The Schwab Fundamental U.S. Large Company ETF (FNDX) is a unique investment vehicle that has gained significant traction since its launch in August 2013. As a ‘smart beta’ exchange-traded fund (ETF), it aims to provide investors with exposure to the large-cap value segment of the U.S. market, but with a twist.
Traditional ETFs, often based on market cap-weighted indexes, simply track the performance of a specific market segment. While they offer a low-cost and transparent way to replicate market returns, they may not actively seek to outperform the market. Enter smart beta ETFs, which employ strategies that go beyond market capitalization to select stocks based on certain fundamental characteristics. This approach aims to deliver superior risk-adjusted returns by identifying stocks that have a higher potential for growth and value.
FNDX: A Closer Look
Managed by Charles Schwab, FNDX has garnered over $16.17 billion in assets, making it one of the largest ETFs in the large-cap value category. It tracks the Russell RAFI US Large Co. Index, which measures the performance of large U.S. companies based on their fundamental size and weight, such as revenue, book value, and dividends. This fundamental weighting approach aims to identify companies with strong financial fundamentals, potentially leading to better long-term performance.
Cost and Expenses
With an expense ratio of 0.25%, FNDX aligns with the average cost of comparable ETFs. It also boasts a 12-month trailing dividend yield of 1.75%, potentially adding to investor returns.
Portfolio Diversification and Top Holdings
FNDX offers investors diversified exposure across various sectors, minimizing single-stock risk. The fund’s largest sector allocation is in Financials, representing about 19.50% of the portfolio, followed by Information Technology and Healthcare. In terms of individual holdings, Apple Inc, Microsoft Corp, and Berkshire Hathaway Inc Class B make up a significant portion of the portfolio. The top 10 holdings account for approximately 20.23% of total assets under management.
Performance and Risk
As of September 9, 2024, FNDX has delivered impressive returns, gaining approximately 11.42% year-to-date and 20.30% over the past year. During the past 52 weeks, the ETF has traded between $53.46 and $70.84. FNDX has a beta of 0.99 and a standard deviation of 15.80% for the trailing three-year period, indicating a moderate risk profile. With over 738 holdings, the ETF effectively diversifies company-specific risk.
Alternatives and Considerations
For investors seeking alternative options in the large-cap value space, the Schwab U.S. Dividend Equity ETF (SCHD) and the Vanguard Value ETF (VTV) are worth considering. SCHD tracks the Dow Jones U.S. Dividend 100 Index, while VTV tracks the CRSP U.S. Large Cap Value Index. SCHD has amassed $58.84 billion in assets, while VTV boasts $122.62 billion. SCHD has an expense ratio of 0.06%, while VTV charges 0.04%. Investors seeking lower-risk and cheaper options might prefer traditional market-cap weighted ETFs, which aim to match the returns of the large-cap value segment.
The Bottom Line
The Schwab Fundamental U.S. Large Company ETF (FNDX) offers investors a compelling opportunity to tap into the large-cap value segment of the market with a smart beta approach. Its fundamental weighting strategy, coupled with reasonable costs and solid performance, makes it a worthy addition to any diversified portfolio. As with any investment decision, it’s crucial for investors to thoroughly research their options and carefully assess their risk tolerance before making any investment choices.
