UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-22311
Schwab Strategic Trust — Schwab U.S. REIT ETF
(Exact name of registrant as specified in charter)
211 Main Street, San Francisco, California 94105
(Address of principal executive offices)    (Zip code)
Marie Chandoha
Schwab Strategic Trust
211 Main Street, San Francisco, California 94105
(Name and address of agent for service)
Registrant’s telephone number, including area code: (415) 636-7000
Date of fiscal year end: February 28
Date of reporting period: September 1, 2012 — November 30, 2012
 
 
Item 1. Schedule of Investments.

 

 

Schwab Strategic Trust
Schwab U.S. REIT ETF™
 
Portfolio Holdings  as of November 30, 2012 (Unaudited)
 
 
The following are the portfolio holdings as of the report date. For more information, please refer to the fund’s semiannual or annual shareholder reports.
 
                         
        Cost
  Value
Holdings by Category   ($)   ($)
 
  99 .8%   Common Stock     342,474,057       346,628,771  
  0 .2%   Other Investment Company     486,071       486,071  
 
 
  100 .0%   Total Investments     342,960,128       347,114,842  
  —%   Other Assets and
Liabilities, Net 		            136,327  
 
 
  100 .0%   Net Assets             347,251,169  
 
                 
    Number
  Value
Security   of Shares   ($)
 
 Common Stock  99.8% of net assets
 
Diversified REITs 6.3%
Cousins Properties, Inc.
    80,130       657,867  
Duke Realty Corp.
    237,479       3,205,967  
First Potomac Realty Trust
    43,589       511,299  
Liberty Property Trust
    103,227       3,595,396  
PS Business Parks, Inc.
    15,889       1,024,682  
Vornado Realty Trust
    148,887       11,379,433  
Washington REIT
    58,017       1,503,801  
                 
              21,878,445  
 
Industrial REITs 5.1%
DCT Industrial Trust, Inc.
    237,660       1,485,375  
EastGroup Properties, Inc.
    25,871       1,352,536  
First Industrial Realty Trust, Inc.  *
    79,186       1,045,255  
ProLogis, Inc.
    406,352       13,791,587  
                 
              17,674,753  
 
Office REITs 14.9%
Alexandria Real Estate Equities, Inc.
    55,260       3,753,259  
BioMed Realty Trust, Inc.
    136,323       2,626,944  
Boston Properties, Inc.
    132,810       13,630,290  
Brandywine Realty Trust
    127,218       1,517,711  
CommonWealth REIT
    73,182       1,107,244  
Corporate Office Properties Trust
    70,133       1,730,882  
Digital Realty Trust, Inc.
    107,423       6,933,080  
Douglas Emmett, Inc.
    114,384       2,597,661  
DuPont Fabros Technology, Inc.
    55,468       1,280,756  
Franklin Street Properties Corp.
    62,952       727,096  
Highwoods Properties, Inc.
    67,337       2,170,945  
Kilroy Realty Corp.
    65,059       2,934,161  
Mack-Cali Realty Corp.
    73,901       1,868,217  
Parkway Properties, Inc.
    19,106       256,785  
Piedmont Office Realty Trust, Inc., Class A
    149,176       2,632,956  
SL Green Realty Corp.
    79,332       5,980,046  
                 
              51,748,033  
 
Residential REITs 18.3%
American Campus Communities, Inc.
    90,870       3,980,106  
Apartment Investment & Management Co., Class A
    128,464       3,220,592  
AvalonBay Communities, Inc.
    85,278       11,238,788  
BRE Properties, Inc.
    67,570       3,287,280  
Camden Property Trust
    73,628       4,837,360  
Colonial Properties Trust
    73,210       1,493,484  
Education Realty Trust, Inc.
    97,635       1,006,617  
Equity Lifestyle Properties, Inc.
    34,277       2,249,942  
Equity Residential
    265,387       14,731,632  
Essex Property Trust, Inc.
    32,066       4,504,952  
Home Properties, Inc.
    44,045       2,593,810  
Mid-America Apartment Communities, Inc.
    35,882       2,236,166  
Post Properties, Inc.
    47,775       2,347,186  
Sun Communities, Inc.
    23,775       917,715  
UDR, Inc.
    219,952       5,061,096  
                 
              63,706,726  
 
Retail REITs 27.1%
Acadia Realty Trust
    43,105       1,069,866  
CBL & Associates Properties, Inc.
    139,632       3,143,116  
Cedar Realty Trust, Inc.
    47,765       258,886  
DDR Corp.
    209,473       3,207,032  
Equity One, Inc.
    54,534       1,127,218  
Federal Realty Investment Trust
    56,396       5,867,440  
General Growth Properties, Inc.
    395,867       7,667,944  
Glimcher Realty Trust
    123,739       1,326,482  
Inland Real Estate Corp.
    67,357       536,835  
Kimco Realty Corp.
    357,888       6,892,923  
Kite Realty Group Trust
    60,484       322,985  
Pennsylvania REIT
    46,399       773,007  
Ramco-Gershenson Properties Trust
    41,243       551,831  
Regency Centers Corp.
    79,220       3,711,457  
Rouse Properties, Inc.
    20,271       304,065  
Saul Centers, Inc.
    11,166       475,672  
Simon Property Group, Inc.
    267,251       40,656,895  
Tanger Factory Outlet Centers
    83,181       2,734,991  
Taubman Centers, Inc.
    54,289       4,205,769  
The Macerich Co.
    117,199       6,621,743  
Weingarten Realty Investors
    98,792       2,685,167  
                 
