A strong management team and sound investment process underpin Schwab 1-5 Year Corporate Bond ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a cost advantage over competitors, priced within the lowest 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. 1-5 Year Corporate Bond Index, which sweeps in USD-denominated investment-grade corporate bonds with one to five years remaining to maturity. Eligible bonds must have a minimum of $300 million in outstanding par value and a fixed coupon rate. The index excludes contingent capital securities and bonds with equity features, but it includes global bonds with SEC registration and subordinated securities. It weights selected bonds by their market value, resulting in a broadly diversified portfolio.
Market-value weighting tilts the fund toward the largest issuers. As of May 2023, over 45% of its assets were parked in issuers from the financial services sector who dominate the short-term corporate bond market. As of May 2023, the fund’s top 5 issuers are all large banks that accounted for nearly 14% of its asset. The next largest sectors are technology and industrials with nearly 9% and 7% of the fund’s assets, respectively. The fund has around 8% of its assets invested in bail-in-able debt, nearly all of which comes from the financial services sector. The majority of these come from Canadian and European issuers—markets where these instruments are more heavily used. According to the Canada Deposit Insurance Corporation, "a 'bail-in' is intended to rescue a failing bank by making its creditors and shareholders bear the cost of recapitalizing the bank through conversion of some or all of the bank’s bail-in debt into common shares."
Its category peers are not limited by the corporate mandate and tend to invest around half of their assets in government and securitized bonds. Thus, the fund can look riskier in comparison. As of May 2023, nearly 90% of its assets are parked in bonds rated A and BBB. The fund heavily underweights the highest rung of investment-grade ratings instead compared to its category average. This can cause it to underperform when credit spreads widen, but it should better capture the upside of risk-on markets.
Many category peers also take on small stakes in bonds with less than a year remaining to maturity, which the fund excludes. This lengthens the fund’s duration. It often ends up around half a year longer than the category average. This can expose the fund to some incremental interest-rate risk.

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 1-5 Year Corporate Bond ETF's strong team drives the strategy's Above Average People Pillar rating. There are two managers listed on the fund: Matthew Hastings, Steven Hung. Experience on the team is abundant, with 24 years of average portfolio management experience. Together, they manage a total of two strategies, with a Silver asset-weighted average Morningstar Medalist Rating, demonstrating their 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 1-5 Year Corporate Bond ETF

SCHJ tracks a market-weighted index of USD-denominated investment-grade corporate bonds with short-term maturities of 1-5 years.

Schwab 5-10 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

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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

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

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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.

News for Schwab 1-5 Year Corporate Bond ETF ETF (SCHJ)