Designed to provide broad exposure to the Small Cap Value segment of the US equity market, the Schwab Fundamental U.S. Small Company Index ETF (FNDA) is a passively managed exchange traded fund launched on 08/13/2013.
The fund is sponsored by Charles Schwab. It has amassed assets over $5.99 billion, making it one of the largest ETFs attempting to match the Small Cap Value segment of the US equity market.
Why Small Cap Value
Small cap companies have market capitalization below $2 billion. They usually have higher potential than large and mid cap companies with stocks but higher risk.
Carrying lower than average price-to-earnings and price-to-book ratios, value stocks also have lower than average sales and earnings growth rates. While value stocks have outperformed growth stocks in nearly all markets when you consider long-term performance, growth stocks are more likely to outpace value stocks in strong bull markets.
When considering an ETF's total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.
Annual operating expenses for this ETF are 0.25%, putting it on par with most peer products in the space.
It has a 12-month trailing dividend yield of 1.58%.
Sector Exposure and Top Holdings
It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
This ETF has heaviest allocation to the Industrials sector--about 20.70% of the portfolio. Consumer Discretionary and Financials round out the top three.
Looking at individual holdings, Visteon Corp (VC) accounts for about 0.44% of total assets, followed by Ssc Government Mm Gvmxx (GVMXX) and Sylvamo Corp (SLVM).
The top 10 holdings account for about 3.04% of total assets under management.
Performance and Risk
FNDA 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.
The ETF return is roughly 0.39% so far this year and is down about -0.13% in the last one year (as of 05/25/2023). In the past 52-week period, it has traded between $42.52 and $53.63.
The ETF has a beta of 1.19 and standard deviation of 24.03% for the trailing three-year period, making it a medium risk choice in the space. With about 1005 holdings, it effectively diversifies company-specific risk.
Schwab Fundamental U.S. Small Company Index ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FNDA is a great option for investors seeking exposure to the Style Box - Small Cap Value segment of the market. There are other additional ETFs in the space that investors could consider as well.
The iShares Russell 2000 Value ETF (IWN) and the Vanguard Small-Cap Value ETF (VBR) track a similar index. While iShares Russell 2000 Value ETF has $10.68 billion in assets, Vanguard Small-Cap Value ETF has $23.02 billion. IWN has an expense ratio of 0.23% and VBR charges 0.07%.
Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.
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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