A strong management team and sound investment process underpin Schwab 5-10 Year Corp Bd ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy’s management team earns an Above Average People Pillar rating. The strategy merits an Above Average Process Pillar rating.  The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People, Process and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

The fund tracks the Bloomberg U.S. 5-10 Year Corporate Bond Index, which holds investment-grade corporate bonds with between five and 10 years remaining until maturity. Eligible bonds must have fixed coupon rate and at least $300 million in outstanding face value. It excludes certain types of bonds such as euro bonds, contingent capital securities, and bonds with equity features. The index weights selected bonds by their market value. The market does a decent job pricing these bonds in the vast and liquid investment-grade corporate bond market, so this is an efficient approach.

As of May 2023, the fund’s average duration of 6.2 years was around half-a-year lower than the category average. Companies have borrowed more at the longer end of the yield curve owing to the historically low interest rates of the past decade. This lengthened the average duration of the broader market, and the fund’s intermediate focus makes it appear shorter in comparison. This should help it provide incremental outperformance when interest rates increase.

As of May 2023, the fund parked over 43% of its assets in bonds rated A while the average category peer had around 30%. Instead, actively managed funds tend to hold around 5%-7% of their portfolios in junk debt, which the fund excludes by definition. The fund’s more conservative credit risk profile will likely provide some cushion during credit shocks better than actively managed funds that delve into riskier corners of the market.
Issuance activity in the investment-grade corporate bond market has steadily tilted toward the lowest rung of the investment-grade ladder in recent years. The fund’s composition reflects this, with around 52% of its assets allocated to bonds rated BBB. This is a few percentage points higher than the category average and the category index. 

The largest investment-grade corporate borrowers often come from the financial services industry, and the strategy has leaned toward this sector accordingly. As of May 2023, financial institutions represented a third of the fund’s portfolio and seven of its top 10 issuers. Nonetheless, the fund’s performance should not be disproportionately affected by any single company given its vast lineup.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a passively managed vehicle that tracks a particular index, Morningstar associates the Process Pillar rating assigned to that vehicle with the index concerned. Morningstar then maps the Process Pillar associated with a given index to any other uncovered passive strategies that track the same index. This ensures that the analyst’s view is leveraged whenever available and promotes consistency when analyzing passive vehicles associated with a given index.

Above Average

Process

Schwab 5-10 Year Corp Bd ETF benefits considerably from its team, earning it an Above Average People Pillar rating. There are two managers listed on the fund: Matthew Hastings, Steven Hung. The team is well equipped, with an average of 24 years of portfolio management experience. Together, they manage a total of two strategies, with a Silver asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

People

Under new but familiar leadership, Schwab Asset Management Solutions maintains its Above Average Parent Pillar rating. 

After the former Schwab CEO was named president of parent Charles Schwab Corporation in 2022, Omar Aguilar, a Schwab CIO since 2011, was promoted to CEO while retaining his CIO role. Under Aguilar's leadership, Schwab remains focused on core-oriented strategies: More than 95% of the firm's fund assets under management are in low-cost index products that are suitable for the biggest portions of investors' portfolios. Index-tracking remains are par with the best teams in the business.

Recent strategic initiatives show a desire to grow in an increasingly competitive landscape. Forays into direct indexing—which customizes separate accounts through tax-loss harvesting, values-based requests, or other client preferences—as well as some new launches, such as Schwab Municipal Bond ETF, fit the firm's strategic focus and are natural extensions of its capabilities. However, other recent launches in more-niche asset classes, including Schwab Crypto Thematic ETF, contrast previous refusals to enter trendy markets. 

Schwab benefits from its association with its parent's brokerage business. This arrangement and efficient operation allow funds to grow quickly and keep fees in line with larger competitors. Historically, Schwab has been quick to match competitor fee cuts and now sports a 0.09% asset-weighted average fee across its mutual funds and ETFs.

Parent

Schwab 5-10 Year Corporate Bond ETF

SCHI tracks a market-weighted index of USD-denominated investment-grade corporate bonds with intermediate maturities of 5-10 years.

iShares 10+ Year Investment Grade Corporate Bond ETF

iShares iBoxx $ Investment Grade Corporate Bond ETF

iShares Broad USD Investment Grade Corporate Bond ETF

Vanguard Long-Term Corporate Bond ETF

A record amount of money has flooded into the U.S. corporate bond markets this year, as investors rush to lock in the highest yields years ahead of the Fed rate cuts.

Time to Invest in Corporate Bond ETFs

Schwab 5-10 Year Corporate Bond ETF is a high duration ETF focused on high-grade corporate credit. The portfolio is mostly comprised of industrials and financials, with half of the bonds rated BBB and the other half rated A. The maturity walls in 2024 and 2025 may impact corporate income and credit spreads which could dampen the rate cutting plans of the Fed, as credit spreads are historically low.

