Making its debut on 08/13/2013, smart beta exchange traded fund Schwab Fundamental U.S. Small Company Index ETF (FNDA) provides investors broad exposure to the Style Box - Small 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.
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.
Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.
Fund Sponsor & Index
The fund is managed by Charles Schwab. FNDA has been able to amass assets over $5.97 billion, making it one of the largest ETFs in the Style Box - Small Cap Value. This particular fund seeks to match the performance of the Russell RAFI US Small Co. Index before fees and expenses.
The Russell RAFI US Small Company Index measures the performance of the small company size segment 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.
Operating expenses on an annual basis are 0.25% for FNDA, making it on par with most peer products in the space.
FNDA's 12-month trailing dividend yield is 1.46%.
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.
FNDA's heaviest allocation is in the Industrials sector, which is about 19% of the portfolio. Its Financials and Consumer Discretionary round out the top three.
When you look at individual holdings, Diamondback Energy Inc (FANG) accounts for about 0.46% of the fund's total assets, followed by First Citizens Bancshares Inc Clas (FCNCA) and Patterson Uti Energy Inc (PTEN).
FNDA's top 10 holdings account for about 3.42% of its total assets under management.
Performance and Risk
The ETF has lost about -10.91% so far this year and is down about -11.35% in the last one year (as of 11/25/2022). In the past 52-week period, it has traded between $42.52 and $56.50.
The ETF has a beta of 1.18 and standard deviation of 31.15% for the trailing three-year period, making it a medium risk choice in the space. With about 983 holdings, it effectively diversifies company-specific risk.
Schwab Fundamental U.S. Small Company Index ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Russell 2000 Value ETF (IWN) tracks Russell 2000 Value Index and the Vanguard SmallCap Value ETF (VBR) tracks CRSP U.S. Small Cap Value Index. IShares Russell 2000 Value ETF has $12.53 billion in assets, Vanguard SmallCap Value ETF has $24.69 billion. IWN has an expense ratio of 0.23% and VBR charges 0.07%.
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 - Small 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.
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