Charles Schwab rolls out three low-cost fixed income ETFs

Oct 4th, 2019 | By | Category: Fixed Income

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Charles Schwab Investment Management has launched three new ETFs in the US, providing low-cost access to core fixed income exposures.

Jonathan de St. Paer, President of Charles Schwab Investment Management

Jonathan de St. Paer, President of Charles Schwab Investment Management.

Two of the ETFs track the USD corporate bond market, targeting the front and middle segments of the yield curve, while the third provides exposure to the far end of the US Treasury yield curve.

Each of the funds is linked to a Bloomberg Barclays index and comes with an expense ratio of just 0.06%.

The funds

The Schwab 1-5 Year Corporate Bond ETF (SCHJ US) tracks the Bloomberg Barclays US 1-5 Year Corporate Bond Index.

The index covers investment grade, fixed-rate corporate bonds denominated in US dollars that have remaining maturities between one and five years. It includes securities issued by US and non-US industrial, utility, and financial companies.

The Schwab 5-10 Year Corporate Bond ETF (SCHI US) tracks the Bloomberg Barclays US 5-10 Year Corporate Bond Index.

The index provides exposure to the same universe of bonds as its shorter-maturity counterpart but only includes bonds with remaining maturities between five and ten years.

The pair are the first corporate bonds ETFs to be offered by Schwab.

The Schwab Long-Term US Treasury ETF (SCHQ US) tracks the Bloomberg Barclays US Long Treasury Index.

The index measures the performance of US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury. Eligible securities must have a remaining maturity greater than ten years. The fund complements Schwab’s existing US government bond funds which invest in short-term and mid-term Treasuries and collectively house over $10 billion in assets under management.

Low-cost disruptor

Jonathan de St. Paer, President of Charles Schwab Investment Management, commented, “Investors are increasingly looking to bond ETFs as a potential source of diversification, liquidity, and income, particularly in this time of heightened stock market volatility. As we approach the tenth anniversary of the launch of our very first ETFs, we’re proud to add these new ETFs to our roster of low-cost foundational ETFs and to continue helping investors build diversified investment portfolios.”

Schwab’s line-up of ETFs consists of 25 funds across market cap-weighted and fundamental factor-based exposures. The issuer aims to compete on price with all of its funds amongst the lowest cost in their categories.

Schwab leverages its strong distribution network including its trading platform where customers can trade Schwab ETFs for free, further lowering costs for investors.

The strategy has proven successful with twenty of the firm’s ETFs housing more than $1 billion each and Schwab’s total AUM sitting around $150bn, ranking the firm as the fifth-largest ETF issuer in the US.

The new funds have also been attractively priced, matching the fee of their lowest-cost competitor. These include the $12.9bn iShares Short-Term Corporate Bond ETF (IGSB US), the $8.5bn iShares Intermediate-Term Corporate Bond ETF (IGIB US), and the $2.0bn SPDR Portfolio Long Term Treasury ETF (SPTL US).

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