A Gold-Rated ETF With Broad Appeal

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.