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Is Schwab Fundamental U.S. Small Company Index ETF (FNDA) a Strong ETF Right Now?

The Schwab Fundamental U.S. Small Company Index ETF (FNDA) made its debut on 08/13/2013, and is a smart beta exchange traded fund that provides broad exposure to the Style Box - Small Cap Value category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

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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.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is managed by Charles Schwab. FNDA has been able to amass assets over $6.03 billion, making it one of the largest ETFs in the Style Box - Small Cap Value. Before fees and expenses, FNDA seeks to match the performance of the Russell RAFI US Small Co. Index.

The Russell RAFI US Small Company Index measures the performance of the small company size segment by fundamental overall company scores.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.25% for FNDA, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.54%.

Sector Exposure and Top Holdings

ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.

Representing 20.60% of the portfolio, the fund has heaviest allocation to the Industrials sector; Consumer Discretionary and Financials 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

Year-to-date, the Schwab Fundamental U.S. Small Company Index ETF has added about 2.59% so far, and is down about -10.22% over the last 12 months (as of 03/31/2023). FNDA has traded between $42.52 and $53.81 in this past 52-week period.

The fund has a beta of 1.20 and standard deviation of 26.50% for the trailing three-year period, which makes FNDA a medium risk choice in this particular space. With about 976 holdings, it effectively diversifies company-specific risk.

Alternatives

Schwab Fundamental U.S. Small Company Index ETF is an excellent option for investors seeking to outperform the Style Box - Small Cap Value segment of the market. There are other ETFs in the space which investors could consider as well.

IShares Russell 2000 Value ETF (IWN) tracks Russell 2000 Value Index and the Vanguard Small-Cap Value ETF (VBR) tracks CRSP U.S. Small Cap Value Index. IShares Russell 2000 Value ETF has $11.17 billion in assets, Vanguard Small-Cap Value ETF has $23.87 billion. IWN has an expense ratio of 0.23% and VBR charges 0.07%.

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 - Small Cap Value.

Bottom Line

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