Share this
Twitter
Myspace
Digg
Del.icio.us
Reddit
Slashdot
Furl
Yahoo
Technorati
Newsvine
Facebook
Export PDF
Print
E-mail
TagsBY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
NEW YORK – Exchange traded funds – sold on stock exchanges – may become even more popular in the future.
Charles Schwab, a big player in the fast-growing ETF market – announced during a press conference Monday that it is offering new ETFs that not only have low expenses, but cost nothing to trade. But only Schwab shareholders who trade Schwab ETFs online will benefit.
Eight new funds will be offered, four starting Nov. 3 and four more next month. Their expense ratios will be low: from 8 basis points (.08 percent) to 35 basis points (0.35 percent).
All ETFs are index funds, mirroring investment markets.The first four Schwab funds will cover (1) the broad U.S. market, (2) U.S. large caps, (3) U.S. small caps, and (4) international stocks. The next four will zero in on U.S. large-cap growth stocks, U.S. large-cap value stocks, international small-cap stocks, and emerging markets stocks.
Growth stocks are the popular favorites; value stocks are dark horses. "Cap" is short for market capitalization – market price times shares outstanding.
One of the key benefits of the new ETFs seems to be that investors who invest regularly - such as by dollar-cost-averaging - won't have to pay commissions every time they buy.
To become a Schwab client, investors can go to Schwab.com or phone 800-435-4000. An investor needs $500 to open an account. These ETFs can be purchased in blocks as small as one share per trade - and $25 is the opening price of the four ETFS. There are no limits on how often shareholders can trade, Schwab executives said, and shareholders can sell short. They can also trade during the day.
The U.S. broad market ETF will mirror the Dow Jones U.S. Broad Stock Market Index of the largest 2,500 stocks. The U.S. large cap ETF mirrors the Dow Jones U.S. Large-Cap Total Stock Market Index, representing approximately the largest 750 stocks. The U.S. Small-Cap ETF will mirror the Dow Jones U.S. Small-Cap Total Stock Market Index and represents stocks ranked 751 to 2,500 by market capitalization. The International Equity ETF mirrors the FTSE Developed ex-U.S. Index, consisting of about 1,400 international stocks.
Letting shareholders trade ETFs without commissions, said Peter Crawford, senior vice president, is "not temporary, and there are no gimmicks. It's unprecedented."
A journalist asked whether the new funds would offend Vanguard founder John Bogle, because of their being "esoteric." Crawford replied that Bogle would approve of the new Schwab ETFs because he favors low costs and diversification. (Actually, Bogle has criticized ETFs because they seem to encourage investors to trade frequently.)
Crawford pointed out that the new Schwab funds represent the most popular categories – and are not leveraged (buying shares with borrowing money) and are not "niche-y" (representing narrow markets).
Warren Boroson's regular Monday column on Nov. 9 will focus on the ins and outs of exchange traded funds.