Could the entry of financial services giant Charles Schwab (SCHW) and bond king Pimco, take exchange traded funds (ETFs) to the next level?
In its first step to enter the ETF market, Schwab filed to list a fund that would track the Dow Jones U.S. Total Stock Market, and Pimco has registered an ETF that would follow an index of U.S. Treasury securities.
Currently, ETFs make up a miniscule part of most investor’s portfolios and there is plenty of cake out there for these firms to gobble up. In fact, ETFs make up a mere $500 billion of the $10 trillion fund industry’s assets. Along with the attractiveness of ETFs, John Spence for Market Watch states that Schwab and Pimco could give the investment tool the boost it needs to become a tool for investors of every stripe in the following ways:
- Their presence could boost efforts to include ETFs in 401(k)s
- They could wake up some of the sleeping giants, with a better than average probability that both companies will introduce their own ETFs
- They are respected and well-known brand names and already are behemoths in the financial services industry. Schwab boasts total client assets of more than $1 trillion in about 7.4 million brokerage accounts and is a custodian of nearly $600 billion in assets. As for Pimco, they are the cream of the crop when it comes to the bond market and has about $750 billion of assets under management
- Schwab already collects brokerage commissions when customers buy ETFs; by having their own ETFs, this would keep more business in house
These two firms aren’t the first to dip into the ETF world. TD Ameritrade (AMTD) partnered with XShares Advisors to launch target-date retirement ETFs, called TDX Independence Funds. Additionally, Fidelity offers the Fidelity Nasdaq Composite Index Tracking Stock (ONEQ), which hasn’t gotten much attention and is a lone ranger at the firm, who has no intentions to further develop its ETF business.
As more big names enter the ETF industry, there will be room to roll out the welcome mat. With influential names behind this growing investment sector, ETFs could well become a staple in every investor’s portfolio.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.