Schwab ETFs Debut With Competitive Pricing
By Journal of Indexes Staff

That soniclike boom you heard at the beginning of November? That was the sound made by Charles Schwab’s entry into the ETF market. It was probably the most anticipated debut of 2009, right from the moment that Schwab’s first filings with the Securities and Exchange Commission were announced. Moreover, the fact that a heavy hitter like Schwab had deemed the ETF arena worthy of its efforts was, for many, a sign that the burgeoning industry had hit its stride.

Although it has more in registration, Schwab launched just four funds: the Schwab U.S. Broad Market ETF (NYSE Arca: SCHB), Schwab U.S. Large-Cap ETF (NYSE Arca: SCHX), Schwab U.S. Small-Cap ETF (NYSE Arca: SCHA) and Schwab International Equity ETF (NYSE Arca: SCHF). The domestic funds track indexes from Dow Jones, while SCHF is tied to the FTSE Developed ex-US Index.

In the days leading up to the launch, it became clear that the financial services giant was playing for keeps when Schwab unveiled the pricing on the pending ETFs. SCHB and SCHX charge 8 basis points, while SCHA and SCHF charge 15 basis points. Those fees match or beat the costs on all the competing ETFs, even the ones from Vanguard.

But Schwab dropped what might have been an even bigger bombshell when it announced the day before the initial rollout that investors with Schwab accounts would not face any commission fees when they traded the Schwab ETFs. The moves are not only calculated to draw assets from established ETFs but also to draw new investors to the products who might not otherwise consider ETFs. Dollar-cost averaging, for example, would be more cost-effective with the Schwab funds for account holders.