Market Overview

A Schwab ETF For Accessing International Equities At A Nominal Fee

A Schwab ETF For Accessing International Equities At A Nominal Fee

As investors look for equity market value, plenty of developed markets outside the U.S. are likely to appear on their screens, shining a light on some cost-effective exchange traded funds in the process.

What Happened

One of those ETFs is the $19.7-billion Schwab International Equity ETF (NYSE: SCHF). Up nearly 18% year-to-date, the Schwab International Equity ETF follows the FTSE Developed ex US Index, making it an alternative to MSCI EAFE Index tracking funds.

SCHF is big, broad and diverse, both in terms of number of holdings (nearly 1,500) and the number of countries represented in the portfolio (24).

“Diversifying across a wide range of stocks mitigates the impact of the worst performers on the fund’s overall performance,” Morningstar said in a recent note.

“The portfolio holds more than 1,400 names, and its 10 largest stocks account for only 10% of its assets. It excludes companies listed in emerging markets, while a typical competitor has 7% of its assets allocated to companies from these regions.”

Why It's Important

As is par for the course with many Schwab ETFs, SCHF is inexpensive. The developed markets fund charges just 0.06% per year, or $6 on a $10,000 investment, making it one of the least expensive ETFs in its respective category.

“This fund’s biggest advantage is its ultralow expense ratio. Schwab charges just 0.06% annually for this fund, but this has not translated into superior category-relative performance,” according to Morningstar.

“From its launch in November 2009 through November 2018, the fund’s total and risk-adjusted returns landed near the midpoint of the category because the fund remains fully invested and foreign markets have not performed well by historical standards.”

At the geographic level, SCHF devotes over 36% of its combined weight to Japan and the U.K., while France and Switzerland combine for over 17%.

What's Next

“This portfolio effectively diversifies sector- and country-specific risks,” according to Morningstar. “Despite excluding firms listed in emerging markets, the fund's sector composition closely resembles the category average. Financials firms represent the largest sector weighting, at 20% of the portfolio.”

Portfolio turnover within SCHF is just 8%. Morningstar has a Silver rating on the fund, which turned 10 years old earlier this month.

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