The Ultra-Cheap Portfolio: 3 Schwab ETFs for 2017

Schwab ETFs - The Ultra-Cheap Portfolio: 3 Schwab ETFs for 2017

Source: Mike Mozart via Flickr (Modified)

Investors usually want their investments to go up, but when it comes to fees on exchange-traded funds, the path of least resistance is down and that is a good thing, particularly for long-term investors.

The Ultra-Cheap Portfolio: 3 Schwab ETFs for 2017

Last year, BlackRock Inc.’s (NYSE:BLK) iShares, the world’s largest ETF issuer, and, of course, Vanguard were among the major ETF issuers to trim annual expenses on their funds in an effort to lure more investor assets.

Speaking of low fees, Charles Schwab Corp (NYSE:SCHW) has a well-deserved reputation for being fee-friendly when it comes to ETFs. In fact, Schwab cheap funds are just that — really cheap.

Schwab ETFs are, in many cases, the least expensive in their respective categories. That’s right. Many Schwab ETFs out “Vanguard” Vanguard when it comes to low fees and Schwab investors can realize additional cost savings by using the company’s Schwab ETF OneSource platform — the largest commission-free ETF platform in the brokerage business.

Experienced ETF and mutual fund investors know that fees can hamper long-term returns, meaning the lower an ETF’s fee, the potential for better long-term total returns increases. That likely explains why Schwab is now the fifth-largest U.S. ETF issuer with over $61.6 billion in assets under management, which is nearly 50% more than the sixth-largest ETF sponsor.

Frugal investors looking for cheap funds in 2017 can consider these Schwab ETFs.

Cheap Funds to Buy: Schwab Emerging Markets Equity ETF (SCHE)


Expense Ratio: 0.13% per year, or $13 per $10,000 invested

The Schwab Emerging Markets Equity ETF (NYSEARCA:SCHE) is one of the least expensive emerging markets ETFs on the market. This cheap fund tussles with the iShares Core MSCI Emerging Markets ETF (NYSEARCA:IEMG), among others, for the title of king of the least expensive emerging markets ETFs.

The $2.3 billion SCHE tracks the FTSE Emerging Index, which has some notable differences relative to the widely followed MSCI Emerging Markets Index. For example, FTSE does not classify South Korea as an emerging market, so investors will not find South Korean stocks in this Schwab ETF.

SCHE is basic among emerging markets funds. It is market cap-weighted and has many of the hallmarks of traditional funds tracking developing economies. For example, SCHE allocates over 40% of its combined geographic weight to China, Taiwan and India. These three countries are the only countries that command double-digit weights in this Schwab ETF.

At the sector level, SCHE devotes 27% to financial services names, meaning this cheap fund does have significant exposure to state-controlled banks. SCHE is up 29% over the past year.

Cheap Funds to Buy: Schwab U.S. Small-Cap ETF (SCHA)

Schwab U.S. Small-Cap ETF (SCHA)

Expense Ratio: 0.06%

Schwab did not sit idly by last year while its rivals lowered fees on ETFs. Actually, Schwab responded to a batch of October fee reductions by iShares in swift fashion, announcing fee cuts on five of its own ETFs.

The Schwab U.S. Small-Cap ETF (NYSEARCA:SCHA) was one of the Schwab ETFs in that quintet, seeing its annual expense ratio pared to 0.06% from 0.07%. That makes SCHA one of the least expensive small-cap ETFs on the market.

This Schwab ETF follows the Dow Jones U.S. Small Cap Total Stock Market Index and offers investors broad-based exposure to the small-cap universe with a roster of almost 1,760 stocks.

Technology and financial services stocks both account for over 15% of this Schwab ETF’s weight. The weighted average market value of SCHA’s holdings is over $2.5 billion, indicating this ETF’s roster is comprised mostly of bigger small caps.

Cheap Funds to Buy: Schwab U.S. Dividend Equity ETF (SCHD)


Expense Ratio: 0.07%

Dividend ETFs are usually pricier than traditional equity funds and that is true even with U.S. stock funds. However, there are plenty of dividend ETFs that can be considered cheap funds. No dividend ETF is less expensive than the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD).

Just over five years old, this Schwab ETF has climbed the ranks of dividend ETFs and it now has nearly $5 billion in assets under management. SCHD is a favorite among the dividend growth crowd because of its emphasis on quality names with rich traditions of dividend growth.

SCHD’s underlying index, the Dow Jones U.S. Dividend 100 Index, requires member firms have minimum dividend increase streaks of 10 years, but many of this Schwab ETF’s 100+ stocks have payout increase runs spanning far longer than a decade.

Consumer staples account for over 24% of SCHD’s weight, but this cheap fund also has one the largest technology weights among U.S. dividend ETFs at over 23%.

At the time of this writing, Todd Shriber did not own any of the aforementioned securities.

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