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Seeking to Be the Lowest-Cost Provider, Schwab Cuts Fees on All 15 of Its ETFs

AdvisorShares brings to market a "buy-write" ETF, WisdomTree unveils a China dividend fund, and Van Eck moves deeper into self-indexing. Plus, the week's best- and worst- performing ETFs.

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On Friday, Sept. 21,  Charles Schwab (SCHW) announced that it has cut fees on all of its already low-cost exchange-traded funds and that the firm is committed to being the ETF world's lowest-cost provider.

Since entering the ETF world in 2009, Schwab has focused on broad equity and bond ETFs, rolling out funds devoted to various corners of the market, such as United States broad markets, U.S. large-cap growth, emerging markets, and U.S. aggregate bonds. Thus far, the firm, which issues 15 ETFs and is the U.S. market's 11th-largest provider at $7.6 billion in ETF assets, has shied away from rolling out more niche or exotic ETFs with a more narrow appeal.

And Schwab has taken pride in its low costs. Even before Friday's price cuts, the firm already had the ETF world's lowest asset-weighted fees.

Now, Schwab's announcement suggests the firm is planning to match its competitors, such as Vanguard, blow for blow in an effort to remain the lowest-cost ETF provider. And Schwab clearly has the audience to take note of Friday's news, given that the firm is the U.S.' largest retail brokerage platform, with more than 20% of retail ETF assets kept in Schwab's custody.

Schwab now can boast that at 0.04%, two of its U.S. equity ETFs have the lowest expense ratios of any ETFs that trade, slightly besting the 0.05% charged by  Vanguard S&P 500 ETF (VOO) and  Vanguard Total Stock Market ETF (VTI).

The following fee cuts took effect on Thursday, Sept. 20:

 Schwab U.S. Broad Market ETF (SCHB) to 0.04% from 0.06%
 Schwab U.S. Large-Cap ETF (SCHX) to 0.04% from 0.08%
 Schwab U.S. Large-Cap Growth ETF (SCHG) to 0.07% from 0.13%
 Schwab U.S. Large-Cap Value ETF (SCHV) to 0.07% from 0.13%
 Schwab U.S. Mid-Cap ETF (SCHM) to 0.07% from 0.13%
 Schwab U.S. Small-Cap ETF (SCHA) to 0.10% from 0.13%
 Schwab U.S. REIT ETF (SCHH) to 0.07% from 0.13%
 Schwab International Equity ETF (SCHF) to 0.09% from 0.13%
 Schwab International Small-Cap Equity ETF (SCHC) to 0.20% from 0.35%
 Schwab Emerging Markets Equity ETF (SCHE) to 0.15% from 0.25%
 Schwab U.S. Aggregate Bond ETF (SCHZ) to 0.05% from 0.10%
Schwab U.S. TIPS ETF (SCHP) to 0.07% from 0.14%
Schwab Short-Term U.S. Treasury ETF (SCHO) to 0.08% from 0.12%
Schwab Intermediate-Term U.S. Treasury ETF (SCHR) to 0.10% from 0.12%

AdvisorShares Rolls Out 'Buy-Write' ETF
On Tuesday, Sept. 18, AdvisorShares launched another actively managed ETF that targets generating consistent "repeatable" returns across all market cycles by using call options on the fund's portfolio.

AdvisorShares STAR Global Buy-Write ETF (VEGA) uses what is known as a "proprietary overwrite" strategy known as Volatility Enhanced Global Appreciation (hence, its ticker symbol). Under this strategy, the fund would invest in other exchange-traded products with call options on portfolio investments that would allow for both cumulative price appreciation from the portfolio's global exposure while generating additional returns from selling covered-call and/or cash-secured put options. The complicated strategy involves effectively taking long positions in the ETFs that the proposed fund would hold and then enjoying additional income from the option premium.

Up to now, the closest ETF competitor available to U.S. investors had been the U.S.-only PowerShares S&P 500 BuyWrite Portfolio (PBP), a fund that uses a buy/write approach toward the S&P 500 only. However, unlike AdvisorShares' proposed ETF, PBP tracks an index and therefore is not actively managed.

The new ETF does not come cheap, with a 2.01% price tag.

Wisdom Tree Debuts China Dividend ETF
On Wednesday, Sept. 19, WisdomTree rolled out a China dividend ETF that excludes financial-services firms.

WisdomTree China Dividend ex-Financials Fund (CHXF) offers investors broad exposure to Chinese dividend-paying companies outside of the financial sector. Why exclude the financial sector? WisdomTree has noted that some of the most popular China index-based strategies do not offer especially diversified exposure, with anywhere from 35% to 55% of some other China ETFs' assets devoted to the financial sector.

Now, WisdomTree believes that CHXF, which passively tracks a WisdomTree-managed index of companies and uses a sampling strategy, will allow investors to benefit from dividend growth in Chinese equities. WisdomTree officials noted that strong historic dividend growth has been the primary driver of returns in Chinese equity markets.

