Back to top

Image: Bigstock

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

Read MoreHide Full Article

The Schwab Fundamental U.S. Small Company Index ETF (FNDA - Free Report) was launched on 08/13/2013, and is a passively managed exchange traded fund designed to offer broad exposure to the Small Cap Value segment of the US equity market.

The fund is sponsored by Charles Schwab. It has amassed assets over $6.47 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.

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. Considering long-term performance, value stocks have outperformed growth stocks in almost all markets; however, they are more likely to underperform growth stocks in strong bull markets.

Costs

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 21.40% of the portfolio. Consumer Discretionary and Financials round out the top three.

Looking at individual holdings, Super Micro Computer Inc (SMCI - Free Report) accounts for about 0.63% of total assets, followed by Diversified Healthcare Trust (DHC - Free Report) and Visteon Corp (VC - Free Report) .

The top 10 holdings account for about 3.19% 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 added roughly 5.04% so far this year and is up about 13.68% in the last one year (as of 09/26/2023). In the past 52-week period, it has traded between $42.52 and $53.63.

The ETF has a beta of 1.21 and standard deviation of 22.39% for the trailing three-year period, making it a medium risk choice in the space. With about 1001 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 - Free Report) and the Vanguard Small-Cap Value ETF (VBR - Free Report) track a similar index. While iShares Russell 2000 Value ETF has $10.52 billion in assets, Vanguard Small-Cap Value ETF has $23.99 billion. IWN has an expense ratio of 0.24% and VBR charges 0.07%.

Bottom-Line

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.

Published in