Schwab Offers Commission-Free ETFs

Charles Schwab has launched eight new exchange-traded funds that offer Schwab clients commission-free online trading in addition to low operating expense ratios. Schwab debuted the first four ETFs on Tuesday, with the second four to follow in December. The first four are the Schwab U.S. Broad Market ETF, the Schwab U.S. Large-Cap ETF, the Schwab U.S. Small-Cap ETF and the Schwab International Equity ETF. The broad market and large-cap ETFs will have operating expense ratios of 0.08%, while the small-cap and international equity ETFs will have operating expense ratios of 0.15%.

"These ETFs will make dollar-cost averaging possible for everyday customers," said Walter Bettinger, Schwab's president and CEO. He said the new ETFs have some of the lowest operating expense ratios on the market and can be bought and sold without commissions in Schwab accounts if they are purchased online, regardless of the number of shares traded. While the free commission applies only to online trades of the eight Schwab ETFs, there is no limit to the number of trades per day.

In December, Schwab will launch the second four ETFs. They are the Schwab U.S. Large-Cap Growth ETF, the Schwab U.S. Large-Cap Value ETF, the Schwab International Small-Cap Equity ETF and the Schwab Emerging Markets Equity ETF. The operating expense ratios for the growth and value ETFs will be 0.15%, while the operating expense ratios for the international small-cap and emerging markets ETFs will be 0.35%.

While some ETFs have been criticized for investing in esoteric categories, Peter Crawford, a SVP in Schwab's investment management services group, said half of all ETF assets are in the eight categories Schwab is launching.

Crawford said only 16% of Schwab's individual investors currently own ETFs, but 43% of advisers who custody with Schwab said they plan to increase their usage of ETFs in the next six months. "This makes them vehicles with tremendous potential for growth," he said. Schwab has approximately $1.36 trillion in client assets.

Mutual Fund Asset Flows Likely to be More Volatile

Volatile redemptions from and investments into mutual funds are not just due to market returns but to an entirely different approach investors are taking to fund ownership, according to a new report from ReFlow.

Although the mutual fund industry experienced its first annual net outflows in 2008 for the first time in 20 years, flows started to become more volatile in 2006, ReFlow found through analysis.

"Flow volatility is an ongoing trend that may not reverse even as the market recovers and net flows generally turn positive," said Paul Schaeffer, president of ReFlow. This counters the widely held belief that volatile asset flows are a temporary or cyclical phenomenon, Schaeffer added.

As flows become more volatile, it can hurt performance and increase costs, as redemptions force the hand of portfolio managers.

ReFlow's whitepaper is available at:

Market Momentum Seen Moving Towards Growth

Since the market's low on March 9, small-cap value stocks have delivered some of the best performance, but experts believe the pendulum is swinging back in the direction of large-cap growth stocks.

Year-to-date through Oct. 28, small-cap value mutual funds are up an average of 74%, whereas small-cap growth funds are up 58% and large-cap growth funds are up 52%, according to Morningstar.

True to other market downturns, when the economy turned south at the end of 2007, investors began to bail out of small-cap value stocks, for fear that they might go bankrupt. The ensuing beaten-down prices made these stocks some of the most attractive when the market began its reversal this past spring.

Growth stocks traditionally lead the second wave of a rebound, but especially with the recovery looking so choppy and more companies looking to expand their business into emerging markets, the larger, higher-quality, better-equipped companies look even more appealing and are likely to see their stocks begin gaining steam. In addition, with jobs being so scarce, it's more than likely that companies will invest more in technology to realize even greater efficiencies, and experts are also touting these stocks.

iShares Taps McCann for New Adviser Ad Campaign

Barclays Global Investors' iShares exchange-traded funds group has selected two McCann Worldwide advertising agencies, McCann Erickson and MRM Worldwide, to develop a fully integrated campaign to drive awareness, understanding and use of iShares ETFs among financial advisers and institutional investors.

Starting early next year, Barclays plans to use television, print, radio, interactive media, e-mail, direct mail, digital strategy and data analytics for the campaign.

"As the leader of one of the fastest-growing segments in financial services, iShares was seeking a fully integrated agency with a strong San Francisco team that could deliver a bold new approach that will fuel future growth," said Kevin Feldman, head of iShares marketing.

Sun Life Launches First U.S. Advertising Campaign

The U.S. division of Sun Life Financial last Sunday launched its first brand and marketing campaign, "Get to Know Sun Life," comprised of television, print, online ads and a home website containing social media channels. The campaign, aimed at both investors and financial advisers, stresses the company's 144-year history.

