Schwab Total Market Index Fund

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
eurowizard
Posts: 1005
Joined: Sat May 10, 2008 10:26 am

Schwab Total Market Index Fund

Post by eurowizard » Thu Jan 28, 2010 5:27 pm

I recall reading that Schwab's TSM fund wasn't as good as VGs because it didn't actually hold all 5000 stocks. I was looking at their website and the ER is 0.09% (which I already knew) but the expense before waiver is only 0.12%

I was under the impression that Schwab was waiving more than 0.03% and my concern was if they stopped waiving it, I would be stuck. However it appears their regular fees are much lower than VGs regular non-admiral TSM fund. I can only assume Schwab does it by not actually holding all the stocks, and thus has a higher tracking error.

I was unable to find what it actually holds on the website.

User avatar
simba
Posts: 540
Joined: Mon Feb 19, 2007 7:47 pm

Post by simba » Thu Jan 28, 2010 6:37 pm

As of 10/31/09, Per their SEC filings for Schwab Total Stock Market Index Fund
Number of Holdings 2,308
Weighted Average Market Cap ($ x 1,000,000) $65,384
Price/Earnings Ratio (P/E) 185.7
Price/Book Ratio (P/B) 2.1
Portfolio Turnover Rate 5%


Sector Weightings % of Investments
Information Technology 18.5%
Financials 16.2%
Health Care 12.3%
Energy 11.7%
Consumer Staples 10.4%
Consumer Discretionary 10.4%
Industrials 10.2%
Materials 3.8%
Utilities 3.7%
Telecommunication Services 2.8%
Total 100.0%


Top Holdings % of Net Assets2
Exxon Mobil Corp. 3.1%
Microsoft Corp. 2.0%
The Procter & Gamble Co. 1.5%
Apple, Inc. 1.5%
Johnson & Johnson 1.4%
JPMorgan Chase & Co. 1.4%
International Business Machines Corp. 1.4%
Chevron Corp. 1.4%
General Electric Co. 1.3%
AT&T, Inc. 1.3%
Total 16.3%
Difference between VG (VTSMX) and Schwab (SWTSX)

Code: Select all

	      SWTSX	VTSMX	Diff (VG-Schwab)
2000	-10.63	-10.57	 0.06
2001	-11.19	-10.97	 0.22
2002	-20.53	-20.96	-0.43
2003	 30.69	 31.35	 0.66
2004	 12.34	 12.52	 0.18
2005	  6.01	  5.98	-0.03
2006	 15.38	 15.51	 0.13
2007	  5.26	  5.49	 0.23
2008	-36.65	-37.04	-0.39
2009	 28.31	 28.7	  0.39
Best Regards,
Simba

Topic Author
eurowizard
Posts: 1005
Joined: Sat May 10, 2008 10:26 am

Post by eurowizard » Thu Jan 28, 2010 10:01 pm

Simba thanks for posting that. Interesting how the two funds diverge, in some years VG wins and in some Schwab wins. There is definitely a greater divergence in performance than the few basis points of ER difference.

amplifier
Posts: 72
Joined: Wed Dec 03, 2008 11:12 pm

Post by amplifier » Thu Jan 28, 2010 10:20 pm

There are more than 5000 stocks in the total market. Vanguard's fund doesn't hold all of the stocks either. Both funds attempt to match the index, sampling is used to do this. Both to my mind are excellent investment options.

User avatar
simba
Posts: 540
Joined: Mon Feb 19, 2007 7:47 pm

Post by simba » Fri Jan 29, 2010 12:18 am

eurowizard wrote:Simba thanks for posting that. Interesting how the two funds diverge, in some years VG wins and in some Schwab wins. There is definitely a greater divergence in performance than the few basis points of ER difference.
EW - Here's some additional differences between VTSMX and SWTSX.

Code: Select all

                            VTSMX		SWTSX	
Net Assets                    50B       1.3B
Number of Stocks				 3410		 2308	
Yield				           1.88%		1.63%	
ER						        0.18%		0.09%	
TurnOver					        5%		   1%	
Potential CapGains Exposure (-9.1%)		6.1%	
Tax Cost Ratio
   3 yr                      .3         .64   
   5 yr                      .28        .57   
  10 yr		                .35		  .49	
The Schwab Fund has lower turnover but higher tax cost ratio (i.e lower after-tax returns). It also has a higher potential capital gains exposure. In the long run VG may have an advantage here due to VTI. Time will tell.

