Charles Schwab Exec Explains 3 New Low-Cost Index Funds
Exchange-traded funds (ETFs) are all the rage, but there are still countless investors that want access to index mutual funds, which is why Charles Schwab announced last week the impending launch of three new index funds.
Aiming to round out its suite of low-cost index mutual funds, The Charles Schwab Corporation (SCHW) announced that it will roll out three new index funds later in December. The Schwab U.S. Large-Cap Growth Index Fund (SWLGX) tracks the Russell 1000 Growth Index and has an expense ratio of 0.04%; the Schwab U.S. Large-Cap Value Index Fund (SWLVX) tracks the Russell 1000 Value Index and has the same low expense ratio of 0.04%; and the Schwab U.S. Mid-Cap Index Fund (SWMCX) tracks the Russell Midcap Index and has an expense ratio of 0.05%.
All three of the funds have no minimum investment and a single class share, which Jonathan de St. Paer, head of strategy and product at the San Francisco-based discount brokerage, said should be attractive for all sorts of investors.
"We firmly believe indexing makes a lot of sense for a whole lot of folks," said the executive in an interview with Investopedia. "We're rounding out the index fund lineup to make sure investors can get access to these strategies either through an ETF or a [mutual] fund depending on their preference." Schwab already sponsors ETFs that follow similar investment strategies. The move to launch three new index funds when ETFs are exploding in popularity may seem counterintuitive. After all, Schwab itself is seeing a surge in ETF investing in recent months. Speaking during a recent ETF conference, Heather Fischer, vice president of the ETF and mutual fund platforms at Schwab, said that, 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%. What's more, investors are predicting that this number will grow to 33%.
Still, despite the growing popularity of ETFs, particularly among the cost-conscious younger generations of investors, de St. Paer stressed that the market may be forgetting that the index mutual fund market is also "extremely large" and growing "very rapidly." And this growth is not coming exclusively from the scores of 401(k)s that invest in index mutual funds. According to the Schwab head of strategy, portfolio managers and financial advisors still rely on index mutual funds to grow their clients' nest eggs.
"If you look at the industry broadly, you see roughly as many assets in index mutual funds as there are in ETFs. Mutual funds are seeing strong growth, not quite as much as ETFs, but very strong in their own right. We want to make sure we have both vehicles for clients," said de St. Paer, noting that the three new index funds, which will be available around Dec. 20, will stand out from the pack because of their low fees, single class structure and no minimum investment. "We have a very robust set of foundational index mutual funds, and we are rounding out the equity offering to provide what we think is the largest, most commonly held strategies on equity indexing," he said.