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A Gold-Rated ETF With Broad Appeal

Low fees are hard to beat.

Adam McCullough: Gold-rated Schwab U.S. Broad Market ETF is an excellent strategy for exposure to nearly every investable stock in the U.S. equity market. This fund enjoys a sustainable advantage over its category peers by tracking a broadly diversified and representative index for a low cost. It tracks the market-cap-weighted Dow Jones U.S. Broad Stock Market Index, which holds the largest 2,500 U.S. stocks. Market-cap-weighting pulls the portfolio toward the largest U.S. stocks and accurately reflects the composition of the market.

Low turnover is a key advantage of the fund's broad market-cap-weighted approach because it mitigates transaction costs and the likelihood of taxable capital gains distributions. Compared with index funds that target specific market-size segments, this fund benefits even more from market-cap-weighting because it doesn't have to sell or buy names as they cross arbitrary market-cap size breakpoints. The fund's average turnover over the past five years through 2018 has measured a small fraction of its average category peer. It also hasn’t distributed any taxable gains since its inception in 2009.

The fund’s low fee of just 3 basis points per year is among the cheapest in the category. Broadly diversified access to nearly every investable U.S. stock for 3 basis points is tough to top and underpins this fund’s Morningstar Analyst Rating of Gold.

Adam McCullough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.