Is Schwab Fundamental U.S. Broad Market Index ETF (FNDB) a Strong ETF Right Now?

Zacks Equity Research
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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?

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.

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.

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.

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.

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 sponsored by Charles Schwab. It has amassed assets over $232.68 million, making it one of the larger ETFs in the Style Box - All Cap Value. FNDB 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

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

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 2.44%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 19.10% of the portfolio, the fund has heaviest allocation to the Information Technology sector; Financials and Industrials round out the top three.

Taking into account individual holdings, Apple Inc 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).

The top 10 holdings account for about 19.22% of total assets under management.

Performance and Risk

Year-to-date, the Schwab Fundamental U.S. Broad Market Index ETF has lost about -6.94% so far, and was up about 0.23% over the last 12 months (as of 09/21/2020). FNDB has traded between $26.60 and $43.02 in this past 52-week period.

The ETF has a beta of 1.07 and standard deviation of 22.75% 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 SP U.S. Value ETF (IUSV) tracks S&P 900 Value Index. Invesco High Yield Equity Dividend Achievers ETF has $638.86 million in assets, iShares Core SP U.S. Value ETF has $6.73 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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Schwab Fundamental U.S. Broad Market Index ETF (FNDB): ETF Research Reports
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Invesco High Yield Equity Dividend Achievers ETF (PEY): ETF Research Reports
 
iShares Core SP U.S. Value ETF (IUSV): ETF Research Reports
 
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