As stock market volatility surged in May, Charles Schwab Corp. announced Monday it saw trading volume soar during the month.
The San Francisco discount brokerage firm reported that its daily average client trades in May increased 14% from a year earlier and 17% from a month earlier.
Matt Snowling, an analyst at FBR Capital Markets, said that while Schwab’s May activity levels were below expectations, “client trades are still rising, which, along with rising interest rates, should provide solid earnings momentum for the company going forward.”
“We continue to believe that the operating environment has improved for the company, typified by elevated trading activity and what we expect to ultimately be reduced fee waivers on money market funds,” he said. “Although slowing, Schwab is still well positioned to attract strong organic client asset growth in this market environment, in our view.”
Schwab generated $4.7 billion of new assets from customers in May, excluding a $29.5 billion outflow related to a mutual fund clearing-services client that began a scheduled transfer of assets to an internal platform. An outflow of about $22 billion also occurred earlier this month as the unnamed client completed the transfer, Schwab said.
The company reported that total client assets rose 16% to $1.412 trillion as of May 31 from a year earlier, but fell 7% last month as a result of stock market volatitliy. It added 17,000 active brokerage accounts last month to give it 7.87 million such account. The company opened 59,000 new accounts last month, down 34% from April but up 4% from a year earlier.
In an effort to increase trading activity and add assets, Schwab has spent much of this year lowering fees. Earlier this year, it lowered fees for small investors and Monday it also announced that it reduced fees on six proprietary exchange traded funds. It redcued operating expense ratios on its broad market ETF from 0.08% to 0.06%, its large-cap growth ETF from 0.15% to 0.13%, its large cap value ETF from 0.15% to 0.13%, its small-cap ETF from 0.15% to 0.13%, its international equity ETF from 0.15% to 0.13%, and its emerging markets equity ETF from 0.35% to 0.25%.
Schwab clients can trade all of the company’s proprietary ETFs commission-free online.
Schwab launched its family of proprietary ETFs in November and has already accumulated nearly $1.2 billion in the funds. Peter Crawford, a senior vice president of investment management sevices at Schwab, said in an interview Monday that the company plans to launch three more ETFs - a TIPS fund and two Treasury funds - this summer.
“These are good products that are very competitively priced and investors are gravitating towards them,” he said. “We want to redouble that strategy and build on that momentum and make sure all of our ETFs are priced lowest in their category.”
After launching three ETFs this summer, Crawford said Schwab hopes to build on its success from there. “We are bullish about this opportunity and likely will have additional products in the years ahead,” he said. “We want to focus on core categories and exceptional pricing.”
In January, Schwab reduced commission on online equity and equity and non-Schwab ETF trades to $8.95. Schwab offered commission-free trading when it launched its proprietary ETF family last year.
To keep up with the competition, other providers have also reduced ETF commission. Last month, Vanguard reduced commissions associated with its exchange-traded funds and stock trades. The Valley Forge, Pa.-based Vanguard said it would offer commission-free trading to its brokerage clients that use its lineups of 46 proprietary ETFs. The company will also offer its customers $7 trades on stocks and $2 trades on non-proprietary ETFs.
John Woerth, a spokesman at Vanguard, said that the company’s decision to lower costs was not an effort to chase the competition. He said that growth within its ETF fund families and the ability to self-clear enabled the company to cut commissions.