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

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

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track 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.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

The fund is managed by Charles Schwab. FNDX has been able to amass assets over $16.17 billion, making it one of the largest ETFs in the Style Box - Large Cap Value. FNDX, before fees and expenses, 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

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Operating expenses on an annual basis are 0.25% for this ETF, which makes it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.75%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

FNDX's heaviest allocation is in the Financials sector, which is about 19.50% of the portfolio. Its Information Technology and Healthcare round out the top three.

Looking at individual holdings, Apple Inc accounts for about 4.40% of total assets, followed by Microsoft Corp and Berkshire Hathaway Inc Class B.

The top 10 holdings account for about 20.23% of total assets under management.

Performance and Risk

The ETF has gained about 11.42% and it's up approximately 20.30% so far this year and in the past one year (as of 09/09/2024), respectively. FNDX has traded between $53.46 and $70.84 during this last 52-week period.

FNDX has a beta of 0.99 and standard deviation of 15.80% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 738 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.

Schwab U.S. Dividend Equity ETF SCHD tracks Dow Jones U.S. Dividend 100 Index and the Vanguard Value ETF VTV tracks CRSP U.S. Large Cap Value Index. Schwab U.S. Dividend Equity ETF has $58.84 billion in assets, Vanguard Value ETF has $122.62 billion. SCHD has an expense ratio of 0.06% 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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