The Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE) made its debut on 08/13/2013, and is a smart beta exchange traded fund that provides broad exposure to the Broad Emerging Market ETFs category of the market.
What Are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.
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.
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.
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
Because the fund has amassed over $4.46 billion, this makes it one of the largest ETFs in the Broad Emerging Market ETFs. FNDE is managed by Charles Schwab. This particular fund, before fees and expenses, seeks to match the performance of the Russell RAFI Emerging Markets Large Co. Index (Net).
The Russell RAFI Emerging Markets Large Company Index (Net) ranks companies in the Russell Emerging Markets Index by measures of fundamental size and tracks the performance of those companies whose fundamental scores are in the top 87.5% of the Russell Emerging Markets Index.
Cost & Other Expenses
When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.
Operating expenses on an annual basis are 0.39% for this ETF, which makes it on par with most peer products in the space.
FNDE's 12-month trailing dividend yield is 5.48%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Taking into account individual holdings, China Construction Bank Corp H accounts for about 3.66% of the fund's total assets, followed by Taiwan Semiconductor Manufacturing and Hon Hai Precision Industry Ltd.
The top 10 holdings account for about 12.81% of total assets under management.
Performance and Risk
Year-to-date, the Schwab Fundamental Emerging Markets Large Company Index ETF has lost about -16.90% so far, and is down about -11.91% over the last 12 months (as of 11/30/2022). FNDE has traded between $23.19 and $33.20 in this past 52-week period.
FNDE has a beta of 0.73 and standard deviation of 24.11% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 381 holdings, it effectively diversifies company-specific risk.
Schwab Fundamental Emerging Markets Large Company Index ETF is a reasonable option for investors seeking to outperform the Broad Emerging Market ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Core MSCI Emerging Markets ETF (IEMG) tracks MSCI Emerging Markets Investable Market Index and the Vanguard FTSE Emerging Markets ETF (VWO) tracks FTSE Emerging Markets All Cap China A Inclusion Index. IShares Core MSCI Emerging Markets ETF has $63.54 billion in assets, Vanguard FTSE Emerging Markets ETF has $67.90 billion. IEMG has an expense ratio of 0.09% and VWO charges 0.08%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Broad Emerging Market ETFs.
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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