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Schwab Challenging For ETF Crown

Charles Schwab Corp. (SCHW), a long-time provider of brokerage services and mutual funds, has emerged as one of the faster growing ETF providers in 2016. 

Aided by $7.69 billion of net inflows year to date through July 15, the firm has risen up the ranks and pulled closer to BlackRock iShares and Vanguard Group. Schwab, which has among the lowest expense ratios in the industry, has benefited from growing use of ETFs among retail investors and financial advisors. In addition, unlike in 2015, when currency-hedged international equity ETFs swelled in size helping WisdomTree (WETF) gain market share, Schwab's wide array of market-cap weighted ETFs focused have been consistently popular.

Schwab ETFs asset base is 66% focused on U.S. equities, with eight of ten products with the most assets in that category and just 21% of assets in international equity ETFs. In contrast, WisdomTree's asset base has just 26% in U.S. equities and 70% in international equities.

Schwab US Large Cap ETF (SCHX) and Schwab US Broad Market ETF (SCHB) are the firm's two largest ETFs and each have a 0.03% expense ratio. SCHB gathered $681.5 million of new assets year to date through July 15, while SCHX had $569.6 million of net inflows.

With $994.3 million, Schwab US Aggregate Bond ETF (SCHZ) gathered the second most net inflows thus far in 2016 among the firm's offerings. The $3.18 billion product, which holds investment-grade corporate bond and U.S. government securities, has a 0.05% expense ratio that is lower than comparable ETFs from iShares and Vanguard.

Meanwhile, investors redeemed $10.83 billion of WisdomTree's two largest international equity ETFs. Unlike the market-cap weighted SCHF, WisdomTree Europe Hedged Equity (HEDJ), which has shed $6.07 billion in 2016, is constructed in a smart-beta manner to benefit when the euro weakens. The ETF holds companies that derive 50% or more of their revenues from outside of Europe and then adds on a currency hedge as protection.

Schwab ETFs asset base is 66% focused on U.S. equities, with eight of ten products with the most assets in that category and just 21% of assets in international equity ETFs
In 2015, as the euro declined in value against the US dollar, HEDJ pulled in $12.66 billion of assets and the firm's offerings collectively gathered $15.45 billion in new assets. However, with the euro strengthening in 2016, hurting performance and investor demand, HEDJ assets fell to $10.33 billion.

Flows outside of these two products were steadier and a few of the firm's larger offerings had solid inflows. US equity ETFs WisdomTree High Dividend Fund (DHS) and WisdomTree MidCap Dividend Fund (DON) gathered $227.6 million and $226.6 million, respectively, year to date through July 15.

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