The Schwab U.S. Small-Cap ETF (SCHA) is now the cheapest U.S. small-cap fund in the market after Schwab lowered the expense ratio on the ETF by 20 percent—the second ratio cut for this fund in less than six months.
Costing now 0.08 percent—or $8 for each $10,000 invested—compared with 0.10 percent previously, SCHA is now cheaper than the behemoth in the space, the $5.04 billion Vanguard Small-Cap ETF (VB), which costs 0.10 percent. Last September, Schwab lowered SCHA’s expense ratio from 0.13 percent to 0.10 percent in a round of fee cuts that included 15 ETFs .
The three-year-old Schwab fund, tracking the Dow Jones U.S. Small-Cap Total Stock Market Index—which comprises some 1,750 securities—has gathered some $240 million in the past year, and now is nearing the $1 billion-in-assets mark. The asset growth has come hand-in-hand with market gains:SCHA is up 11 percent year-to-date, and in the past one year, has rallied more than 16 percent.
It seems the drop in expense ratio is not directly linked to asset growth, but reflects Schwab's known commitment to lower ETF fees, having often stressed that it intends to compete on price.
"We've always believed that if we can deliver a product that is more cost-effective for our clients, we should," a Schwab spokesperson told IndexUniverse.
Spotlight On Vanguard
The Schwab move puts focus on Vanguard, whose reputation rests on its low-cost funds. It’s widely believed Schwab is pricing its ETFs as loss leaders, while Vanguard markets its funds at costs, cutting expense ratios only as assets grow.
SCHA’s gains are nearly identical to Vanguard’s VB’s performance in the same period, but VB tracks the CRSP U.S. Small Cap Index, which has a portfolio comprising more than 1,900 stocks.
For VB, financials are its largest sector allocation at 23.3 percent of the portfolio, followed by industrials. SCHA has roughly a quarter of its portfolio tied to financials, with industrials coming second.
But both funds differ in their top-holding lineup, with SCHA listing the likes of Apartment Investment and Management Co., Carlisle Companies, Cheniere Energy and Duke Realty among its top constituents; while VB has Tesoro Corp., BioMarin Pharmaceutical, Polaris Industries and Toll Brothers as it biggest holdings.
Schwab launched its first ETFs in November 2009, and now ranks as the 10 th -largest ETF provider in the country, with $10.5 billion in assets.
Vanguard is the No. 3 ETF company by assets, with $276.33 billion under management, according to data compiled by IndexUniverse.
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