The Schwab Fundamental U.S. Large Company Index ETF (FNDX) was launched on 08/13/2013, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Large Cap Value category of the market.
What Are Smart Beta ETFs?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
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.
Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
Managed by Charles Schwab, FNDX has amassed assets over $9.16 billion, making it one of the larger ETFs in the Style Box - Large Cap Value. Before fees and expenses, FNDX seeks to match the performance of the Russell RAFI US Large Co. Index.
The Russell RAFI US Large Company Index measures the performance of the large company size segment by fundamental overall company scores.
Cost & Other Expenses
Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.
Annual operating expenses for FNDX are 0.25%, which makes it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 1.70%.
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.
This ETF has heaviest allocation in the Information Technology sector - about 17.70% of the portfolio. Financials and Healthcare round out the top three.
When you look at individual holdings, Apple Inc Common Stock Usd.00001 (AAPL) accounts for about 4.13% of the fund's total assets, followed by Exxon Mobil Corp Common Stock (XOM) and Microsoft Corp Common Stock Usd.00000625 (MSFT).
The top 10 holdings account for about 18.3% of total assets under management.
Performance and Risk
The ETF has lost about -4.18% and is up about 21.56% so far this year and in the past one year (as of 01/24/2022), respectively. FNDX has traded between $46.52 and $59.90 during this last 52-week period.
The fund has a beta of 1.05 and standard deviation of 23.31% for the trailing three-year period, which makes FNDX a medium risk choice in this particular space. With about 722 holdings, it effectively diversifies company-specific risk.
Alternatives
Schwab Fundamental U.S. Large Company Index 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 (IWD) tracks Russell 1000 Value Index and the Vanguard Value ETF (VTV) tracks CRSP U.S. Large Cap Value Index. IShares Russell 1000 Value ETF has $56.84 billion in assets, Vanguard Value ETF has $90.45 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.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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