A Cost-Efficient ETF for Broad Market Exposure | ETF Trends

Some of the least expensive ETFs investors can find are broad market or total market funds focusing on domestic equities. The Schwab U.S. Broad Market ETF (NYSEArca: SCHB) is one such option.

Home to more than 2,400 stocks, the $14.4 billion Schwab U.S. Broad Market ETF is one of a handful of US-listed ETFs with an annual fee of just 0.03%, or $3 on a $10,000 investment. That makes SCHB one of the least expensive US-listed ETFs. SCHB tracks an index similar to total-market benchmarks, like the Russell 3000, but the it includes less exposure to the smallest stocks. SCHB, which turns 10 years old later this year, tracks the Dow Jones U.S. Broad Stock Market Index and is a cap-weighted fund.

“There are a few benefits of weighting by market cap. This approach incorporates the cumulative knowledge aggregated in stock prices to size its positions,” said Morningstar in a recent note. “It keeps costs low because it doesn’t require fundamental research analysts or skilled stock-pickers, who can be expensive to hire. While the market doesn’t always get things right, it has done a good job valuing stocks over the long haul.”

More SCHB ETF Details

Over the past three years, SCHB is up 48%, putting the Schwab ETF inline with the S&P 500 and rival total market ETFs. SCHB’s top three sector weights are technology, healthcare and financial services, giving the fund a similar sector composition to the S&P 500.

“Compared with funds that track specific market size segments, this fund benefits more from weighting by market cap because it doesn’t have to sell or buy names as they cross arbitrary size segments,” according to Morningstar. “The fund’s average turnover over the past decade measured a small fraction of the average turnover of its large-blend Morningstar Category peers. Tax efficiency adds to the fund’s appeal. It has not distributed any capital gains since its inception in 2009.”

Since coming to market, SCHB has been one of the better-performing ETFs in its respective category.

“From its inception in November 2009 through March 2019, the fund has outpaced the category average return by 2.0% annually with similar risk. Much of its relative outperformance can be attributed to its low-cost advantage,” according to Morningstar.

The research firm has a Gold rating on SCHB.

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