Launched on 08/13/2013, the Schwab Fundamental U.S. Broad Market Index ETF (FNDB) is a smart beta exchange traded fund offering broad exposure to the Style Box – All 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.
A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.
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.
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.
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
The fund is sponsored by Charles Schwab. It has amassed assets over $230.59 million, making it one of the larger ETFs in the Style Box – All Cap Value. This particular fund seeks to match the performance of the Russell RAFI US Index before fees and expenses.
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 2.65%.
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.
FNDB’s heaviest allocation is in the Information Technology sector, which is about 19.80% of the portfolio. Its Healthcare and Financials round out the top three.
Taking into account individual holdings, Apple Inc Common Stock Usd.00001 (AAPL) accounts for about 5.68% of the fund’s total assets, followed by Microsoft Corp Common Stock Usd.00000625 (MSFT) and Exxon Mobil Corp Common Stock (XOM).
The top 10 holdings account for about 20.01% of total assets under management.
Performance and Risk
The ETF has lost about -19.98% so far this year and is down about -11.63% in the last one year (as of 06/01/2020). In the past 52-week period, it has traded between $26.60 and $43.02.
FNDB has a beta of 1.08 and standard deviation of 21.63% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 1672 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 SP U.S. Value ETF (IUSV) tracks S&P 900 Value Index. Invesco High Yield Equity Dividend Achievers ETF has $631.56 million in assets, iShares Core SP U.S. Value ETF has $6.09 billion. PEY has an expense ratio of 0.53% 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.