Schwab to Launch First Fundamentally Weighted ETFs

ETF Trends

Charles Schwab (SCHW) is the latest exchange traded fund provider to enter the innovative and fast-growing market for fundamentally weighted ETFs that blur the line between active and passive management.

The San Francisco-based financial-services giant on Thursday said it plans to launch six fundamental index ETFs next week. Schwab launched its first ETFs in 2009 and currently manages 15 index-based products. At the end of June, Schwab ETFs had $12 billion in assets under management

The new ETFs will be available for purchase commission-free online in Schwab accounts beginning August 15, the firm said. [Schwab Readies Six Fundamental Index ETFs]

The ETFs will track the Russell Fundamental Index Series, which is based on methodology developed by Rob Arnott and Research Affiliates.

Schwab already offers five mutual funds based on the benchmarks, such as Schwab Fundamental US Large Company Index Fund.

Fundamental indices weight individual stocks by economic factors rather than by market capitalization like most traditional equity benchmarks. Fundamental factors include adjusted sales, cash flow, dividends and buybacks.

The fundamental approach “breaks the link between price and weight in the portfolio,” Arnott said during a conference call with reporters on Thursday.

“Some experts believe that because traditional market-cap indexing over-emphasizes popular stocks and de-emphasizes undervalued securities, it can over-expose investors’ portfolios to market speculation, bubbles and fads,” Schwab said in a press release.

“The world is not black and white when it comes to indexing,” added Marie Chandoha, president of Charles Schwab Investment Management.  “We believe the systematic approach inherent in fundamentally weighted methodologies, when used alongside cap-weighted strategies, enables investors to diversify and balance their exposure. These ETFs add a new flavor to our ‘pure vanilla’ ETF market-cap line-up and further demonstrate our commitment to offering core products that help investors build their portfolios and potentially achieve better outcomes.”

The ETFs launching Aug. 15 are:

  • Schwab Fundamental U.S. Broad Market Index ETF (FNDB) – Seeks to track the Russell Fundamental U.S. Index; OER – 0.32%
  • Schwab Fundamental U.S. Large Company Index ETF (FNDX) – Seeks to track the Russell Fundamental U.S. Large Company Index; OER – 0.32%
  • Schwab Fundamental U.S. Small Company Index ETF (FNDA) – Seeks to track the Russell Fundamental U.S Small Company Index; OER – 0.32%
  • Schwab Fundamental International Large Company Index ETF (FNDF) – Seeks to track the Russell Fundamental Developed ex-U.S. Large Company Index; OER – 0.32%
  • Schwab Fundamental International Small Company Index ETF (FNDC) – Seeks to track the Russell Fundamental Developed ex-U.S. Small Company Index; OER – 0.46%
  • Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE) – Seeks to track the Russell Fundamental Emerging Markets Large Company Index; OER – 0.46%

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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