SCHI: Taking Issue With Credit Spreads

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Inspire Corporate Bond Impact ETF

Principal Investment Grade Corporate Active ETF

iShares Interest Rate Hedged Long-Term Corporate Bond ETF

iShares Investment Grade Bond Factor ETF

iShares 5-10 Year Investment Grade Corporate Bond ETF

John Hancock Corporate Bond ETF

American Century Diversified Corporate Bond ETF

FlexShares Credit-Scored US Long Corporate Bond Index Fund

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iShares Aaa-A Rated Corporate Bond ETF

FlexShares Credit-Scored US Corporate Bond Index Fund

SPDR Portfolio Corporate Bond

M&A was almost dormant in 2023. In the US, as a proportion of the market value of the benchmark equity indices, it fell to its lowest level in 20 years, according to McKinsey. Credit investors are not traditionally supposed to be fans of M&A, and it's true we are wary of leveraging M&A, where debt is loaded onto balance sheets to buy competitors. We are seeing a comeback for M&A that we think is likely to continue through 2024.

The Credit Opportunity In M&A

iShares Core U.S. Aggregate Bond ETF

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iShares Core S&P 500 ETF

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Invesco QQQ

SPDR S&P 500 ETF Trust

SPDR Nuveen Bloomberg Municipal Bond ETF

Investors were net sellers of fund assets for the second week in three, redeeming a net $11.6B for the LSEG Lipper fund flows week ended Wednesday (February 21). For the flows week, the Treasury yield rose at all maturities of the curve, except for the two-month yield, which experienced a one basis point decline to end the week at 5.50%.

U.S. Weekly Fund Flows Insight Report: Conventional Fund And ETF Investors Give A Cold Shoulder To Equity Funds For The Fund Flows Week

Schwab 5-10 Year Corporate Bond ETF has declined over 23% since the end of 2021 and offers an attractive yield of about 6.2%. SCHI has little credit risk as its portfolio consists of investment grade corporate bonds with low default rates. Investors should wait for an economic recession to buy as market selloffs should provide better buying opportunities.

SCHI: Attractive Yield But Investors Can Wait Till An Economic Recession

Schwab 1-5 Year Corporate Bond ETF

Schwab Short-Term US Treasury ETF

Schwab US TIPS ETF

Schwab Long-Term US Treasury ETF

Schwab Intermediate-Term US Treasury ETF

Charles Schwab

Schwab US Aggregate Bond ETF

Schwab Municipal Bond ETF

Schwab High Yield Bond ETF

WESTLAKE, Texas--(BUSINESS WIRE)--Schwab Asset Management™, the asset management arm of The Charles Schwab Corporation and the fifth-largest provider1 of ETFs, today announced the reduction of operating expense ratios for the Schwab High Yield Bond ETF (SCYB) and the Schwab U.S. TIPS ETF (SCHP), bringing the fees for Schwab Asset Management's entire lineup of fixed income ETFs to only three basis points. All of Schwab Asset Management's fixed income ETFs are now among the lowest-priced ETFs in.

Schwab Asset Management Reduces Fees on Two Fixed Income ETFs, Pricing Its Entire Fixed Income Lineup at Three Basis Points

SPDR Bloomberg Emerging Markets Local Bond ETF

Energy Select Sector SPDR Fund

The 10-two Treasury yield spread remained negative. Exchange-traded equity funds recorded $2.6 billion in weekly net outflows.

U.S. Weekly FundFlows Insight Report: Domestic Equities Report Their 13 Weekly Outflow In The Last 14

iShares 7-10 Year Treasury Bond ETF

SPDR Bloomberg High Yield Bond ETF

iShares Short Treasury Bond ETF

iShares 20+ Year Treasury Bond ETF

Vanguard Intermediate-Term Corporate Bond ETF

SCHI has become one of the largest intermediate-term corporate bond ETFs in a year in which investors have largely shunned such funds.

Corporate Bond ETF Bucks Outflow Trend

First Trust Nasdaq Semiconductor ETF

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U.S. equities rallied during the Refinitiv Lipper fund-flows week ended March 29, 2023, but fund flows remained defensive. On the equity side of the equation, both equity ETF (-$12.6 billion) and conventional equity funds (-$7.9 billion) witnessed net outflows for the week.

Despite Equity Rally, Conventional Fund And ETF Investors Stay On The Sidelines This Week

iShares California Muni Bond ETF

Deutsche Bank

First Citizens BancShares

iShares National Muni Bond ETF

Fund investors were net purchasers of money market funds while being net redeemers of equity funds, taxable bond funds, and tax-exempt fixed income funds for the week. On the domestic equity side of the equation, investors became more risk-seeking for the week.

U.S. Weekly FundFlows Insight Report: Despite Rally In U.S. Stocks, Equity ETF And Fund Investors Were Net Redeemers For Fund Flows Week

The single basis point cuts will take effect as of July 1.

Schwab Shaves Prices On Fixed Income ETFs

Schwab Asset Management today announced that it would reduce the operating expense ratios of 10 passively managed ETFs and actively managed mutual funds. “We continually review our cost-effective product suite to find new opportunities to lower expenses for investors,” said David Botset, managing director, head of equity product management and innovation at Schwab Asset Management.

Charles Schwab Reduces Fees on 7 Passive ETFs and 3 Active Mutual Funds

WESTLAKE, Texas--(BUSINESS WIRE)--Schwab Asset Management announces the reduction of operating expense ratios of 10 passively managed ETFs and actively managed mutual funds.

Schwab Asset Management Reduces Fees on 10 Funds

News for Schwab 5-10 Year Corporate Bond ETF ETF (SCHI)