Charles Schwab Gets an ETF Trump Bump
The stock market is not the only investment vehicle that has received a boost in the year since Donald Trump won the U.S. presidential election. Exchange-traded funds (ETFs) are also seeing a benefit, which bodes well for The Charles Schwab Corporation (SCHW), which has been pushing further into that area of investing.
According to data compiled by Bloomberg, ETFs are on track to have a record year in 2017 in terms of inflows. As of October, investors have poured $375 billion into ETFs, favoring low-cost funds. In the week after Trump's surprise election victory, there were close to $3.2 billion of ETF inflows, Bloomberg found. "Half a trillion dollars has flowed into ETFs since the U.S. presidential election a year ago, almost double the annual record," Eric Balchunas, a Bloomberg Intelligence ETF analyst, said in the report.
For Charles Schwab, that is good news, since the San Francisco-based discount brokerage has seen strong demand for ETFs all year and has expanded its offering of low-cost ETFs. According to ETFTrends.com, at the end of September, Charles Schwab had ETF assets of $380 billion, up from $292 billion in the same period a year ago, which marks a 30% year-over-year increase.
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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%.
With investors increasingly moving to investments that do not have hefty fees associated with them and are passive in nature, a price war of sorts is breaking out in the ETF marketplace. Charles Schwab, which is not a leader in the world of ETFs, launched the first salvo in October when it announced 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 has an operating expense ratio of 5 basis points, or 0.05%, and is being made available through the company's commission-free ETF program. Schwab said at the time that the expense ratio is one-half to one-third cheaper than other ETFs that track the largest 1,000 U.S. stocks. State Street quickly fired back, announcing that it was slashing the fees on all of its 15 ETFs, with costs dropping to as low as 3 basis points. The investment firm said that its move came in response to customers who want more choice when it comes to low-cost ETF investing.