Schwab expanded its ETF line-up last Thursday (1/13/11) with the addition of Schwab U.S. REIT ETF (SCHH) and Schwab U.S. Mid-Cap ETF (SCHM). Both have low expense ratios of 0.13% and will have commission-free trading for Schwab customers. Schwab is not showing any signs of fear as it prepares for broad and stiff competition in these two ETF categories.
Schwab U.S. REIT ETF (SCHH) seeks to track the Dow Jones U.S. Select REIT Index, a float-adjusted market capitalization weighted index comprised of real estate investment trusts (REITs). The index excludes most non-direct ownership REITs such as financial, mortgage, net-lease, timber, and hybrid REITs. Also excluded are finance companies, mortgage brokers and bankers, real estate brokers, homebuilders, large landowners, and companies with more than 25% of their assets in mortgage investments.
SCHH currently has 82 holdings with the largest being Simon Property Group (SPG) 9.6%, Vornado Realty Trust (VNO) 5.1%, Public Storage (PSA) 4.8%, Equity Residential (EQR) 4.8%, and HCP Inc (HCP) 4.4%. Industry weightings are Specialized REITs 26.1%, Retail REITs 24.9%, Residential REITs 17.2%, Office REITs 17.1%, Diversified REITs 8.1%, and Industrial REITs 6.3%. Additional information is located in the overview page and SCHH fact sheet.
There is much competition in this space with at least two dozen REIT-based ETFs and more than half of them focusing on U.S. REITs. Vanguard REIT ETF (VNQ) is the former price leader with a 0.13% expense ratio and the current asset leader with $7.5 billion assets under management. SCHH is a clone of SPDR Dow Jones REIT (RWR), which has an expense ratio of 0.25%, assets of $1.3 billion, and has tracked the same Dow Jones Select REIT Index for nearly 10 years.
Schwab U.S. Mid-Cap ETF (SCHM) seeks to track the Dow Jones U.S. Mid-Cap Total Stock Market Index, a float-adjusted market capitalization weighted index of approximately 500 U.S. mid-cap stocks. The index includes the components ranked 501-1000 by full market capitalization of the Dow Jones Total Stock Market Index.
SCHM currently has 496 holdings with the largest being Concho Resources (CXO) 0.6%, United Continental Holdings (UAL) 0.5%, BorgWarner (BWA) 0.5%, Alexion Pharmaceuticals (ALXN) 0.5%, and Teradata (TDC) 0.5%. Sector weightings are Financials 20.8%, Industrials 17.2%, Consumer Discretionary 14.1%, Technology 13.5%, Health Care 8.9%, and others 25.4%. Additional information is located in the overview page and SCHM fact sheet.
There are at least 15 other ETFs in the U.S. Mid-Cap Blend category providing competition to SCHM. State Street SPDRS recently abandoned Dow Jones style-box indexes for seven of their funds, but not for SPDR Dow-Jones Mid Cap (EMM). EMM has an expense ratio of 0.30%, but it has one of the lowest asset levels in the category with less than $60 million. Vanguard Mid-Cap ETF (VO) was the former price leader with an expense ratio of 0.14%, and SPDR S&P MidCap 400 ETF (MDY) is the current asset leader with more than $12 billion and a 15-year track record.