Making its debut on 08/13/2013, smart beta exchange traded fund Schwab Fundamental U.S. Broad Market Index ETF (FNDB) provides investors 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.
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.
This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.
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
The fund is managed by Charles Schwab, and has been able to amass over $228.41 million, which makes it one of the larger ETFs in the Style Box – All Cap Value. FNDB, 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
For ETF investors, expense ratios are an important factor when considering a fund’s return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Annual operating expenses for FNDB are 0.25%, which makes it one of the cheaper products in the space.
FNDB’s 12-month trailing dividend yield is 2.57%.
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.
Representing 19.10% 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, Apple Inc Common Stock Usd.00001 (AAPL) accounts for about 5.38% 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 18.54% of FNDB’s total assets under management.
Performance and Risk
Year-to-date, the Schwab Fundamental U.S. Broad Market Index ETF has lost about -11.54% so far, and is down about -4.22% over the last 12 months (as of 07/15/2020). FNDB has traded between $26.60 and $43.02 in this past 52-week period.
The fund has a beta of 1.08 and standard deviation of 22.51% for the trailing three-year period, which makes FNDB a medium risk choice in this particular space. With about 1657 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 SP U.S. Value ETF (IUSV) tracks S&P 900 Value Index. Invesco High Yield Equity Dividend Achievers ETF has $629.91 million in assets, iShares Core SP U.S. Value ETF has $6.16 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.
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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