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In February, Vanguard extended its status as low-cost leader in the fund industry, paring fees on a staggering 87 products, including exchange traded funds, across 186 share classes.
In terms of number funds, it was the biggest fee reduction in Vanguard’s history and the same is likely true of the fund industry at large. That is to say when it comes to low fees on ETFs, Vanguard is still perceived as the leader and that perception is real and warranted. The February expense ratio reductions by Vanguard were also a shot across the bow to rivals. Some, including Charles Schwab, got the message and are responding.
Schwab, which has a well-deserved low-cost reputation in its own right, recently cut fees on four of its ETFs, including three international funds. Those reductions went into effect on June 10 and pertain to the following ETFs: Schwab 1000 Index® ETF (SCHK), Schwab International Equity ETF (SCHF), Schwab International Small-Cap Equity ETF (SCHC) and the Schwab Emerging Markets Equity ETF (SCHE).
Earlier this year, the issue reduced the annual fee on the Schwab International Dividend Equity ETF (SCHY) to 0.08% from 0.14% -- a smart move ahead of investors renewing their enthusiasm for international stocks.
Why the Schwab Fee Cuts Matter
Regarding, the Schwab ETF expense ratio reductions, there are the obvious, sales-related benefits of improved competition with Vanguard and solidification of Schwab’s own low-cost reputation, but there are more compelling superlatives.
With the annual fees on SCHC and SCHE going to 0.08% and 0.07%, respectively, “all Schwab equity and fixed income market cap-weighted index ETFs less than 10 basis points,” according to a press release. Previously, both of those ETFs charged 0.11% per year.
Regarding the competition with Vanguard, Schwab’s decision to cut in half SCHF’s fee to 0.03% makes that fund slightly less expensive than its nearest Vanguard rival – the Vanguard FTSE All-World Ex-US ETF (VEU), which has a yearly expense ratio of 0.04%.
"Schwab is proud to be a leader in democratizing investing, and we are constantly looking for new opportunities to make investing as accessible as possible," said John Sturiale, Head of Product Management and Innovation, Schwab Asset Management, in the statement. "Today, we’re taking another important step in advancing our commitment to providing investors with low-cost, high-quality building blocks for a well-diversified portfolio."
Another Fee Feather in Schwab’s Cap
When it comes to the lowest-cost ETFs, there are some that have annual fees of zero, but a large percentage of that group are fee waiver products, meaning that won’t be the case permanently. Next up are a pair ETFs that charge 0.02% annually. From there, the 0.03% is the next tier of cheap ETFs and that’s where Schwab products start appearing. With the additions of SCHF and SCHK to the fray, Schwab now offer 13 ETFs with annual expense ratios of 0.03%.
Among the 100 least expensive ETFs as measured by annual fees, 17 are Schwab products. That compares favorably with Vanguard, which has 24 funds on that list.
Actually, as a percentage of their respective ETF lineups ranking among the 100 cheapest, Schwab outduels Vanguard with the former having half its ETF slate in that prestigious group while its roughly a quarter for Vanguard.
Related: Vanguard Finally Throws Hat in ETF Share Class Ring