Schwab Launches New ETFs - Analyst Blog

Last week, Charles Schwab Corporation (SCHW) announced the launch of three new bond Exchange-Traded Funds (ETFs). This will increase the tally of Schwab’s total ETFs to 11. Previously the company had 8 Equity ETFs. The new bond ETFs are expected to offer coverage to short-term, intermediate-term and inflation-protected securities.
 
The three new ETFs – the Schwab Short Term U.S. Treasury ETF (“SCHO”), Schwab U.S. TIPS ETF (“SCHP”) and Schwab Intermediate-Term U.S. Treasury ETF (“SCHR”) – have low operating expenses. Also, Schwab will charge no online trading commission from its clients.
 
Schwab Bond ETFs are suitable for those investors who want a diversified portfolio and an exposure to the fixed income holdings at low cost. Schwab ETFs are listed on NYSE Arca and are also traded on other exchanges.
 
Schwab’s new ETFs, SCHO and SCHR will charge an expense of 0.12% while SCHP will charge 0.14%. These are some of the cheapest ETFs available in the financial markets and sync well with the company’s strategy of providing low cost financial products to the investors.
 
Schwab has been doing exceptionally well in ETFs industry. The company launched its first ETF in November 2009. As of July 30, 2010, its eight ETFs had $1.4 billion assets under management, up 300% from December 31, 2009.
 
Though Schwab allowed its customers free trading in ETFs and kept the fees in line or below those of its peers, the company has a long way to go before it can match market leaders such as BlackRock Inc. (BLK) and State Street Corp. (STT).
 
With a huge demand for low cost ETFs from investors, advisors and traders, we believe that Schwab has an incredible potential for continued growth in this sector.
 
Though we suspect that Schwab will be further impacted by the challenging market conditions and volatile interest rate environment, its focus on lower-cost capital structure and aggressive cost control efforts will facilitate the company in the upcoming quarters.
 
Schwab currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we are maintaining our long-term Neutral recommendation on the stock.