Charles Schwab (NYSE:SCHW) pioneered the discount brokerage business in the mid-1970s and has remained an innovator in the investment services industry ever since. It built the well-known OneSource marketplace to provide individual investors access to thousands of no-load mutual funds and was among the first to provide individual investors with an online interface. The success of its investor-friendly strategy is evidenced by a tripling of the company’s client assets from $870 billion in 2000 to more than $2.5 trillion at year-end 2015. This makes Schwab the largest publicly-traded investment services firm in the U.S., ahead of all other discount brokers as well as all the wirehouses. We believe Schwab will continue to attract new brokerage accounts and client assets.
Specifically, we believe that the trend towards passive investment products and toward automated investment advice represents more opportunity than risk for the company. Traditional wirehouses still hold more than $10 trillion in client assets and likely will be market share donors for years to come. Schwab also holds many billions of dollars in client cash deposits, on which it earns a spread that tends to rise when interest rates rise. Any increase in short-term interest rates would provide significant earnings to Schwab, and thus upside to our investment, though we are not counting on it.
From Ruane Cunniff (Trades, Portfolio)'s Sequoia Fund second quarter 2016 shareholder letter.
