The so-called fee war in the exchange traded fund space has helped slash annual investment costs on a number of fund products, and it looks like it is paying off for both providers and investors.
Last September, Charles Schwab reduced its fees on a number of funds, including the Schwab U.S. Broad Market ETF (NYSEArca: SCHB), to 0.04%, the lowest on the market, from the original 0.06% expense ratio, writes Eric Balchunas for Bloomberg. [Charles Schwab Grabs for ETF Market Share]
Since then, the SCHB ETF has doubled in size to $2 billion in assets under management. Additionally, the Schwab U.S. Large-Cap ETF (NYSEArca: SCHX), which also comes with a 0.04% expense ratio, added $400 million in assets, a 40% gain.
Originally, Vanguard began the low-cost investment theme with its patented line of index mutual funds and ETFs. However, Schwab has tried to undercut the competition as a loss leader to attract investors onto its own brokerage platform.
Disregarding the low fee aspect for a moment, SCHB as an investment provides a diversified exposure to 1,956 U.S. stocks, covering all major sectors, with a tilt toward large-cap stocks.
Nevertheless, the Vanguard Stock Market ETF (NYSEArca: VTI), with $31 billion in assets, has overshadowed SCHB. VTI has a 0.06% expense ratio, exposure to 3,183 stock components and attracted $4.5 billion since last September, a 17% increase.
On top of the lower explicit cost associated with the annual expense fees, investors have also benefited from the increased liquidity due to SCHB’s larger size, which translated to tighter bid/ask spreads, as well as the commission free trades on the Schwab platform. [The Total Cost of Owning an ETF]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.