Charles Schwab, the online brokerage that markets 15
exchange-traded funds with the lowest expense ratios on the U.S.
market, filed regulatory paperwork this week putting into
registration a lineup up
that will use so-called fundamental indexes, with five of the
proposed funds being replications of open-end mutual funds it
Fundamental indexing, pioneered by Rob Arnott's indexing firm
Research Affiliates and by the ETF firm WisdomTree Investments, is
gaining currency in the world of exchange-traded funds, as the
universe of "pure beta" market-capitalization strategies is largely
All the proposed ETFs, which don't yet have a price tag, will
have their primary listings on Arca, the New York Stock Exchange's
electronic trading platform. The funds, their proposed tickers and
the indexes on which they will be based are as follows:
Schwab Fundamental U.S. All Company ETF
, which will trade as "FNDB" and be based on the Russell
Fundamental U.S. Index
Schwab Fundamental U.S. Large Company ETF
, which will trade as "FNDX" and be based on the Russell
Fundamental U.S. Large Company Index.
Schwab Fundamental U.S. Small Company ETF
, which will trade as "FNDA" and be based on the Russell
Fundamental U.S. Small Company Index
Schwab Fundamental International Large Company
, which will trade as "FNDF" and be based on the Russell
Fundamental Developed ex-U.S. Large Company Index
Schwab Fundamental International Small Company
, which will trade as "FNDC" and be based on the Russell
Fundamental Developed ex-U.S. Small Company Index
Schwab Fundamental Emerging Markets Large Company
, which will trade as "FNDE" and be based on the Russell
Fundamental Emerging Markets Large Company Index
The filing comes after San Francisco-based Schwab late last year
hired Tony Davidow from Guggenheim Partners to head up Charles
Schwab Investment Advisory to deliver advice on how investors
should build portfolios across active funds as well as cap-weight
and fundamental indexes.
to spearhead Schwab's initiative to expand its fundamental fund
footprint via the ETF wrapper.
Such strategies, which Arnott jokingly called "active management
in drag" in an interview with IndexUniverse last summer, are
designed to isolate certain factors such as earnings, cash flow,
dividends and book value, and are often considered to be tilting
strategies that favor small-cap and value stocks over larger, more
Arnott's RAFI indexes are behind one of the biggest broad
fundamentally focused funds, the PowerShares FTSE RAFI 1000
Portfolio (NYSEArca:PRF), which has assets of about $1.7 billion,
according to data compiled by IndexUniverse.
Schwab Fundamental Mutual Funds
The fundamentally focused mutual funds Schwab already markets,
ticker symbols, net annual expense ratios and assets under
management are as follows:
Schwab Fundamental US Large Company Index Fund
), 0.36 percent, or $36 for each $10,000 invested. The fund has
$2.1 billion in assets.
Schwab Fundamental US Small Company Index Fund
), 0.35 percent, and the fund has $670.6 million in assets.
Schwab Fundamental International Large Company Index
), 0.36 percent, and the fund has $574.8 million in assets.
Schwab Fundamental International Small Company Index
), 0.55 percent, and the fund has $104.5 million in assets.
Schwab Fundamental Emerging Markets Large Company Index
), 0.61 percent, and the fund has $346.7 million in assets.
The five mutual fund portfolios use the same indexes as will the
The "Russell Fundamental" brand name of the indexes belies a
connection to Rob Arnott's Research Affiliates.
The Russell indexes use RAFI fundamental screens and are based
on an agreement between Russell and Arnott's Research
The indexes on the mutual funds were put in place last October,
and replaced the original set of indexes-also based on Arnott's
system-that have the same "FTSE RAFI" branding as does the
PowerShares ETF "PRF" mentioned above.
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