Schwab Planning TIPS, Treasury ETFs

by on April 23, 2010 | ETFs Mentioned:

By most measures, Charles Schwab’s venture into the ETF space is off to a pretty good start; at the end of March, Schwab’s eight ETFs had aggregate assets of more than $950 million. All of the San Francisco-based firm’s existing ETFs track equity indexes, but that could change in coming months. Schwab recently filed details on three fixed income ETFs with the SEC, including a TIPS ETF and two additional Treasury funds. The three proposed ETFs are:

Schwab U.S. TIPS ETF

This ETF would track the performance of the Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index (Series L), the same benchmark replicated by the ultra-popular iShares Barclays TIPS Bond Fund (TIP). Inflation-protected bond ETFs have been in demand over the last year as investors look for ways to protect against an anticipated uptick in CPI as a result of the massive stimulus plans implemented in recent years. TIP is the eighth-largest U.S.-listed ETF, with assets of just over $20 billion at the end of March. With an expense ratio of 0.20%, that translates into about $40 million in annual management fees, a major attraction to any ETF issuer (see Beyond TIP: Ten ETFs To Protect Against Inflation or TIP: Steel Bullet Or Silver Trap?).

Schwab Short-Term U.S. Treasury ETF

This ETF would seek to replicate the performance of the Barclays Capital U.S. 1-3 Year Treasury Bond Index, a fixed income benchmark tracked by the iShares Barclays 1-3 Year Treasury Bond Index Fund (SHY). This benchmark measures the performance of U.S. Treasury securities that have a remaining maturity of at least one year and less than three years. SHY is another of the largest fixed income ETFs, with current assets of nearly $8 billion. In addition to SHY, the proposed Schwab ETF would compete with a handful of additional short-term Treasury ETFs from Vanguard, PIMCO, and others.

Schwab Intermediate-Term U.S. Treasury ETF

This ETF would track the Barclays Capital U.S. 3-10 Year Treasury Bond Index, a benchmark replicated by the relatively-new Vanguard Intermediate Term Government Bond ETF (VGIT). The Vanguard ETF tracking this index was launched in November 2009, and currently has assets of about $20 million. Schwab’s intermediate Treasury ETF would also compete with iShares’ IEF and IEI, State Street’s ITE, and PIMCO’s FIVZ.

The filing didn’t include expense ratios or ticker symbols for any of the proposed ETFs. See a database of all fixed income indexes tracked by ETFs. To stay up to date on all new ETF products, sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.