              94,141,324  
 
Specialized REITs 28.1%
Ashford Hospitality Trust
    54,813       496,058  
CubeSmart
    100,278       1,383,836  
DiamondRock Hospitality Co.
    170,090       1,486,587  
Extra Space Storage, Inc.
    90,637       3,185,890  
FelCor Lodging Trust, Inc.  *
    96,367       404,741  
HCP, Inc.
    397,964       17,928,278  
Health Care REIT, Inc.
    223,987       13,190,594  
Healthcare Realty Trust, Inc.
    75,492       1,800,484  
 
 
 
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 Schwab U.S. REIT ETF
 

 
Portfolio Holdings   (Unaudited) continued
 
                 
    Number
  Value
Security   of Shares   ($)
Hersha Hospitality Trust
    152,671       716,027  
Hospitality Properties Trust
    108,811       2,470,010  
Host Hotels & Resorts, Inc.
    635,624       9,337,317  
LaSalle Hotel Properties
    76,424       1,842,583  
LTC Properties, Inc.
    26,337       861,747  
Pebblebrook Hotel Trust
    52,168       1,087,703  
Public Storage
    126,985       17,859,170  
Senior Housing Properties Trust
    154,718       3,457,947  
Sovran Self Storage, Inc.
    26,096       1,612,472  
Sunstone Hotel Investors, Inc.  *
    120,827       1,246,935  
Universal Health Realty Income Trust
    11,192       545,498  
Ventas, Inc.
    260,261       16,565,613  
                 
              97,479,490  
                 
Total Common Stock
(Cost $342,474,057)     346,628,771  
         
                 
                 
 
 Other Investment Company  0.2% of net assets
 
Money Market Fund 0.2%
State Street Institutional U.S. Government Money Market Fund
    486,071       486,071  
                 
Total Other Investment Company
(Cost $486,071)     486,071  
         
 
End of Investments
 
At 11/30/12, the tax basis cost of the fund’s investments was $343,198,190 and the unrealized appreciation and depreciation were $14,323,855 and ($10,407,203), respectively, with a net unrealized appreciation of $3,916,652.
 
* Non-income producing security.
 
     
REIT —
  Real Estate Investment Trust
 
 
Under procedures approved by the fund’s Board of Trustees (the “Board”), the investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and to ensure that prices used for internal purposes or provided by third parties reasonably reflect fair market value. Among other things, these procedures allow the fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
 
The fund values the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:
 
  •  Securities traded on an exchange or over-the-counter: valued at the closing value for the day, or, on days when no closing value has been reported at halfway between the most recent bid and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S. dollars at the current exchange rate, unless these securities are fair valued as discussed below.
 
  •  Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the procedures.
 
  •  Short-term securities (60 days or less to maturity): valued at amortized cost, which approximates market value.
 
  •  Underlying funds: valued at their respective net asset values.
 
In accordance with the authoritative guidance on fair value measurements and disclosures under generally accepted accounting principles in the United States of America (GAAP), the fund discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). If
 
 
 
2 

 

 
 Schwab U.S. REIT ETF
 

 
Portfolio Holdings   (Unaudited) continued
 
the fund determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.
 
The three levels of the fair value hierarchy are as follows:
 
  •  Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities.
 
  •  Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
 
  •  Level 3 — significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund’s results of operations.
 
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used to value the fund’s investments as of November 30, 2012:
 
                                 
    Quoted Prices in
      Significant
   
    Active Markets for
  Significant Other
  Unobservable
   
    Identical Assets
  Observable Inputs
  Inputs
   
Description
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total 2
 
Common Stock 1
    $346,628,771       $—       $—       $346,628,771  
Other Investment Company 1
    486,071       —       —       486,071  
                                 
Total
    $347,114,842       $—       $—       $347,114,842  
                                 
 
     
1
  As categorized in Portfolio Holdings.
2
  The fund had no Other Financial Instruments.
 
The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended November 30, 2012.
 
REG66362NOV12
 
 
 
  3

 

Item 2. Controls and Procedures.
(a)   Based on their evaluation of Registrant’s disclosure controls and procedures, as of a date within 90 days of the filing date, Registrant’s Chief Executive Officer, Marie Chandoha and Registrant’s Principal Financial Officer, George Pereira, have concluded that Registrant’s disclosure controls and procedures are: (i) reasonably designed to ensure that information required to be disclosed in this report is appropriately communicated to Registrant’s officers to allow timely decisions regarding disclosures required in this report; (ii) reasonably designed to ensure that information required to be disclosed in this report is recorded, processed, summarized and reported in a timely manner; and (iii) are effective in achieving the goals described in (i) and (ii) above.
 
(b)   During Registrant’s last fiscal quarter, there have been no changes in Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that the above officers believe to have materially affected, or to be reasonably likely to materially affect, Registrant’s internal control over financial reporting.
Item 3. Exhibits.
Separate certifications for Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)), are attached.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant ) Schwab Strategic Trust
         
By:
  /s/ Marie Chandoha
 
Marie Chandoha 		   
 
  Chief Executive Officer    
 
       
Date:
  1/24/2013    
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
         
By:
  /s/ Marie Chandoha
 
Marie Chandoha 		   
 
  Chief Executive Officer    
 
       
Date:
  1/24/2013    
 
       
By:
  /s/ George Pereira
 
George Pereira 		   
 
  Principal Financial Officer    
 
       
Date:
  1/24/2013    

 

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