Is Schwab Fundamental U.S. Large Company ETF a Strong ETF Right Now?

Making its debut on 08/13/2013, smart beta exchange traded fund Schwab Fundamental U.S. Large Company ETF FNDX provides investors broad exposure to the Style Box - Large Cap Value category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking non-cap weighted strategies.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

FNDX is managed by Charles Schwab, and this fund has amassed over $15.63 billion, which makes it one of the larger ETFs in the Style Box - Large Cap Value. Before fees and expenses, this particular fund seeks to match the performance of the Russell RAFI US Large Co. Index.

The RAFI Fundamental High Liquidity US Large Index measures the performance of large U.S. companies based on their fundamental size and weight.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Operating expenses on an annual basis are 0.25% for FNDX, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.77%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

For FNDX, it has heaviest allocation in the Financials sector --about 19.60% of the portfolio --while Information Technology and Healthcare round out the top three.

Looking at individual holdings, Apple Inc accounts for about 3.92% of total assets, followed by Microsoft Corp MSFT and Berkshire Hathaway Inc Class B (BRK/B).

FNDX's top 10 holdings account for about 20.15% of its total assets under management.

Performance and Risk

So far this year, FNDX has added about 9.77%, and is up roughly 20.24% in the last one year (as of 07/09/2024). During this past 52-week period, the fund has traded between $53.46 and $67.55.

The ETF has a beta of 0.99 and standard deviation of 15.74% for the trailing three-year period, making it a medium risk choice in the space. With about 728 holdings, it effectively diversifies company-specific risk.

Alternatives

Schwab Fundamental U.S. Large Company ETF is an excellent option for investors seeking to outperform the Style Box - Large Cap Value segment of the market. There are other ETFs in the space which investors could consider as well.

IShares Russell 1000 Value ETF tracks Russell 1000 Value Index and the Vanguard Value ETF tracks CRSP U.S. Large Cap Value Index. IShares Russell 1000 Value ETF has $55.66 billion in assets, Vanguard Value ETF has $115.94 billion. IWD has an expense ratio of 0.19% and VTV charges 0.04%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Value.

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