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?
Market cap weighted indexes were created to reflect the market, or a specific segment of the market, and the ETF industry has traditionally been dominated by products based on this strategy.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.
Fund Sponsor & Index
The fund is managed by Charles Schwab, and has been able to amass over $241.73 million, which makes it one of the larger ETFs in the Style Box - All Cap Value. Before fees and expenses, FNDB seeks to match the performance of the Russell RAFI US Index.
The Russell RAFI US Index measures the performance of the constituent companies by fundamental overall company scores.
Cost & Other Expenses
For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.
Operating expenses on an annual basis are 0.25% for FNDB, making it one of the cheaper products in the space.
FNDB's 12-month trailing dividend yield is 2.38%.
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.
This ETF has heaviest allocation in the Information Technology sector - about 20% of the portfolio. Financials and Healthcare round out the top three.
When you look at individual holdings, Apple Inc Common Stock Usd.00001 (AAPL) accounts for about 6.05% of the fund's total assets, followed by Microsoft Corp Common Stock Usd.00000625 (MSFT) and Exxon Mobil Corp Common Stock (XOM).
FNDB's top 10 holdings account for about 18.89% of its total assets under management.
Performance and Risk
So far this year, FNDB has lost about -4.32%, and is up roughly 10.09% in the last one year (as of 08/28/2020). During this past 52-week period, the fund has traded between $26.60 and $43.02.
FNDB has a beta of 1.07 and standard deviation of 22.57% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 1654 holdings, it effectively diversifies company-specific risk.
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 $648.18 million in assets, iShares Core SP U.S. Value ETF has $6.60 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.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.