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Should Schwab Fundamental U.S. Small Company Index ETF (FNDA) Be on Your Investing Radar?

Looking for broad exposure to the Small Cap Value segment of the US equity market? You should consider the Schwab Fundamental U.S. Small Company Index ETF (FNDA), a passively managed exchange traded fund launched on 08/13/2013.

The fund is sponsored by Charles Schwab. It has amassed assets over $5.82 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

Sitting at a market capitalization below $2 billion, small cap companies tend to be high-potential stocks compared to its large and mid cap counterparts, but come with higher risk.

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Value stocks are known for their lower than average price-to-earnings and price-to-book ratios, but investors should also note their lower than average sales and earnings growth rates. Looking at their long-term performance, value stocks have outperformed growth stocks in almost all markets. They are however likely to underperform growth stocks in strong bull markets.

Costs

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

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 1.60%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Industrials sector--about 20.20% of the portfolio. Consumer Discretionary and Information Technology round out the top three.

Looking at individual holdings, First Solar Inc (FSLR) accounts for about 0.42% of total assets, followed by Geo Group Reit Inc (GEO) and Valmont Inds Inc (VMI).

The top 10 holdings account for about 2.36% 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 has lost about -0.79% so far this year and is down about -11.37% in the last one year (as of 03/24/2023). In the past 52-week period, it has traded between $42.52 and $54.89.

The ETF has a beta of 1.20 and standard deviation of 27.32% for the trailing three-year period, making it a medium risk choice in the space. With about 976 holdings, it effectively diversifies company-specific risk.

Alternatives

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 $10.79 billion in assets, Vanguard Small-Cap Value ETF has $22.96 billion. IWN has an expense ratio of 0.23% and VBR charges 0.07%.

Bottom-Line

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

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. Small Company Index ETF (FNDA): ETF Research Reports

First Solar, Inc. (FSLR) : Free Stock Analysis Report

Valmont Industries, Inc. (VMI) : Free Stock Analysis Report

Geo Group Inc (The) (GEO) : Free Stock Analysis Report

Vanguard Small-Cap Value ETF (VBR): ETF Research Reports

iShares Russell 2000 Value ETF (IWN): ETF Research Reports

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Zacks Investment Research