Schvab Asset Management's $17 billion Municipal Bond ETF to compete with Vanguard

The asset management arm of Bloomberg- Charles Schwab Corp. is launching a new municipal bond exchange-traded fund with a low fee that will compete with giants in the space.

The Schwab Municipal Bond ETF will be the cheapest in the municipal bond market with an expense ratio of just 0.03%, according to a statement by Schwab Asset Management on Wednesday. That is less than The Vanguard Group's $17 billion muniETF, which charges 0.05%.

Despite a steep selloff, the MuniETFs, which offer investors a cheap way to access the market, have been able to lure investor cash this year. The funds have seen more than $13 billion in inflows year-to-date, while mutual funds have had steep outflows, according to Bloomberg Intelligence data.

Eric Kazatsky, muni strategist for Bloomberg Intelligence, said that Schwab woke up this morning and chose expense ratio violence as they undercut the current market leader, Vanguard. With cheap beta leading all asset growth in the passive municipal ETF space, the aggressive move is sure to garner a response from other firms. The statement from Schwab notes that theETF will be cheaper than comparable funds. According to Bloomberg, the median fee charged by muni ETFs is 0.25%.

John Sturiale, head of product management and innovation at Schwab Asset Management, said in an emailed response that the pricing objective in broad market ETFs has been and continues to be among the lowest cost providers. Our scale as the fifth largest ETF provider allows us to price our new municipal bond ETF at 3 bps and take a leadership position in bringing down costs for investors. The yields have gone up this year, according to Schwab's announcement. The yield on the 30 year muni benchmark is close to 4%, a level that was last breached in 2014, according to Bloomberg BVAL.

As bond yields have gone up, fixed income investing is more attractive than in years, making this an opportune time to introduce a new choice for investors seeking a simple, low-cost, diversification and risk management in their portfolios, according to Sturiale.

The statement states that the fund, which is expected to begin trading on October 12, will only invest in investment-grade rated securities.

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