The Schwab Mortgage-Backed Securities ETF (SMBS) Starts Trading

Rhea-AI Summary

Schwab Asset Management launched the Schwab Mortgage-Backed Securities ETF (SMBS) with an industry-leading low expense ratio of 0.03%. The ETF tracks the Bloomberg US MBS Float Adjusted Total Return Index and invests in investment-grade mortgage-backed securities guaranteed by Ginnie Mae, Fannie Mae, and Freddie Mac. The launch marks Schwab Asset Management's 15th anniversary in the ETF space, where it has grown to become the fifth-largest ETF provider.

Positive

• Industry-leading low expense ratio of 0.03%, matching the lowest-priced peer ETFs
• Investment in government-guaranteed, investment-grade mortgage-backed securities
• Schwab's position as fifth-largest ETF provider demonstrates market strength

Negative

• None.

Insights

Financial Analyst

The launch of SMBS represents a strategic move by Schwab into the mortgage-backed securities market with an ultra-competitive 0.03% expense ratio. This positions the fund to compete effectively against established players in the $400+ billion MBS ETF market. The focus on agency MBS (Ginnie Mae, Fannie Mae and Freddie Mac) provides investors with essentially government-backed credit quality, making it an attractive fixed-income diversification tool.

The timing is particularly interesting as rising interest rates have created attractive yields in the MBS space. By tracking the Bloomberg US MBS Float Adjusted Total Return Index, the fund offers broad exposure to the agency MBS market while maintaining high liquidity. For Schwab, this launch strengthens their ETF lineup and could drive additional asset management revenue, though the ultra-low expense ratio means significant AUM will be needed for meaningful profit contribution.

WESTLAKE, Texas--(BUSINESS WIRE)-- Schwab Asset Management^®, the asset management arm of The Charles Schwab Corporation, announced the Schwab Mortgage-Backed Securities ETF (NYSE Arca: SMBS) began trading today.

With an expense ratio of 0.03%, the Schwab Mortgage-Backed Securities ETF is priced in line with the lowest-priced peer ETFs based on the U.S. Mortgage Lipper category¹. The ETF provides access to investment-grade mortgage-backed securities issued and/or guaranteed by U.S. government agencies.

The goal of the Schwab Mortgage-Backed Securities ETF is to track as closely as possible, before fees and expenses, the total return of the Bloomberg US MBS Float Adjusted Total Return Index. The ETF invests in mortgage-backed pass-through securities guaranteed by the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac) that are backed by pools of mortgages.

The launch of the Schwab Mortgage-Backed Securities ETF occurs when Schwab Asset Management is celebrating 15 years since entering the ETF space. Since that time, Schwab Asset Management has become the fifth-largest provider of ETFs² and is known for its commitment to low costs and taking a thoughtful approach to growing its lineup. To learn more visit www.schwabassetmanagement.com/about.

About Schwab Asset Management

One of the industry’s largest and most experienced asset managers, Schwab Asset Management offers a focused lineup of competitively priced ETFs, mutual funds and separately managed account strategies designed to serve the central needs of most investors. By operating through clients’ eyes, and putting them at the center of our decisions, we aim to deliver exceptional experiences to investors and the financial professionals who serve them. As of September 30, 2024, Schwab Asset Management managed approximately $1.3 trillion on a discretionary basis and $40.7 billion on a non-discretionary basis.

About Charles Schwab

At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.

More information is available at www.aboutschwab.com. Follow us on Twitter/X, Facebook, and LinkedIn.

Disclosures:

Investors should consider carefully information contained in the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges and expenses. You can obtain a prospectus, or if available, a summary prospectus by visiting https://www.schwabassetmanagement.com/prospectus. Please read it carefully before investing.

Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares of ETF are bought and sold at market price, which may be higher or lower than the net asset value (NAV).

Diversification and asset allocation strategies do not ensure a profit and do not protect against losses in declining markets.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.

Mortgage-backed securities (MBS) may be more sensitive to interest rate changes than other fixed income investments. They are subject to extension risk, where borrowers extend the duration of their mortgages as interest rates rise, and prepayment risk, where borrowers pay off their mortgages earlier as interest rates fall. These risks may reduce returns.

Certain U.S. government securities that the fund invests in are not backed by the full faith and credit of the U.S. government, which means they are neither issued nor guaranteed by the U.S. Treasury. There can be no assurance that the U.S. government will provide financial support to securities of its agencies and instrumentalities if it is not obligated to do so under law. Also, any government guarantees on securities the fund owns do not extend to the shares of the fund itself.

Schwab Asset Management^® is the dba name for Charles Schwab Investment Management, Inc., the investment adviser for Schwab Funds, Schwab ETFs, and separately managed account strategies. Schwab Funds are distributed by Charles Schwab & Co, Inc. (Schwab), Member SIPC. Schwab ETFs are distributed by SEI Investments Distribution Co. (SIDCO). Schwab Asset Management and Schwab are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation, and are not affiliated with SIDCO.

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¹ Source: Lipper, September 30, 2024.
² Source: ETF.com, ETF League Table, November 8, 2024.

1124-5531

View source version on businesswire.com: https://www.businesswire.com/news/home/20241119907055/en/

Christine Underhill

Charles Schwab

415-961-3790

Source: The Charles Schwab Corporation

FAQ

What is the expense ratio of Schwab's new SMBS ETF?

The Schwab Mortgage-Backed Securities ETF (SMBS) has an expense ratio of 0.03%, which is among the lowest in the U.S. Mortgage Lipper category.

What index does the Schwab SMBS ETF track?

The SMBS ETF tracks the Bloomberg US MBS Float Adjusted Total Return Index.

Which agencies guarantee the mortgage-backed securities in SCHW's SMBS ETF?

The mortgage-backed securities are guaranteed by Ginnie Mae, Fannie Mae, and Freddie Mac.

What is Schwab Asset Management's current position in the ETF market?

Schwab Asset Management is the fifth-largest provider of ETFs, marking 15 years in the ETF space.