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

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

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

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

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.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

The fund is sponsored by Charles Schwab. It has amassed assets over $5.03 billion, making it one of the larger ETFs in the Style Box - Small Cap Value. 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.

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.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.25%.

FNDA's 12-month trailing dividend yield is 1.16%.

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.

For FNDA, it has heaviest allocation in the Industrials sector --about 18.80% of the portfolio --while Consumer Discretionary and Financials round out the top three.

Looking at individual holdings, Sm Energy Co Common Stock Usd.01 (SM) accounts for about 0.88% of total assets, followed by Dillards Inc Cl A Common Stock (DDS) and Amc Entertainment Hlds Cl A Common Stock Usd.01 (AMC).

Its top 10 holdings account for approximately 4.79% of FNDA's total assets under management.

Performance and Risk

The ETF has lost about -0.89% so far this year and was up about 23.70% in the last one year (as of 01/12/2022). In the past 52-week period, it has traded between $44.51 and $57.77.

FNDA has a beta of 1.24 and standard deviation of 28.94% for the trailing three-year period, which makes the fund a medium risk choice in the space. With about 932 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 $16.02 billion in assets, Vanguard SmallCap Value ETF has $26.89 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
 
Dillard's, Inc. (DDS): Free Stock Analysis Report
 
SM Energy Company (SM): Free Stock Analysis Report
 
AMC Entertainment Holdings, Inc. (AMC): Free Stock Analysis Report
 
Vanguard SmallCap Value ETF (VBR): ETF Research Reports
 
iShares Russell 2000 Value ETF (IWN): ETF Research Reports
 
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