Schwab Follows Vanguard With Fee Cuts on 4 ETFs

Four Charles Schwab funds are taking just a little of the top.

The brokerage giant cut fees on four passive equity index ETFs last week, trimming expenses by one or two basis points per fund, adding even if just minimally to the seemingly never-ending game of fee-compression poker between asset managers. In fact, Schwab is seeing some of its competitors and making bets of its own. “I don’t think we should necessarily see massive inflows into these funds because of the changes,” said Zach Evans, an analyst at Morningstar. “It’s more symbolic of Schwab’s commitment to offering the lowest-cost strategy in a given category,” he added, noting that each of the fee cuts matches reductions Vanguard made to comparable funds earlier this year.

A Real Cut-up

Out of Schwab Asset Management’s 24 market-cap weighted, index equity and fixed income ETFs, 16 are now offered at only three basis points, according to the firm. “We believe that even small cost differences can have a meaningful impact over time, while also reinforcing our longstanding leadership in low-cost investing,” said John Sturiale, head of investment products at Schwab Asset Management.

Among the funds that received cuts last week:

• Both the Schwab US Mid-Cap ETF (SCHM) and the Schwab US Small-Cap ETF (SCHA) dropped one basis point to 0.03%. 
• Meanwhile, the Schwab International Small-Cap Equity ETF (SCHC) and the Schwab Emerging Markets Equity ETF (SCHE) lowered from 0.08% and 0.07%, respectively, to 0.06%.

The company noted an investor with $10,000 would incur annual fund expenses of just $3 to $8, with positions in both stocks and bonds, using its suite of index ETFs.

Less Is More: The average fee for asset weighted funds continues to decline, and that more than anything, is a result of flows into low cost products. “Investors overwhelmingly prefer cheap funds to expensive ones,” Evans told ETF Upside. “Whether it’s mutual funds, an ETF, an active fund or a passive one, investors want cheap products.” He added that broadly speaking, lower costs translate to better returns. “The fee you pay on a fund takes a chunk out of your return each year, and if you can minimize that chunk, you give yourself the best opportunity for the best performance.”