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

Looking for broad exposure to the Small Cap Value segment of the US equity market? You should consider the Schwab Fundamental U.S. Small Company Index ETF (FNDA), a passively managed exchange traded fund launched on 08/13/2013.

The fund is sponsored by Charles Schwab. It has amassed assets over $5.54 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

There’s a lot of potential to investing in small cap companies, but with market capitalization below $2 billion, that high potential comes with even higher risk.

Carrying lower than average price-to-earnings and price-to-book ratios, value stocks also have lower than average sales and earnings growth rates. While value stocks have outperformed growth stocks in nearly all markets when you consider long-term performance, growth stocks are more likely to outpace value stocks in strong bull markets.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

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 1.48%.

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.

This ETF has heaviest allocation to the Industrials sector–about 18.60% of the portfolio. Financials and Consumer Discretionary round out the top three.

Looking at individual holdings, Diamondback Energy Inc (FANG) accounts for about 0.45% of total assets, followed by Patterson Uti Energy Inc (PTEN) and Ssc Government Mm Gvmxx (GVMXX).

The top 10 holdings account for about 3.46% 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 lost about -14.90% so far this year and is down about -8.39% in the last one year (as of 09/15/2022). In the past 52-week period, it has traded between $44.28 and $57.77.

The ETF has a beta of 1.17 and standard deviation of 30.40% for the trailing three-year period, making it a medium risk choice in the space. With about 994 holdings, it effectively diversifies company-specific risk.

Alternatives

Schwab Fundamental U.S. Small Company Index ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, FNDA is a reasonable option for those seeking exposure to the Style Box – Small Cap Value area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 2000 Value ETF (IWN) and the Vanguard SmallCap Value ETF (VBR) track a similar index. While iShares Russell 2000 Value ETF has $12.01 billion in assets, Vanguard SmallCap Value ETF has $23.05 billion. IWN has an expense ratio of 0.23% and VBR charges 0.07%.

Bottom-Line

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

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
 
PattersonUTI Energy, Inc. (PTEN) : Free Stock Analysis Report
 
Diamondback Energy, Inc. (FANG) : 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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