Schwab offers cheapest bond ETF

The latest ETF launch from Schwab seeks to replicate the Barclays Capital US Aggregate Bond Index, which is a broad-based benchmark measuring the performance of investment grade US debt.

The Schwab US Aggregate Bond ETF (SCHZ) is a new offering in the Total Bond Market ETFdb Category. The index underlying SCHZ includes Treasuries, mortgage-backed securities, investment grade, corporate debt and securities issued by US government agencies. The securities in the index must be fixed rate, non-convertible, US dollar denominated with at least $250m or more of outstanding face value and have one or more years remaining to maturity.

This new launch is the fourth such ETF replicating this particular bond index - the other three companies being iShares (AGG), State Street (LAG) and Vanguard (BND) - iShares launch being way back in 2003 and the other two were rolled out in 2007.

Schwab’s ETF will attract attention not least for being the cheapest of its class with an expense ratio of 0.10%, which makes it the cheapest bond ETF available to investors, undercutting Vanguard’s BND by a single basis point.

As with all Schwab ETFs, SCHZ will be eligible for commission free trading within Schwab accounts. This offer should be compared against Vanguard’s BND which can be traded commission free in the company’s own accounts; and iShares’AGG which is eligible for free trading on the Fidelity platform.

Schwab presents its four highlights of SCHZ as:

1. Provides a core portfolio holding to gain exposure to the US bond market.
2. Offers current income potential from a diversified portfolio of taxable investment grade bonds.
3. Combines the low turnover of indexing with an ETF vehicle that seeks to promote tax efficiency.
4. Offers a low-cost investment choice.

Index characteristics include number of securities 7979; modified duration 5.19 years; weighted average maturity 7.40 years; weighted average coupon 4.19%.

Index Top 10 Constituents
FNMA Conventional Long T.    1.69%
30yr, 4.50%, 01/01/2039      
FHLM Gold Guar Single F.       1.25%
30yr, 4.50%, 01/01/2039        
FNMA Conventional Long T.    0.94%
30yr, 4.00%, 08/01/2040          
GNMA I Single Family            0.82%
30yr, 4.50%, 04/01/2039         
FNMA Conventional Long T.    0.78%
30yr, 4.50%, 04/01/2040          
FNMA Conventional Long T.    0.70%
30yr, 4.00%, 11/01/2038         
FHLM Gold Guar Single F.       0.62%
30yr, 4.50%, 03/01/2040         
FHLM Gold Guar Single F.       0.59%
30yr, 4.00%, 08/01/2040          
GNMA II Single Family           0.54%
30yr, 4.50%, 05/01/2040         
FNMA Conventional Long T.    0.52%
30yr, 5.00%, 07/01/2032         
Total                                     8.45%

http://etfdb.com/etf/SCHZ