For decades, Charles Schwab (NYSE:SCHW) was known as one of the largest discount brokers and major sponsor of mutual funds and cheap, passive index funds. These days, Schwab is also a major play in the world of ETFs.
As of July 3, Schwab is the fifth-largest U.S. ETF sponsor with $145 billion in assets under management, an absolutely staggering total when considering there are just 22 Schwab ETFs. Twenty-two is a paltry amount of ETFs relative to Schwab’s larger rivals, some of which offer hundreds of ETFs. So being fifth-largest by assets definitely says something about the demand for Schwab’s ETFs.
While the number of Schwab ETFs is small, it is easy to understand why the company is one of the industry’s more impressive growth stories: many Schwab ETFs are inexpensive. In fact, when it comes to inexpensive funds, Schwab ETFs are, in many cases, credible competitors to rival Vanguard offerings. Plus, Schwab offers one of the more expansive commission-free platforms in the ETF business, many advisors and investors can trade Schwab ETFs and a slew of other issuers’ funds without paying commissions.
It remains to be seen whether the number of Schwab ETFs will grow, but here are some of the issuers best ETFs to consider.
Schwab US Small Cap ETF (SCHA)
Expense ratio: 0.04% per year, or $4 on a $10,000 investment.
For investors of any skill level seeking small-cap exposure the Schwab US Small-Cap ETF (NYSEARCA:SCHA) is one of the better Schwab ETFs to buy. SCHA checks a lot of boxes investors should look for with small-cap funds, including favorable fees and a broad roster.
This Schwab ETF is one of the cheapest small-cap funds on the market and holds nearly 1,750 stocks. SCHA, which debuted nearly 10 years ago tracks the Dow Jones U.S. Small-Cap Total Stock Market Index and has $8.3 billion in assets under management. The black mark against this Schwab ETF is that over the past three years, it has lagged rival funds tracking the Rusell 2000 and S&P SmallCap 600 indexes.
SCHA, which has a four-star Morningstar rating, allocates over 37% of its combined weight to the technology and financial services sectors. Industrial and healthcare stocks combine for 31% of its weight.
Schwab Fundamental International Large Company Index ETF (FNDF)
Expense ratio: 0.25%
Most Schawb ETFs are basic cap-weighted funds, but the firm features some smart beta offerings, including the Schwab Fundamental International Large Company Index ETF (NYSEARCA:FNDF). Broadly speaking, investors should expect higher fees on alternatively-weighted funds, but FNDF’s annual fee of 0.25% is well below the category average of 0.42%.
FNDF tracks the Russell RAFI Developed ex U.S. Large Company Index. Metrics used in constructing that benchmark include adjusted sales, operating cash flow, and dividends plus buybacks. All of the fund’s holdings are large-, mega- and mid-cap stocks.
“When the fund rebalances, it increases its exposure to stocks that have become cheaper relative to these metrics and cuts back on its exposure to those that have become more expensive,” said Morningstar.
At the geographic level, this Schwab ETF allocates two-thirds of its weight to Eurozone stocks, Japan and the U.K., making for a credible alternative to cap-weighted EAFE funds.
Schwab US Broad Market ETF (SCHB)
Expense ratio: 0.03%
The Schwab US Broad Market ETF (NYSEARCA:SCHB) is a prime example of an easy-to-understand, cost-effective broad market domestic equity strategy. This Schwab ETF is also one of the cheapest ETFs of any stripe in the U.S.
SCHB holds over 2,400 stocks, or more than quadruple the number of components in the S&P 500. However, over longer holdings periods, this Schwab ETF has performed mostly inline with the benchmark U.S. equity gauge as well as comparably priced total market index funds.
SCHB also carries a four-star Morningstar rating. While this Schwab ETF is not the most exciting fund out there, it is appropriate for a wide range investors and is effective at delivering traditional, cap-weighted equity exposure.
Schwab U.S. Dividend Equity ETF (SCHD)
Expense ratio: 0.06%
Home to $9.5 billion in assets under management, the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) is one of the largest U.S. dividend ETFs and, more importantly, one of the least expensive. In addition to its low fee, SCHD has drawn a loyal following among advisors and investors due in part to its index methodology, which includes only featuring stocks with a minimum dividend increase streak of 10 years.
This Schwab ETF is not the perfect dividend fund, but SCHD’s focus on dividend growers indicates it is home to a group of quality stocks and at this stage of the bull market and business cycle, that is a valuable trait. Plus, SCHD has a weight of 19.5% to the technology sector, one of the largest weights to that sector among any domestic dividend ETF.
Consumer staples and industrial stocks combine for about 41% of the fund’s weight. While SCHD requires components to have raised dividends for at least 10 straight years, many of the fund’s holdings, including some top 10 components, have increase streaks that can be measured in decades not just one decade.
Schwab U.S. Large-Cap Value ETF (SCHV)
Expense ratio: 0.04%
The Schwab U.S. Large-Cap Value ETF (NYSEARCA:SCHV), as is the case with so many other value funds, has taken its lumps in recent years because growth has trounced value for the better part of a decade. However, there are some advantages with this Schwab ETF, including its status as one of the least expensive options in the value space.
Home to 350 stocks, SCHV is a traditional play on value stocks leading to a large weight (22%) to financial services names, a sector that often dominates prosaic value funds. Healthcare and technology names combine for 28.2% of SCHV’s weight.
This $6 billion Schwab ETF has topped the S&P 500 Value Index over the past three years while being slightly less volatile. Eight of SCHV’s top 10 holdings are members of the Dow Jones Industrial Average. For long-term investors looking to bet on a value resurgence, this Schwab ETF offers lots of potential.
Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE)
Expense ratio: 0.39%
As its name implies, the Schwab Fundamental Emerging Markets Large Company Index ETF (NYSEARCA:FNDE) is another one of the Schwab ETFs that uses an alternative index methodology. Basically, FNDE is the emerging markets equivalent of the aforementioned FNDF.
“FNDE tracks the Russell Fundamental Emerging Markets large Company Index, which selects, ranks and weights components based on fundamental factors like adjusted sales, retained operating cash flow and dividends plus buybacks,” according to ETF Trends.
While emerging Asian economies account for nearly 39% of FNDE’s weight, the Schwab ETF is significantly underweight China relative to the MSCI Emerging Markets Index, explaining why FNDE is beating that widely followed benchmark this year. Plus, over the past three years, the Schwab ETF is topping the MSCI index by over 1,300 basis points with comparable volatility.
Schwab U.S. Large Cap Growth ETF (SCHG)
Expense ratio: 0.04%
The Schwab U.S. Large Cap Growth ETF (NYSEARCA:SCHG) tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market Index and makes for an ideal fund for investors that want to eschew the likes of SCHV and bet on growth continuing its dominance over value. Like its value counterpart, this Schwab ETF is one of the cheapest ETFs devoted to its underlying factor.
Past performance is not a guarantee of future returns, but it is worth nothing this Schwab ETF has outpaced the comparable Vanguard growth fund by 530 basis points over the past three years while sporting slightly lower annualized volatility.
Due to its approach to growth being traditional, this Schwab ETF makes some large sector bets, including a 31.6% weight to technology stocks. SCHG’s combined 47% weight to the technology and consumer cyclical sectors is mostly inline with what investors will find on traditional growth strategies.
As primarily a large- and mega-cap fund, SCHG would be vulnerable to significant retrenchment in the FAANG stocks, but that is true of other growth ETFs, too.
Todd Shriber does not own any of the aforementioned securities.
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