"Sun Life Financial has excellent financial strength ratings, yet U.S. consumers are not familiar with our brand," said Jon Boscia, president of Sun Life Financial. "The campaign is the first step in introducing our company to a broader audience. While lighthearted in approach, the campaign also leverages Sun Life's optimistic and straightforward positioning that we use in our everyday business to help our customers to plan confidently for their financial futures."

In one of the TV ads, two gung-ho Sun Life representatives, who are referred to as the "Sun Life Guys," look to modify well-known "sun" brands with a Sun Life twist, including asking "KC and The Sunshine Band" to change their name to "KC and The Sun Life Band." In another, the "guys" ask Florida to adjust its "Sunshine State" slogan.

The Martin Agency and BrandFirst Entertainment created the campaign.

Two More PIMCO ETFs Linked to U.S. Treasuries

PIMCO has launched two new Treasury exchange-traded funds to round out its offerings. These include the PIMCO 3-7 Year U.S. Treasury Index Fund and the interest-rate sensitive PIMCO 25+ Year Zero Coupon U.S. Treasury Index Fund.

"These newest offerings highlight PIMCO's ongoing commitment to introducing well-engineered ETF solutions that look to meet the needs of investors," said PIMCO Managing Director Vineer Bhansali, who will also manage the funds.

PIMCO now offers ETFs spanning a broad range of Treasury and bond maturities so that investors can navigate the yield curve and position their portfolios for expected changes in interest rates and economic conditions, or hold highly liquid, high-quality funds for the long term.

Dow Economic Sentiment Indicator Rises to 36.9

On news that the U.S. gross domestic product rose 3.5% in the third quarter and continued signs of ongoing momentum in the stock market, the Dow Jones Economic Sentiment Indicator rose to 36.9 in October, up from 34.1 in September. It was the gauge's highest reading since August 2008.

The indicator is based on news coverage in 15 major daily newspapers in the U.S., as opposed to the national surveys that the University of Michigan Consumer Sentiment Index and the Conference Board Consumer Confidence Index use.

Dow Jones found that while those two indexes dropped in October, due to news of continued job losses, the news media focused on the stock market's rebound, improved corporate earnings and GDP growth. Over the past 12 months, the Dow Jones indicator has risen in 10 of those months since its low of 22.2 in November 2008.

"The ESI's strong rise since its lows in November 2008 shows the U.S. economy is clearly getting better, a message confirmed by the big jump in third-quarter GDP," said Alen Mattich, a columnist with Dow Jones. However, because the indicator is still in the low range, he added, "the recovery remains vulnerable to reversal. In the past two cycles, an economic upturn wasn't firmly established until the ESI reached the upper 30s or lower 40s."

Bill Would Have States Oversee Hedge Funds

The House Financial Services Committee passed a bill Wednesday that would allow states to oversee hedge funds and other investment advisors with $100 million or less in assets under management, leaving larger investment managers up to the Securities and Exchange Commission.

Because the SEC currently regulates advisors with $25 million or more under management, the bill would shift 43% of these companies, or roughly 710, back over to state oversight.

But some critics, including the SEC and Connecticut Attorney General Richard Blumenthal, whose state is home to some of the nation's biggest hedge funds, say that shifting oversight to the 50 states would fragment regulation and inevitably lead to problems for investors. "We are concerned that some fund advisors could exploit this exemption and avoid registration by splitting up any funds that are larger than $150 million," said SEC spokesman John Nester.

Value Line Pays $45M For Sending Trades to B/D

Value Line, its CEO and former CCO settled civil charges with the Securities and Exchange Commission for $45 million for having improperly funneled mutual fund trades to its affiliated broker/dealer and pocketing $24 million in commissions.

"Value Line misappropriated millions of dollars from the mutual funds they managed by artificially allocating fund trades and then charging the funds for phantom brokerage services," said Robert Khuzami, director of the SEC's enforcement division. "Such blatant wrongdoing will not be tolerated."

Value Line proposed the settlement in September to avoid further litigation.

Only 18% of Advisers from Wirehouses Go Indie

Of the 24,441 wirehouse advisers who switched firms over the past year, 34% moved to another wirehouse, 18% went independent and 11% went to a regional firm, according to Discovery data through October.

10% of Americans Oversaving for Retirement

With all of the news about low 401(k) balances, amazingly, an estimated 10% may be saving too much for retirement, according to the estimates of Harvard University economist David Laibson.


(c) 2009 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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