Schwab publishes retail ETF guide

US investment firm Charles Schwab has released its inaugural ETF Select List, guiding retail investors on ETFs across 48 asset classes.

The list, to be released quarterly, names one fund for each investment category across domestic and international equities, bonds, sectors, and speciality ETFs.

Schwab says it has developed the list as an aid to self-directed investors, highlighting a select group of pre-screened, low-cost funds that can be used to fill portfolio gaps.

The company's ETF platform development vice president Beth Flynn says: "With a thousand ETFs now available and more coming out weekly, investors tell us that selecting an ETF can be an overwhelming experience."

The recommendations come shortly after the release of Schwab's 2010 review, which reveals that its retail investor client ETF assets grew 61% last year, with the average retail ETF user holding 19% of their assets in ETFs.

Schwab's figures also show its overall client ETF assets increased 34% to reach $111bn. ETFs are now advisers' investment vehicle of choice, with 84% of advisers participating in Schwab's recent Independent Advisor Outlook Study reporting ETF use.

Funds on the ETF Select List are screened for eligibility by a number of criteria, including assets under management, trading volume, bid-ask spread and tracking error. From among those suitable one ETF is selected, largely on the basis of the cost of ownership calculated on a $5000 investment held over a year.

This emphasis on low cost contributes towards a list that includes 11 Schwab ETFs and only nine ETFs from market leader iShares. The selection process also assumes an investor is trading on Schwab's own platform, where Schwab ETFs are offered commission-free, meaning the recommendations have a limited compass.

Schwab says its selection process excludes leveraged or inverse ETFs, ETNs, actively managed ETFs and muni bond ETFs, although it also reveals "a fund may be excluded if its investment style of portfolio holdings are not representative of its asset category", suggesting synthetic ETFs are unlikely to find their way onto the shortlist.