If You Invested in Schwab® Core Bond ETF (SCCR)

The Schwab Core Bond ETF (NYSE Arca: SCCR) is an actively managed fixed income exchange-traded fund offered by Schwab Asset Management, the asset management arm of The Charles Schwab Corporation. According to Schwab Asset Management, the fund is designed to seek total return while generating income by investing in a diversified portfolio of U.S. dollar‑denominated debt securities. SCCR represents Schwab Asset Management’s second actively managed fixed income ETF.

Investment objective and strategy

The Schwab Core Bond ETF states that its goal is to provide total return while generating income. To pursue this objective, the fund invests in U.S. dollar‑denominated debt securities such as corporate bonds, taxable municipal bonds, mortgage pass‑through securities, commercial mortgage‑backed securities, asset‑backed securities, U.S. Treasuries, and other government‑related bonds. The fund is actively managed and does not seek to replicate the performance of any specific index.

The ETF is designed based on the investment process used for the Wasmer Schroeder Core Bond Separately Managed Account (SMA) strategy. Schwab Asset Management indicates that portfolio management for the Wasmer Schroeder strategies is provided by Charles Schwab Investment Management, Inc., doing business as Schwab Asset Management, a registered investment adviser and an affiliate of Charles Schwab & Co., Inc.

Role within Schwab Asset Management’s lineup

Schwab Asset Management describes itself as one of the industry’s largest and most experienced asset managers, offering ETFs, mutual funds, and separately managed account strategies intended to serve central needs of many investors. Within this lineup, the Schwab Core Bond ETF expands the firm’s actively managed ETF offerings in fixed income. Schwab Asset Management notes that SCCR follows an investment process related to the long‑standing Wasmer Schroeder Core Bond SMA strategy.

Key characteristics and risks

Because SCCR is an actively managed ETF, Schwab Asset Management notes that it is subject to the risk that its investment adviser or any subadviser may select investments or allocate assets in a way that causes the fund to underperform or not meet its stated investment objective. The fund may experience a higher degree of portfolio turnover than funds that seek to replicate the performance of an index.

The disclosures for the Schwab Core Bond ETF emphasize that fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed‑income investments are also described as being subject to risks related to changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. The fund may invest in U.S.‑registered, dollar‑denominated bonds of non‑U.S. corporations, and Schwab Asset Management notes that bonds of non‑U.S. issuers can involve risks that are greater than those associated with securities of U.S. issuers, including foreign economic, political, regulatory, and other conditions, as well as differing standards and higher transaction costs. These risks may be heightened for bonds issued by entities in emerging markets.

As with other ETFs, shares of the Schwab Core Bond ETF are bought and sold at market price on an exchange and are not individually redeemable directly with the ETF. Schwab Asset Management states that investment returns will fluctuate and are subject to market volatility, so an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. The disclosures also note that diversification and asset allocation strategies do not ensure a profit and do not protect against losses in declining markets.

Relationship to Wasmer Schroeder strategies

The Schwab Core Bond ETF is described as being designed based on the investment process used for the Wasmer Schroeder Core Bond SMA strategy, which was launched in January 2008. Schwab Asset Management became the investment adviser for Wasmer Schroeder strategies in 2020. Portfolio management for these strategies is provided by Charles Schwab Investment Management, Inc., operating as Schwab Asset Management.

Issuer and distribution

Schwab Asset Management is the doing‑business‑as name for Charles Schwab Investment Management, Inc., which serves as the investment adviser for Schwab Funds, Schwab ETFs, and separately managed account strategies. According to the disclosures, Schwab Funds are distributed by Charles Schwab & Co., Inc., and Schwab ETFs are distributed by SEI Investments Distribution Co. Schwab Asset Management and Charles Schwab & Co., Inc. are described as separate but affiliated companies and subsidiaries of The Charles Schwab Corporation, and they are not affiliated with SEI Investments Distribution Co.

Investor information

Schwab Asset Management emphasizes that investors should carefully consider information contained in the prospectus or, if available, the summary prospectus for the Schwab Core Bond ETF, including investment objectives, risks, charges, and expenses. These documents are identified as the primary sources for detailed information about SCCR. The disclosures highlight that an actively managed fund such as the Schwab Core Bond ETF may behave differently from index‑tracking funds because it does not seek to replicate a specific index and may have a different risk and return profile.