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Is Schwab Fundamental U.S. Broad Market Index ETF (FNDB) a Hot ETF Right Now?

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The Schwab Fundamental U.S. Broad Market Index ETF (FNDB) was launched on 08/13/2013, and is a smart beta exchange traded fund designed to offer broad exposure to the Total Market (U.S.) 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.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

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.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

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

Because the fund has amassed over $254.73 M, this makes it one of the larger ETFs in the Total Market (U.S.) ETFs. FNDB is managed by Charles Schwab. Before fees and expenses, this particular fund seeks to match the performance of the Russell RAFI US Index.

The Russell RAFI US Index measures the performance of the constituent companies 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.

Annual operating expenses for this ETF are 0.25%, making it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 2.16%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Information Technology sector - about 15.20% of the portfolio. Financials and Healthcare round out the top three.

Taking into account individual holdings, Apple Inc Common Stock Usd.00001 (AAPL) accounts for about 3.65% of the fund's total assets, followed by Exxon Mobil Corp Common Stock (XOM) and Chevron Corp Common Stock Usd.75 (CVX - Free Report) .

FNDB's top 10 holdings account for about 18.62% of its total assets under management.

Performance and Risk

Year-to-date, the Schwab Fundamental U.S. Broad Market Index ETF has lost about -0.82% so far, and it's up approximately 4.26% over the last 12 months (as of 10/25/2018). FNDB has traded between $35.32 and $40.14 in this past 52-week period.

The fund has a beta of 0.99 and standard deviation of 11.54% for the trailing three-year period, which makes FNDB a medium risk choice in this particular space. With about 1572 holdings, it effectively diversifies company-specific risk.

Alternatives

Schwab Fundamental U.S. Broad Market Index ETF is a reasonable option for investors seeking to outperform the Total Market (U.S.) ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Invesco High Yield Equity Dividend Achievers ETF (PEY) tracks NASDAQ US Dividend Achievers 50 Index and the iShares Core S&P U.S. Value ETF (IUSV) tracks S&P 900 Value Index. Invesco High Yield Equity Dividend Achievers ETF has $748.21 M in assets, iShares Core S&P U.S. Value ETF has $4.34 B. PEY has an expense ratio of 0.54% and IUSV charges 0.04%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Total Market (U.S.) 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.


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