to build that side of the business, announcing earlier this fall the Schwab 1000 Index ETF (SCHK), which provides investors with a low-cost way to get exposure to the 1,000 largest stocks in the U.S.
The new ETF, which has an operating expense ratio of 5 basis points, or 0.05%, was made available through the company’s commission-free ETF program in which it offers investors access to more than 200 ETFs that don't have commissions attached to them. Schwab said at the time that the expense ratio is one-half to one-third cheaper than other ETFs that track the biggest 1,000 U.S. stocks. According to Barron's, the expense ratio is lower than BlackRock's Russell 1000 ETF (IWB), the Vanguard Russell 1000 ETF (VONE) and State Street's SPDR Russell 1000 ETF (ONEK). The expense ratio on Schwab's new ETF is half that of the SPDR Russell 1000 ETF, which Barron's said has the lowest price of the three competitors.
Heather Fischer, vice president of the ETF and mutual fund platforms at Charles Schwab, recently told a crowd at a Morningstar ETF conference that the company continues to see ETF demand grow. When the brokerage started asking investors five or six years ago about their feelings on ETFs, 16% said that their portfolios were in ETFs. That has increased to 27%, and investors are predicting that this number will grow to 33%. Schwab also announced late last week that it will not have capital gains on any of its 22 Schwab ETFs, marking the eighth year in a row that investors do not have to worry about managing a capital gains tax hit.