The fund's universe consists of nonfinancial Chinese dividend-paying stocks listed in Hong Kong, with a market cap of $1 billion or more. The ETF's index selects the 10 largest stocks in each sector and weights them by dividend stream to help magnify dividends' impact on the fund's performance. The fund then limits weightings to a 10% cap on any one company and a 25% cap on any sector.

The fund devoted almost a fourth of its assets to energy companies, with other meaningful sector weights in companies from the telecommunication, materials, industrials, and consumer staples sectors.

The ETF effectively is the China version of a similarly constructed U.S. fund that WisdomTree issues: WisdomTree Dividend ex-Financials (DTN).

CHXF charges 0.63%.

Van Eck to Self-Index 2 More ETFs
On Thursday, Sept. 20, Van Eck announced that on Monday, Sept. 24, the firm will jettison the index providers of two of its subsector-level ETFs in favor of Van Eck's own indexes.

The announcement furthers Van Eck's moves into self-indexing, which in theory saves ETF providers money although it can come at the cost of questions about the integrity of indexes that are not run by third-party organizations such as MSCI or S&P Dow Jones Indices. Van Eck's Germany-based indexing unit will run the indexes for the two ETFs.

Market Vectors Coal ETF (KOL), which previously had used a Stowe Global index, and   (BJK), which had employed an S-Network index, will shift to Van Eck-managed indexes. No other aspects of the funds will change.

Northern Trust Files for Emerging-Markets 'Factor Tilt' ETF
On Wednesday, Sept. 19,  Northern Trust (NTRS) filed with U.S. regulators for permission to create a passively managed ETF that will hold emerging-markets companies with a tilt toward small-cap stocks and value stocks.

The proposed FlexShares Morningstar Emerging Markets Factor Tilt Index Fund TLTE would hold a broad basket of companies from emerging-markets regions. The fund's index, which has 1,976 stocks, would weight small-cap and value stocks more than would an index that is solely market-cap-weighted. The proposed ETF would essentially be an emerging-markets version of an existing Northern Trust ETF that is focused on U.S. stocks:  FlexShares Morningstar U.S. Market Factor Tilt Index Fund (TILT).

The proposed fund would have a 0.65% fee.

VelocityShares Files for 3 More ETFs
On Wednesday, Sept. 19, VelocityShares submitted paperwork with the SEC seeking permission to create three more passively managed ETFs, all of which would be focused on companies from emerging-markets regions that trade in the U.S. or London.

Back on Sept. 7, VelocityShares filed with U.S. regulators for permission to create its first two ETFs, a pair of exotic funds that would provide protection against "tail risk" events and volatility. Now VelocityShares, which is known most for its exchange-traded notes, is preparing to extend its presence further into the ETF world.

The proposed VelocityShares Emerging Markets Depositary Receipt ETF would track an index of all U.S.-listed ADRs and LSE-traded GDRs for companies whose primary listing is in the stock markets of any developing economy, no matter how well-developed that economy's stock market may be. The proposed VelocityShares Russia Select Depositary Receipt ETF would track an index of ADRs and GDRs trading in the U.S. and London, respectively, for Russian companies. Finally, the proposed VelocityShares Emerging Asia Depositary Receipt ETF would track an index of such securities for firms in emerging-markets areas of Asia.

VelocityShares did not provide ticker symbols or expense ratios for the proposed ETFs.

ETF Performance Last Week

Best Performing

With U.S. equity markets generally lackluster last week, investors flocked to Treasuries, boosting Treasury ETFs. India stocks also did very well, continuing their rise after the Indian government unveiled a host of reforms after the previous Friday's market close that were aimed at jump-starting that nation's economy, including opening up certain sectors to foreign direct investment.

 

Worst Performing

With crude prices down this week, oil ETFs and ETNs dominated the list of the week's worst performers. IPath's coffee ETN, iPath DJ-UBS Coffee Total Return Subindex ETN (JO), continued to suffer as coffee prices have continued to remain low owing to heavy supply. Finally, agricultural exchange-traded products also struggled, as soybean prices hit their lowest price in a month amid higher-than-anticipated yields and concerns about demand from China. Driving much of the weakness across commodities was general investor concern about economic growth in the U.S. and Europe.


 

 


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Disclosure: Morningstar, Inc. licenses its indexes to institutions for the creation of ETFs and ETNs. Morningstar receives fees that are mainly based on fund assets under management. AlphaPro Management, BlackRock Asset Management, First Asset, First Trust, Invesco, Merrill Lynch, Northern Trust, Scottrade, and Van Eck currently license Morningstar Indexes. These ETFs and ETNs are not sponsored, issued, marketed, or sold by Morningstar. Morningstar does not make any representation regarding the advisability of investing in ETFs or ETNs that are based on the Morningstar Indexes.

Robert Goldsborough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.