Back to top

Image: Bigstock

Is Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE) a Strong ETF Right Now?

Read MoreHide Full Article

A smart beta exchange traded fund, the Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE - Free Report) debuted on 08/13/2013, and offers broad exposure to the Broad Emerging Market ETFs 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.

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

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

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.

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

FNDE is managed by Charles Schwab, and this fund has amassed over $5.43 billion, which makes it one of the largest ETFs in the Broad Emerging Market ETFs. FNDE seeks to match the performance of the Russell RAFI Emerging Markets Large Co. Index (Net) before fees and expenses.

The Russell RAFI Emerging Markets Large Company Index (Net) ranks companies in the Russell Emerging Markets Index by measures of fundamental size and tracks the performance of those companies whose fundamental scores are in the top 87.5% of the Russell Emerging Markets Index.

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 0.39% for this ETF, which makes it on par with most peer products in the space.

It's 12-month trailing dividend yield comes in at 4.74%.

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.

When you look at individual holdings, Taiwan Semiconductor Manufacturing accounts for about 4.15% of the fund's total assets, followed by China Construction Bank Corp H and Hon Hai Precision Industry Ltd.

FNDE's top 10 holdings account for about 24.45% of its total assets under management.

Performance and Risk

So far this year, FNDE has lost about -0.18%, and was up about 8.76% in the last one year (as of 02/13/2024). During this past 52-week period, the fund has traded between $25 and $28.35.

The fund has a beta of 0.77 and standard deviation of 16.57% for the trailing three-year period, which makes FNDE a medium risk choice in this particular space. With about 402 holdings, it effectively diversifies company-specific risk.

Alternatives

Schwab Fundamental Emerging Markets Large Company Index ETF is a reasonable option for investors seeking to outperform the Broad Emerging Market ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Core MSCI Emerging Markets ETF (IEMG - Free Report) tracks MSCI Emerging Markets Investable Market Index and the Vanguard FTSE Emerging Markets ETF (VWO - Free Report) tracks FTSE Emerging Markets All Cap China A Inclusion Index. IShares Core MSCI Emerging Markets ETF has $74.16 billion in assets, Vanguard FTSE Emerging Markets ETF has $74 billion. IEMG has an expense ratio of 0.09% and VWO charges 0.08%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Broad Emerging Market ETFs.

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.

Published in