-Simba

Topic Author
eurowizard
Posts: 1005
Joined: Sat May 10, 2008 10:26 am

Post by eurowizard » Fri Jan 29, 2010 7:51 pm

Simba,

Would you suggest then that for tax-sheltered accounts that Schwab's fund is superior and for Taxable accounts, VGs fund is better?

DaveS
Posts: 1308
Joined: Fri Jun 15, 2007 9:42 am
Location: Reno, NV

Post by DaveS » Fri Jan 29, 2010 8:32 pm

I say get the Vanguard, forget the Schwab. But I admit that is based on my belief that Schwab will raise the expense ratio at some point. I say the same thing about Ishares. In a tax free that would not matter, but in taxable you might not be able to trade out of Schwab without paying gaines taxes. Dave

Topic Author
eurowizard
Posts: 1005
Joined: Sat May 10, 2008 10:26 am

Post by eurowizard » Fri Jan 29, 2010 8:44 pm

DaveS wrote:I say get the Vanguard, forget the Schwab. But I admit that is based on my belief that Schwab will raise the expense ratio at some point.
Currently Schwab is only subsidizing 0.03% of the ER on their TSM fund. How could they raise the cost? It only costs them 0.12% normally to run so if they stopped subsidizing it, thats how high it would go.

Is it reasonable to believe that out of nowhere, Schwab will not only stop subsidizing, but then push the ER up past 0.20%?

DaveS
Posts: 1308
Joined: Fri Jun 15, 2007 9:42 am
Location: Reno, NV

Post by DaveS » Sat Jan 30, 2010 8:29 am

eurowizard wrote:
DaveS wrote:I say get the Vanguard, forget the Schwab. But I admit that is based on my belief that Schwab will raise the expense ratio at some point.

Is it reasonable to believe that out of nowhere, Schwab will not only stop subsidizing, but then push the ER up past 0.20%?
Yes. They have stockholders. Vanguard does not except fund owners. Dave

User avatar
Sunny Sarkar
Posts: 2430
Joined: Fri Mar 02, 2007 1:02 am
Location: Flower Mound, TX
Contact:

Post by Sunny Sarkar » Sat Jan 30, 2010 9:37 am

Even if some companies offer one or two good equity index funds, no one offers cheap bond funds and cash funds like Vanguard. Everyone needs some good bond funds in their portfolio. Just stay with Vanguard.

Topic Author
eurowizard
Posts: 1005
Joined: Sat May 10, 2008 10:26 am

Post by eurowizard » Sat Jan 30, 2010 10:14 am

Sunny Sarkar wrote:Even if some companies offer one or two good equity index funds, no one offers cheap bond funds and cash funds like Vanguard. Everyone needs some good bond funds in their portfolio. Just stay with Vanguard.
Vanguard's cash funds are horrible. Alliant CU has been paying 2% interest for the last 7 months - NCUA insured to $250k/$100k and offers it in an IRA or Taxable account. Prior to 7 months ago, it was 2.25% for a few months and 2.5% before that.

All of this was when VG was under 0.5% on their Prime MMF.

User avatar
RJSachs
Posts: 420
Joined: Tue Jan 22, 2008 12:50 am

Post by RJSachs » Sat Jan 30, 2010 10:36 am

eurowizard wrote:Vanguard's cash funds are horrible. Alliant CU has been paying 2% interest for the last 7 months - NCUA insured to $250k/$100k and offers it in an IRA or Taxable account. Prior to 7 months ago, it was 2.25% for a few months and 2.5% before that.

All of this was when VG was under 0.5% on their Prime MMF.
Unfair comparison. It is silly to keep money in Prime MMF when Alliant and other options are available, but to blame Vanguard for that is not intellectually honest.

User avatar
Rick Ferri
Posts: 9108
Joined: Mon Feb 26, 2007 11:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Post by Rick Ferri » Sat Jan 30, 2010 10:57 am

The index followed by SCHB is not as deep as Vanguard Total Market. Schwab tracks the Dow Jones U.S. Broad Stock Market Index, which consists of 2,500 U.S. stocks compared to the MSCI US Broad Market Index which has over 3,500 constituents, although Vanguard only holds about 3,400 of those companies.

For other differences, see Schwab ETFs - Looking Beyond Fees

Rick Ferri

User avatar
simba
Posts: 540
Joined: Mon Feb 19, 2007 7:47 pm

Post by simba » Sat Jan 30, 2010 12:19 pm

Rick Ferri wrote:For other differences, see Schwab ETFs - Looking Beyond Fees
Rick - Thanks for the link. I missed this one earlier.

