Schwab Bond ETFs See Billions Pour In, and Here's Why
Key Points
Bond ETFs can be a safer alternative to stocks during market volatility.
Another appeal is their potential to protect against inflation.
Competitive expense ratios make Schwab Bond ETFs attractive to investors.
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With billions flowing into their funds, it's been a banner year for Schwab's bond ETFs. As of August, Schwab's core bond funds have each experienced inflows of over $1 billion, with two ETFs bringing in nearly $2 billion.
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|
ETF Name |
YTD Inflows |
|---|---|
|
Schwab 5-10 Year Corporate Bond ETF (NYSEMKT: SCHI) |
$1.94 billion |
|
Schwab U.S. TIPS ETF (NYSEMKT: SCHP) |
$1.93 billion |
|
Schwab U.S. Aggregate Bond ETF (NYSEMKT: SCHZ) |
$1.32 billion |
|
Schwab Municipal Bond ETF (NYSEMKT: SCMB) |
$1.31 billion |
|
Schwab Intermediate-Term U.S. Treasury ETF (NYSEMKT: SCHR) |
$1.09 billion |
Data source: Charles Schwab.
Moving toward bond ETFs
Typically, investors turn to U.S. Treasuries as a safe haven when the market becomes volatile or when they see attractive income relative to riskier assets. They may also be looking for investments to serve as a core building block for a balanced, income-oriented portfolio.
The overall goal of each of the Schwab funds is the same: to track established bond indexes that measure bond market performance, rather than trying to beat them through active management. While each of Schwab's bond ETFs is a bit different, they're designed for buy-and-hold investors and those seeking to balance their portfolio. Each fund's goal is to track -- before fees and expenses -- a specific index as closely as possible. Here's a look at which index each fund follows:
|
Bond |
Index |
|---|---|
|
Schwab 5-10 Year Corporate Bond |
Bloomberg U.S. 5-10 Year Corporate Bond Index |
|
Schwab U.S. TIPS ETF |
Bloomberg U.S. Treasury Inflation-Linked Bond Index (Series-L) |
|
Schwab U.S. Aggregate Bond ETF |
Bloomberg US Aggregate Bond Index |
|
Schwab Municipal Bond ETF |
U.S. AMT-Free Municipal Bond Market |
|
Schwab Intermediate-Term U.S. Treasury ETF |
Bloomberg U.S. Treasury 3-10 Year Index |
Source: Charles Schwab.
While bond ETFs may not be for everyone, the benefits of investing can be numerous. For example:
- Low cost: Average expense ratios for bond ETFs are notably lower than those of mutual funds. For example, each of these Schwab ETFs carries an expense ratio of 0.030%
- Built-in diversification: A single ETF holds a variety of assets, offering an investor's portfolio the diversification it may need to weather market downturns.
- Transparency: The net asset value (NAV) is updated and published each trading day, allowing investors to compare the market price with the underlying value.
- Intraday liquidity: ETFs trade on exchanges throughout the day, so investors can sell at any time the exchange is open.
It's not difficult to see why investors are increasingly drawn to Schwab Bond ETFs. They offer broad index-based bond exposure, a very low expense ratio, and are designed to serve as building blocks in a diversified portfolio.
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Dana George has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Schwab Strategic Trust-Schwab U.s. Tips ETF. The Motley Fool has a disclosure policy.
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