A strong management team and sound investment process underpin Schwab Municipal Bond ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a sizable 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's effective investment approach earns an Above Average Process Pillar rating.  The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar 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

Schwab Municipal Bond ETF earns an Above Average Process Pillar rating. Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. The largest contributor to the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The size of the portfolio management team also bolsters the rating. With four portfolio managers, the fund is reasonably well-resourced. Lastly, the process is limited by the parent firm's five-year retention rate of 75%, which suggests it could do more to retain its portfolio managers.

The investment strategy as stated in the fund's prospectus is: 

The investment seeks to track as closely as possible, before fees and expenses, the total return of the ICE AMT-Free Core U.S. National Municipal Index that measures the performance of the U.S. AMT-free municipal bond market.  The index measures the performance of U.S. dollar denominated investment grade tax-exempt debt publicly issued in the U.S. domestic market by U.S. states and territories as well as their political subdivisions. Under normal circumstances, and the fund may invest up to 20% of its net assets in securities not included in its index.  

 This strategy has a 3.2% 12-month yield, higher than its average peer's 2.8%. Plus, its 30-day SEC yield (a standardized, point-in-time estimate of the fund’s future income return) sits at 3.3%. Typically, higher yields come at the cost of higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio holds assets with a higher average surveyed credit quality of AA, compared with the category average of A, and it holds no non-investment-grade assets, despite the average peers' 1%. Strategies with lower credit risk can typically withstand market turmoil more effectively. In terms of long-term interest-rate risk, this strategy is on par with peers. The longer a strategy's duration, the more sensitive it is to shifts in interest rates. This fund, with a 6.0-year duration, is expected to gain 6.0% of its net asset value if interest rates drop by 1 percentage point, and vice versa.

Above Average

Process

Charles Schwab’s team is strong compared with others in the industry, resulting in an Above Average People Pillar rating. There are four managers listed on the fund: Jason Diefenthaler, Matthew Hastings, John Khodarahmi, Steven Hung. The team is well equipped, with an average of 20 years of portfolio management experience. Though they do not manage other products together, managers may manage them individually.  

 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 Municipal Bond ETF

SCMB tracks an index of USD-denominated, investment grade tax-exempt debt, issued by US states and territories with varying maturities.

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