Per their prospectuses...the ETF has this disclosure
"The fund has adopted a Distribution and Shareholder Services (12b-1) Plan pursuant to which the fund is subject to an annual 12b-1 fee of up to 0.25% of its average daily net assets. However, the Board has determined that no such fees will be charged prior to November 14, 2011 (more than 12 months from the commencement of the fund’s operations)."
The Mutual fund prospectus has this disclosure
Schwab and the investment adviser have agreed to limit the “net operating expenses” (excluding interest, taxes and certain non-routine expenses) of the Investor Shares and Select Shares to 0.09% for so long as the investment adviser serves as the adviser to the fund. This agreement may only be amended or terminated with approval of the fund’s Board of Trustees.
If the fee waiver is removed, the ER for the mutual fund goes upto .12%.

I agree that if one has the minimums to cover the VG fund then they should definitely go with that but there are other situations where the Schwab fund may make sense such as
- Investing the cash back from the Schwab Visa
- Investing small amounts

Considering the difference in ER for the ETF (SCHB) and MutualFund(SWTSX) is only 0.01% and the possibility that Schwab may re-instate a 12b-1 for the ETF, doesn't it make sense to invest in the mutual fund?
I know we are probably splitting hairs here, but trying to see which is a simpler option in a taxable account.

Best Regards,
Simba

User avatar
simplesimon
Posts: 3771
Joined: Mon Feb 25, 2008 8:53 pm
Location: Boston, MA

Post by simplesimon » Sat Jan 30, 2010 12:42 pm

RJSachs wrote:
eurowizard wrote:Vanguard's cash funds are horrible. Alliant CU has been paying 2% interest for the last 7 months - NCUA insured to $250k/$100k and offers it in an IRA or Taxable account. Prior to 7 months ago, it was 2.25% for a few months and 2.5% before that.

All of this was when VG was under 0.5% on their Prime MMF.
Unfair comparison. It is silly to keep money in Prime MMF when Alliant and other options are available, but to blame Vanguard for that is not intellectually honest.
Exactly. Vanguard cash funds are at the top compared to its peers due to low expenses. A bank account is not the right comparison.

User avatar
grabiner
Advisory Board
Posts: 27123
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Post by grabiner » Sat Jan 30, 2010 1:24 pm

simba wrote:EW - Here's some additional differences between VTSMX and SWTSX.

Code: Select all

                            VTSMX		SWTSX	
Net Assets                    50B       1.3B
Number of Stocks				 3410		 2308	
Yield				           1.88%		1.63%	
ER						        0.18%		0.09%	
TurnOver					        5%		   1%	
Potential CapGains Exposure (-9.1%)		6.1%	
Tax Cost Ratio
   3 yr                      .3         .64   
   5 yr                      .28        .57   
  10 yr		                .35		  .49	
The Schwab Fund has lower turnover but higher tax cost ratio (i.e lower after-tax returns). It also has a higher potential capital gains exposure. In the long run VG may have an advantage here due to VTI. Time will tell.
If the tax data is from Morningstar, it may not be correct; Morningstar doesn't always know about qualified dividends. Check the tax information with Schwab instead. I would expect the fund to have mostly qualified dividends (Vanguard has 100%), and it's hard for a total-market index fund to have significant capital gains, so I would expect the tax efficiency to be similar.
Wiki David Grabiner

User avatar
Doc
Posts: 9613
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Post by Doc » Sat Jan 30, 2010 1:55 pm

simba wrote:
Per their prospectuses...the ETF has this disclosure
"The fund has adopted a Distribution and Shareholder Services (12b-1) Plan pursuant to which the fund is subject to an annual 12b-1 fee of up to 0.25% of its average daily net assets. However, the Board has determined that no such fees will be charged prior to November 14, 2011 (more than 12 months from the commencement of the fund’s operations)."
...

Considering the difference in ER for the ETF (SCHB) and MutualFund(SWTSX) is only 0.01% and the possibility that Schwab may re-instate a 12b-1 for the ETF, doesn't it make sense to invest in the mutual fund?
I know we are probably splitting hairs here, but trying to see which is a simpler option in a taxable account.

