A smart beta exchange traded fund, the Schwab Fundamental U.S. Broad Market Index ETF (FNDB) debuted on 08/13/2013, and offers broad exposure to the Style Box - All 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.
Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.
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
FNDB is managed by Charles Schwab, and this fund has amassed over $284.12 M, which makes it one of the average sized ETFs in the Style Box - All Cap Value. This particular fund, before fees and expenses, seeks to match the performance of the Russell RAFI US Index.
The Russell RAFI US Index measures the performance of the constituent companies by fundamental overall company scores.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.25% for FNDB, making it one of the cheaper products in the space.
It's 12-month trailing dividend yield comes in at 2.18%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
For FNDB, it has heaviest allocation in the Information Technology sector --about 16.10% of the portfolio --while Financials and Industrials round out the top three.
When you look at individual holdings, Apple Inc Common Stock Usd.00001 (AAPL) accounts for about 3.53% of the fund's total assets, followed by Exxon Mobil Corp Common Stock (XOM) and Microsoft Corp Common Stock Usd.00000625 (MSFT).
Its top 10 holdings account for approximately 18.33% of FNDB's total assets under management.
Performance and Risk
The ETF has added about 16.83% so far this year and was up about 4.44% in the last one year (as of 06/21/2019). In the past 52-week period, it has traded between $31.73 and $40.14.
The ETF has a beta of 1.01 and standard deviation of 11.94% for the trailing three-year period, making it a medium risk choice in the space. With about 1648 holdings, it effectively diversifies company-specific risk.
Schwab Fundamental U.S. Broad Market Index ETF is a reasonable option for investors seeking to outperform the Style Box - All Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.
Invesco High Yield Equity Dividend Achievers ETF (PEY) tracks NASDAQ US Dividend Achievers 50 Index and the iShares Core S&P U.S. Value ETF (IUSV) tracks S&P 900 Value Index. Invesco High Yield Equity Dividend Achievers ETF has $844.94 M in assets, iShares Core S&P U.S. Value ETF has $5.63 B. PEY has an expense ratio of 0.54% and IUSV 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 - All Cap Value.
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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Schwab Fundamental U.S. Broad Market Index ETF (FNDB): ETF Research Reports
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
iShares Core S&P U.S. Value ETF (IUSV): ETF Research Reports
Invesco High Yield Equity Dividend Achievers ETF (PEY): ETF Research Reports
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
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