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) was launched on 08/13/2013, and is a smart beta exchange traded fund designed to offer 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.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

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.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

Because the fund has amassed over $5.49 billion, this makes it one of the largest ETFs in the Style Box - Small Cap Value. FNDA is managed by Charles Schwab. Before fees and expenses, this particular fund 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

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain 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 1.35%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

For FNDA, it has heaviest allocation in the Industrials sector --about 18.70% of the portfolio --while Financials and Consumer Discretionary round out the top three.

Taking into account individual holdings, First Citizens Bancshares Inc Clas (FCNCA) accounts for about 0.50% of the fund's total assets, followed by Arch Resources Inc Class A (ARCH) and Warrior Met Coal Inc (HCC).

Its top 10 holdings account for approximately 3.95% of FNDA's total assets under management.

Performance and Risk

Year-to-date, the Schwab Fundamental U.S. Small Company Index ETF has lost about -13.60% so far, and is down about -6.13% over the last 12 months (as of 05/16/2022). FNDA has traded between $46.74 and $57.77 in this past 52-week period.

The fund has a beta of 1.19 and standard deviation of 29.66% for the trailing three-year period, which makes FNDA a medium risk choice in this particular space. With about 909 holdings, it effectively diversifies company-specific risk.

Alternatives

Schwab Fundamental U.S. Small Company Index ETF is a reasonable option for investors seeking to outperform the Style Box - Small Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Russell 2000 Value ETF (IWN) tracks Russell 2000 Value Index and the Vanguard SmallCap Value ETF (VBR) tracks CRSP U.S. Small Cap Value Index. IShares Russell 2000 Value ETF has $12.18 billion in assets, Vanguard SmallCap Value ETF has $24.33 billion. IWN has an expense ratio of 0.24% 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.

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Schwab Fundamental U.S. Small Company Index ETF (FNDA): ETF Research Reports
 
Warrior Met Coal (HCC) : Free Stock Analysis Report
 
First Citizens BancShares, Inc. (FCNCA) : Free Stock Analysis Report
 
Vanguard SmallCap Value ETF (VBR): ETF Research Reports
 
iShares Russell 2000 Value ETF (IWN): ETF Research Reports
 
Arch Resources Inc. (ARCH) : Free Stock Analysis Report
 
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