Schwab Fundamental U.S. Small Company systematically benefits from mean-reverting stock valuations without sacrificing broad diversification. A prudent, disciplined approach and a low fee should give this strategy a long-term edge over the Russell 2000 Index.

The fund tracks the Russell RAFI Small Company Index, which uses fundamental metrics to identify and weight holdings. Constituents of the FTSE Total Cap Index that meet minimum liquidity and fundamental value thresholds are eligible for inclusion. The index calculates fundamental value as an equal-weighted measure of sales (adjusted for leverage), retained operating cash flow, and dividends plus buybacks. These metrics are calculated using a five-year lookback period, which can help avoid taking cues from short-term hiccups in firm fundamentals and reduce unnecessary turnover.

The fund will be at its best when prices revert to the mean. Each time the fund rebalances, it pares positions that have appreciated relative to their fundamental value and adds to those that have gotten relatively cheaper. This breaks the link between a stock's weighting and its market cap and results in a value tilt. However, the fund can be slow to identify new risks because it relies on historical fundamental metrics with long lookback periods rather than more-recent fundamentals or price signals.

The fund invests a larger portion of its assets in securities with stronger competitive advantages and higher returns on invested capital than the Russell 2000 Index. This has helped it avoid unprofitable and risky small-cap bets, adding a degree of downside protection.

This portfolio can make sizable active sector and style bets, especially in periods when the spread between stock prices and fundamental measures widens. It will likely lag its Morningstar Category index during episodes where stock prices become unmoored from the fundamental measures that the fund’s index incorporates. The fund can be more volatile than its category index given the active risks it takes, but it should provide a smoother ride under normal market conditions.

Analyst Rating

Diversified exposure to small caps with an emphasis on fundamentals.

Director

Bryan Armour

Super Micro Computer

Coinbase

Abercrombie & Fitch

EchoStar

Royal Caribbean Cruises

Warrior Met Coal

Assured Guaranty

XPO Logistics

Spotify

GEO Group

This strategy uses fundamental weighting to systematically identify relative bargains in the small-cap market. The index balances a sensible value discipline with broad diversification, supporting an Above Average Process rating.

Above Average

Process

Schwab's equity index team is well-resourced and should continue to deliver tight index tracking. It warrants an Above Average rating.

Chris Bliss leads Schwab's equity index team. Since joining Schwab from BlackRock in 2016, Bliss has strengthened the team by increasing specialization and automating more of the managers' workflow. This allows the managers to spend less time on routine tasks and helps them better identify and resolve issues that require their attention. Ferian Juwono, Jeremy Brown, and Agnes Zau join Bliss as named managers on this fund. The named managers have support from associate managers who help the team prepare for index rebalances.

The team looks for ways to slightly improve returns by handling some corporate actions differently from the index. The managers can take advantage of those opportunities when they occur, under tight tracking-error constraints.

Schwab compensates its managers based on tracking error and compliance with risk management, which helps align their interests with investors'.

People

Under new but familiar leadership, Schwab Asset Management Solutions maintains its Above Average Parent Pillar rating. 

After the former Schwab CEO was named president of parent Charles Schwab Corporation in 2022, Omar Aguilar, a Schwab CIO since 2011, was promoted to CEO while retaining his CIO role. Under Aguilar's leadership, Schwab remains focused on core-oriented strategies: More than 95% of the firm's fund assets under management are in low-cost index products that are suitable for the biggest portions of investors' portfolios. Index-tracking remains are par with the best teams in the business.

Recent strategic initiatives show a desire to grow in an increasingly competitive landscape. Forays into direct indexing—which customizes separate accounts through tax-loss harvesting, values-based requests, or other client preferences—as well as some new launches, such as Schwab Municipal Bond ETF, fit the firm's strategic focus and are natural extensions of its capabilities. However, other recent launches in more-niche asset classes, including Schwab Crypto Thematic ETF, contrast previous refusals to enter trendy markets. 

Schwab benefits from its association with its parent's brokerage business. This arrangement and efficient operation allow funds to grow quickly and keep fees in line with larger competitors. Historically, Schwab has been quick to match competitor fee cuts and now sports a 0.09% asset-weighted average fee across its mutual funds and ETFs.

Parent

Schwab Fundamental U.S. Small Company Index ETF

FNDA tracks a fundamentally selected and weighted Russell index of small firms based on adjusted sales, retained operation cash flow, and dividends plus buybacks.

The Schwab Fundamental U.S. Small Company Index ETF is a passively managed ETF with over 1,000 holdings. Since 2013, the Fund has garnered more than $8 billion in assets under management. Small cap stocks are currently trading at a discount relative to their large cap peers, presenting a potential opportunity.

FNDA: A Solid Small Cap ETF

Schwab Fundamental U.S. Small Company Index ETF is a hold due to mixed factors affecting its prospects. Small caps historically perform well during times of reducing interest rates and early bull markets. They are also currently favorably valued. FNDA has the highest price-to-earnings ratio and expense ratio among comparable peer funds.

FNDA: Reasons To Add Small Caps, But These Other Funds May Outperform

If you're interested in broad exposure to the Small Cap Value segment of the US equity market, look no further than the Schwab Fundamental U.S. Small Company Index ETF (FNDA), a passively managed exchange traded fund launched on 08/13/2013.

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

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WESTLAKE, Texas--(BUSINESS WIRE)--Schwab Asset Management®, the asset management arm of The Charles Schwab Corporation, today announced index and fund name changes for the Schwab Fundamental Index* ETF and mutual fund suite, effective on or about June 21, 2024. Shareholders in the ETFs and mutual funds do not need to take any action. The changes are part of Schwab Asset Management's continual review of its product set to refine and enhance its product line-up. A total of 12 Schwab Fundamental I.

Schwab Asset Management Announces Index and Fund Name Changes to Its Fundamental Index ETF and Mutual Fund Family

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There is a growing sense of optimism among small business owners, signaling resilience and adaptability in the face of economic headwinds.

Small Businesses Most Confident Since 2021: ETFs in Focus

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

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

Schwab Fundamental U.S. Small Company Index ETF holds over 900 small caps, selected based on sales, cash flow, yield and buybacks. The FNDA ETF portfolio is well-diversified across sectors and holdings, but valuation and growth metrics are unattractive. FNDA beats the Russell 2000 index, but it has significantly lagged some competitors for 3 years.

FNDA: Small-Cap ETF Beating The Benchmark, But Not Some Competitors

FNDA holds nearly 1,000 small-cap stocks and weights them according to four screens: adjusted sales, cash flow, dividends and buybacks, and book value and intangibles. FNDA has a 0.25% expense ratio, average for the category. However, small-cap ETFs is one category you should be willing to pay up, so it's not a dealbreaker. Higher-fee ETFs tend to have smart profitability screens, but I was disappointed to find FNDA has a below-average profitability score. This article presents some alternatives to consider.

FNDA: Should You Buy This Fundamentals-Focused Small-Cap ETF?

FNDA's fundamentally driven portfolio offers better ROE, better earnings growth, and is cheaply valued. FNDA's exposure to industrials should be noted.

News for Schwab Fundamental U.S. Small Company Index ETF ETF (FNDA)