Designed to provide broad exposure to the Style Box - All Cap Value category of the market, the Schwab Fundamental U.S. Broad Market Index ETF (FNDB) is a smart beta exchange traded fund launched on 08/13/2013.
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.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
FNDB is managed by Charles Schwab, and this fund has amassed over $259.67 M, which makes it one of the larger ETFs in the Style Box - All Cap Value. Before fees and expenses, FNDB 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
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.
Annual operating expenses for this ETF are 0.25%, making it one of the cheaper products in the space.
FNDB's 12-month trailing dividend yield is 2.30%.
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.
Representing 14.30% of the portfolio, the fund has heaviest allocation to the Information Technology sector; Financials and Healthcare round out the top three.
When you look at individual holdings, Exxon Mobil Corp Common Stock (XOM) accounts for about 3.19% of the fund's total assets, followed by Apple Inc Common Stock Usd.00001 (AAPL) and Chevron Corp Common Stock Usd.75 (CVX).
FNDB's top 10 holdings account for about 18.5% of its total assets under management.
Performance and Risk
The ETF return is roughly 4.77% and is down about -5.83% so far this year and in the past one year (as of 01/11/2019), respectively. FNDB has traded between $31.73 and $40.14 during this last 52-week period.
FNDB has a beta of 0.99 and standard deviation of 12.38% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 1557 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 $695.94 M in assets, iShares Core S&P U.S. Value ETF has $4.93 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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