Schwab’s New ETF


Charles Schwab makes lists first new ETF since 2013

Charles Schwab is listings its first new ETF in four years, The Schwab 1000 Index ETF (SCHK).


SCHK will track the 1,000 largest stocks of publicly traded companies in the United States via an inhouse index. It will take direct aim at The iShares Russell 1000 ETF (IWB), which currently has almost $20 billion assets under management.


Schwab has been different among major ETF providers in that it has only listed 22 ETFs. (BlackRock, by contrast, has 340). Despite its small lineup, Schwab is fifth largest American ETF provider, with $87.8 billion in assets. Taken together, these numbers mean Schwab’s ETFs have $4bn each on average —a far higher average asset base than any other issuer.


Schwab’s success is based on a ‘wait and see’ approach, followed by aggressive under-pricing. That is, Schwab waits to see which ETFs succeed in gathering assets. It then lists a competitor at a lower (sometimes significantly lower) price point.


By all accounts, the strategy is working. In September, Schwab was the third fastest growing US ETF provider, behind only BlackRock and Vanguard. Its growth has been propelled by its reputation for providing the cheapest ETFs in the world.


While the annual cost of SCHK was not in the prospectus, it is a virtual guarantee that it will be in the low single digits. This author’s guess is 3 basis points.


Principal lists “Mega-Cap Multi Factor” ETF

Principal has listed a new multi-factor ETF in New York, The U.S. Mega-Cap Multi-Factor Index ETF (USMC). USMC will track an index based on Nasdaq. The index takes the top 250 Nasdaq stocks based on market cap. Of those, the biggest 25 get weighted by market cap and the bottom 225 get equally weighted (hence the name “mega-cap”, one guesses). An additional adjustment then gives low-volatility stocks greater weighting.


UK and Germany

Franklin Templeton lists smart beta emerging markets ETF

Californian asset manager Franklin Templeton has listed a new emerging markets tracker on Xetra and the London Stock Exchange, The Franklin LibertyQ Emerging Markets UCITS ETF (FLXE). FLXE tracks large and mid-cap companies in emerging markets. It does this by applying four investment style factors – quality, value, momentum and low volatility – to the MSCI Emerging Markets Index.