Charles Schwab Undercuts Rivals With New ETF

Charles Schwab Corp. (SCHW), the online discount broker, announced a new exchange traded fund that takes aim at BlackRock, Vanguard and State Street, thanks to a lower expense ratio.

In a press release this week, the San Francisco-based company announced the Schwab 1000 Index ETF, 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%, will begin trading on Oct. 11 and will be 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. (Compare brokers with Investopedia's broker reviews.)

Lowest Expense Ratio

Charles Schwab said in the announcement 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, the Vanguard Russell 1000 ETF and State Street's SPDR Russell 1000. The new ETF’s expense ratio is half of the SPDR Russell 1000 ETF, which Barron’s said is the lowest price of the three.

“Index investing is a fantastic way to build the core holdings of an investment portfolio. Companies are made to grow, and we launched the Schwab 1000 Index and mutual fund in 1991 to help investors participate in the innovation and long-term growth of the largest 1,000 stocks in the U.S. in a simple and cost-effective way,” said Schwab founder and chairman Charles Schwab in the press release announcing the new ETF. “I’m thrilled that investors can now benefit from the potential growth of these firms with the ease and efficiency of a low-cost ETF.”

This isn't the first time Schwab has launched an ETF that beats rivals on the pricing front. Because of its low-cost strategy it has been able to make a name for itself in the ETF world in a short period of time. The move to roll out a new ETF comes as investors are increasingly seeking low-cost ways to make money off the stock market, balking at paying exorbitant fees for actively managed accounts. According to ETF.com, in June alone $45.5 billion of new money was invested in ETFs. For the first half of the year, inflows stood at $249.4 billion, nearing the $287.5 billion of inflows for all of 2016. Total assets under management for ETFs listed in the U.S. stood at a little less than $3 trillion as of the end of June.