Best Regards,
Simba
They heard you already,
On December 14, 2009, the Board of Trustees of the Trust approved the termination of the Distribution and Shareholder
Services (12b-1) Plan. Therefore, any references to the Distribution and Shareholder Services (12b-1) Plan are hereby
deleted.
Supplement dated January 14, 2010 to the Statement of Additional Information
(the “SAI”) dated November 3, 2009
http://prospectus-express.newriver.com/ ... octype=sai

I think it is more likely that Vanguard would raise the e/r than Schwab. You have to cover the cost and Schwab, unlike Vanguard, can subside from other profit centers since they are a for profit corp. If you don't believe in efficient markets you better keep all you assets in a bank.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

MnD
Posts: 4607
Joined: Mon Jan 14, 2008 12:41 pm

Post by MnD » Sat Jan 30, 2010 2:05 pm

simba wrote:
Rick Ferri wrote:For other differences, see Schwab ETFs - Looking Beyond Fees
Rick - Thanks for the link. I missed this one earlier.

Per their prospectuses...the ETF has this disclosure
"The fund has adopted a Distribution and Shareholder Services (12b-1) Plan pursuant to which the fund is subject to an annual 12b-1 fee of up to 0.25% of its average daily net assets. However, the Board has determined that no such fees will be charged prior to November 14, 2011 (more than 12 months from the commencement of the fund’s operations)."
The Mutual fund prospectus has this disclosure
Schwab and the investment adviser have agreed to limit the “net operating expenses” (excluding interest, taxes and certain non-routine expenses) of the Investor Shares and Select Shares to 0.09% for so long as the investment adviser serves as the adviser to the fund. This agreement may only be amended or terminated with approval of the fund’s Board of Trustees.
If the fee waiver is removed, the ER for the mutual fund goes upto .12%.

I agree that if one has the minimums to cover the VG fund then they should definitely go with that but there are other situations where the Schwab fund may make sense such as
- Investing the cash back from the Schwab Visa
- Investing small amounts

Considering the difference in ER for the ETF (SCHB) and MutualFund(SWTSX) is only 0.01% and the possibility that Schwab may re-instate a 12b-1 for the ETF, doesn't it make sense to invest in the mutual fund?
I know we are probably splitting hairs here, but trying to see which is a simpler option in a taxable account.

Best Regards,
Simba
In addition, the board of trustees for the Schwab ETF Trust approved the termination of the 12b-1 distribution and marketing fees. Even though most ETFs do not charge 12b-1 fees, many fund families have the flexibility of charging them.


“We've eliminated our Rule 12b-1 plan to simplify our pricing and remove the potential additional costs,” said Crawford. “This change reaffirms our commitment to providing clients with optimal value in our relationship with them.”

User avatar
simba
Posts: 540
Joined: Mon Feb 19, 2007 7:47 pm

Post by simba » Sat Jan 30, 2010 2:07 pm

grabiner wrote:If the tax data is from Morningstar, it may not be correct; Morningstar doesn't always know about qualified dividends. Check the tax information with Schwab instead. I would expect the fund to have mostly qualified dividends (Vanguard has 100%), and it's hard for a total-market index fund to have significant capital gains, so I would expect the tax efficiency to be similar.
Good point. I'll check the Schwab returns later tonight.

User avatar
simba
Posts: 540
Joined: Mon Feb 19, 2007 7:47 pm

Post by simba » Sat Jan 30, 2010 2:13 pm

Doc/MnD,

Thanks for the update from Jan Supplement. I had checked all their supplements until Dec. M* doesn't have the latest supplement yet.

So given what we know, does it make sense to invest in the ETF or the mutual fund? The ETF may have a better after-tax returns but the bid-ask spreads may not always give you the best cost basis.

To simplify, does it make sense to just invest in the mutual fund then?

User avatar
Doc
Posts: 9613
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Post by Doc » Sat Jan 30, 2010 2:25 pm

simba wrote:Doc/MnD,

Thanks for the update from Jan Supplement. I had checked all their supplements until Dec. M* doesn't have the latest supplement yet.

So given what we know, does it make sense to invest in the ETF or the mutual fund? The ETF may have a better after-tax returns but the bid-ask spreads may not always give you the best cost basis.

To simplify, does it make sense to just invest in the mutual fund then?
Don't give me too much credit to the Jan Supplement. I saw a comment on the 12-1B removal somewhere and just looked in the most reasonable place.

No it rearely makes sense to limit your options. More of a concern than the negligible difference in e/r or spread is the embargo Vg puts on most of its funds. That puts them at a disadvantage in some circumstances.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

Post Reply