Schwab ETFs Just Got Better
September 26, 2012
Twelve of the funds have spreads less than 8 basis points—reasonably tight, in other words. Do some competing funds have tighter spreads? Definitely yes. The point is that most of the Schwab funds have significant interest that keeps spreads decent and transaction costs low.
International funds SCHE, SCHF and especially SCHC trade at wider spreads. Using limit orders rather than market orders can help contain the trading costs with these funds.
Spreads don’t cover commissions or other fees that brokers may charge, although Schwab clients can trade the Schwab ETFs without commissions.
Spreads don’t capture all aspects of tradability—not by a long shot. But these figures show that liquidity shouldn’t be a deal breaker here for medium and long-term investors.
Schwab funds track indexes in three broad flavors: Dow Jones for U.S. equities, FTSE for international equities and Barclays for bonds.
I won’t delve deeply into these here. The choice of indexes affects performance without a doubt, and some investors may feel less comfortable with the equity indexes than, say, the S&P 500 for U.S. coverage and MSCI’s EAFE for international equities.
In all, Schwab funds track well-known indexes that aim at neutral coverage—plain vanilla in other words—with pros and cons relative to their peers.
The big picture takeaway: Solid coverage with low-in costs means that the ETFs in the Schwab family are worth serious consideration for medium- and long-term investors. Short-term investors and traders who demand liquidity above all else will likely do better with the high-volume giants from other issuers.
At the time this article was written, the author held no positions in the securities mentioned. Contact Paul Britt at firstname.lastname@example.org.