Schwab to boost ETF offerings with purchase of high-flying Windward

Retail brokerage Charles Schwab Corp. said Monday it is buying Windward Investment Management Inc. for $150 million in stock and cash, expanding Schwab’s presence in the fast-growing exchange-traded funds business.

Windward is a Boston-based investment advisory firm managing about $3.9 billion, primarily in ETFs, for clients including other investment advisers, nonprofit organizations, endowments, retirement plans and individuals. Windward has generated compound annual growth in client assets of 56 percent per year over the five years ended July 31.

ETFs are baskets of stocks, bonds or commodities that can be traded like stocks during daily trading sessions. ETFs have attracted investor assets far more rapidly in recent years than mutual funds, which are only priced once a day. ETFs are especially popular with institutional investors, but are also drawing more individual clients because of their typically low costs and tax advantages ETFs often have over mutual funds.

Schwab has ramped up its presence in ETFs, including cutting expenses on six of its proprietary ETFs in June. The San Francisco-based company also recently offered commission-free trading of Schwab ETFs through Schwab brokerage accounts. Schwab said ETF use among its clients grew 38 percent from June 2009 to June 2010.

The acquisition is expected to close in this year’s fourth quarter, subject to closing conditions. Schwab expects the acquisition will “modestly” add to its earnings in the first 12 months after it closes.

Stephen Cucchiaro, Windward’s founder, president and chief investment officer, will remain with the company, Schwab said.

Windward’s investment portfolios will be offered to Schwab retail clients as part of Schwab’s overall managed portfolios strategy. Windward’s ETF-based portfolios will be available directly to individual investors through Schwab’s sales platform.