Week In Review
November 9, 2009
Schwab Offers Commission-Free ETFs
Charles Schwab has launched eight new exchange-traded funds that offer Schwab clients commission-free online trading in addition to low operating expense ratios. Schwab debuted the first four ETFs on Tuesday, with the second four to follow in December. The first four are the Schwab U.S. Broad Market ETF, the Schwab U.S. Large-Cap ETF, the Schwab U.S. Small-Cap ETF and the Schwab International Equity ETF. The broad market and large-cap ETFs will have operating expense ratios of 0.08%, while the small-cap and international equity ETFs will have operating expense ratios of 0.15%.
"These ETFs will make dollar-cost averaging possible for everyday customers," said Walter Bettinger, Schwab's president and CEO. He said the new ETFs have some of the lowest operating expense ratios on the market and can be bought and sold without commissions in Schwab accounts if they are purchased online, regardless of the number of shares traded. While the free commission applies only to online trades of the eight Schwab ETFs, there is no limit to the number of trades per day.
In December, Schwab will launch the second four ETFs. They are the Schwab U.S. Large-Cap Growth ETF, the Schwab U.S. Large-Cap Value ETF, the Schwab International Small-Cap Equity ETF and the Schwab Emerging Markets Equity ETF. The operating expense ratios for the growth and value ETFs will be 0.15%, while the operating expense ratios for the international small-cap and emerging markets ETFs will be 0.35%.
While some ETFs have been criticized for investing in esoteric categories, Peter Crawford, a SVP in Schwab's investment management services group, said half of all ETF assets are in the eight categories Schwab is launching.
Crawford said only 16% of Schwab's individual investors currently own ETFs, but 43% of advisers who custody with Schwab said they plan to increase their usage of ETFs in the next six months. "This makes them vehicles with tremendous potential for growth," he said. Schwab has approximately $1.36 trillion in client assets.
Mutual Fund Asset Flows Likely to be More Volatile
Volatile redemptions from and investments into mutual funds are not just due to market returns but to an entirely different approach investors are taking to fund ownership, according to a new report from ReFlow.
Although the mutual fund industry experienced its first annual net outflows in 2008 for the first time in 20 years, flows started to become more volatile in 2006, ReFlow found through analysis.
"Flow volatility is an ongoing trend that may not reverse even as the market recovers and net flows generally turn positive," said Paul Schaeffer, president of ReFlow. This counters the widely held belief that volatile asset flows are a temporary or cyclical phenomenon, Schaeffer added.
As flows become more volatile, it can hurt performance and increase costs, as redemptions force the hand of portfolio managers.
ReFlow's whitepaper is available at: http://www.reflow.com/rethink/whitepaper.pdf.
Market Momentum Seen Moving Towards Growth
Since the market's low on March 9, small-cap value stocks have delivered some of the best performance, but experts believe the pendulum is swinging back in the direction of large-cap growth stocks.
Year-to-date through Oct. 28, small-cap value mutual funds are up an average of 74%, whereas small-cap growth funds are up 58% and large-cap growth funds are up 52%, according to Morningstar.
True to other market downturns, when the economy turned south at the end of 2007, investors began to bail out of small-cap value stocks, for fear that they might go bankrupt. The ensuing beaten-down prices made these stocks some of the most attractive when the market began its reversal this past spring.
Growth stocks traditionally lead the second wave of a rebound, but especially with the recovery looking so choppy and more companies looking to expand their business into emerging markets, the larger, higher-quality, better-equipped companies look even more appealing and are likely to see their stocks begin gaining steam. In addition, with jobs being so scarce, it's more than likely that companies will invest more in technology to realize even greater efficiencies, and experts are also touting these stocks.
iShares Taps McCann for New Adviser Ad Campaign
Barclays Global Investors' iShares exchange-traded funds group has selected two McCann Worldwide advertising agencies, McCann Erickson and MRM Worldwide, to develop a fully integrated campaign to drive awareness, understanding and use of iShares ETFs among financial advisers and institutional investors.
Starting early next year, Barclays plans to use television, print, radio, interactive media, e-mail, direct mail, digital strategy and data analytics for the campaign.
"As the leader of one of the fastest-growing segments in financial services, iShares was seeking a fully integrated agency with a strong San Francisco team that could deliver a bold new approach that will fuel future growth," said Kevin Feldman, head of iShares marketing.
Sun Life Launches First U.S. Advertising Campaign