ETF Showdown: Big Battle Among Small-Caps

Earlier today, Vanguard, the third-largest U.S. ETF issuer, announced a series of expense reductions for six of its ETFs, a move that escalates an already flourishing price war between ETF issuers that sponsor ETFs that hard to tell apart except for when you look at the fees. Vanguard's previous price cuts, at least on the surface, have appeared to be efforts at stealing assets from iShares and SPDR ETFs, but the firm's reductions announced on Friday put Charles Schwab SCHW, still fairly new to the ETF game, in Vanguard's line of sight. With that, we think it's a good time for ETF Showdown between the Schwab International Small-Cap Equity ETF SCHC and the Vanguard FTSE All-World ex-US Small-Cap ETF VSS. Let's get the fee business out of the way first: SCHC has an expense ratio of 0.35%. VSS is going to 0.35% from 0.4%. Make of that what you will, but finding the differences between these two funds is important. According to data on Vanguard's Web site, VSS uses a regional breakdown of about 23% to emerging markets, 43.5% to Europe, 19.4% to Asia-Pacific and 14% to North America. VSS tracks 2,701 stocks and has $1.1 billion in assets under management. SCHC, just 13 months old, tracks 919 stocks and has almost $131 million AUM. Neither is a star when it comes to average daily volume with VSS averaging less than 66,000 shares per day and SCHC averaging just over 56,000. SCHC features the following sector breakdown: Industrials (24.6%), Financials (17.4%) Consumer Discretionary (14.8%) and Materials (14.5%). The sector breakdown for VSS could not be located on the Vanguard Web site, but given that SCHC and VSS track indexes that are very similar, VSS could very well have a comparable sector mix. One way to break what is shaping up to be a tie is by simpling using price-tag. SCHC trades for just under $30 as of this writing, but VSS is going for close to $100. In other words, you can get triple the amount of shares in SCHC as you can in VSS for roughly the same capital exposure. Back to expenses for a minute, a difference of 0.2% is only a big deal if you're not a client of Schwab or Vanguard. If you Schwab is your broker, you can trade SCHC for free. If you're a Vanguard client, you'll be able to trade VSS commission-free. Overall, this is a very hard tie to break, but even though VSS has the heftier price tag, we'll lean with the lower fees and Vanguard's longer history in the ETF business, declaring VSS the winner by technical knockout.