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?
The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
If you're the kind of investor who would rather try and beat the market through good stock selection, then smart beta funds are your best choice; this fund class is known for tracking 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
The fund is managed by Charles Schwab (NYSE:SCHW). FNDB has been able to amass assets over $275.53 million, making it one of the larger 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
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Operating expenses on an annual basis are 0.25% for this ETF, which makes it one of the least expensive products in the space.
It has a 12-month trailing dividend yield of 2.07%.
Sector Exposure and Top Holdings
Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.
This ETF has heaviest allocation in the Information Technology sector - about 19.30% of the portfolio. Consumer Discretionary and Financials round out the top three.
When you look at individual holdings, Apple Inc (NASDAQ:AAPL) Common Stock Usd.00001 (AAPL) accounts for about 6.56% of the fund's total assets, followed by Microsoft Corp Common Stock Usd.00000625 (MSFT) and Exxon Mobil Corp Common Stock (XOM).
Its top 10 holdings account for approximately 19.22% of FNDB's total assets under management.
Performance and Risk
So far this year, FNDB has added about 5.44%, and is up roughly 15.30% in the last one year (as of 02/04/2021). During this past 52-week period, the fund has traded between $26.60 and $47.25.
The ETF has a beta of 1.10 and standard deviation of 23.57% for the trailing three-year period, making it a medium risk choice in the space. With about 1651 holdings, it effectively diversifies company-specific risk.
Alternatives
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 $756.82 million in assets, iShares Core S&P U.S. Value ETF has $7.77 billion. PEY has an expense ratio of 0.52% 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.
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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