Though the funds have fewer shares in circulation than more established offerings, the bid-ask spreads have been fairly narrow for those broad market funds that have been around for a year or more. Schwab U.S. Broad Market and Schwab U.S. Large Cap, for example, have average daily trading volume of 291,000 shares and 260,000 shares, respectively, and modest bid-ask spreads of around four basis points. The 22-basis-point bid-ask spread for Schwab International Small-Cap Equity is somewhat higher, but not outrageous given that it covers less liquid markets. The same holds true for Emerging Markets Equity, which has a 13-basis-point spread.
"My baseline for reasonable liquidity is trading at least 100,000 shares a day, and only five of the Schwab ETFs do," says Carolyn Hill, an ETF analyst at Indexuniverse.com. "Larger investors may still have trouble with Schwab's less liquid ETFs."
Hill believes that while Schwab's low expense ratios and the commission-free trades on its platform have been very effective in drawing investors, the build-out is likely to be a gradual one. "At this point, Schwab's ETFs are making more of a ripple than a splash. But over the long haul, that ripple could turn into a more significant wave."