Schwab Fundamental Intl Sm Co ETF earns a Morningstar Medalist Rating of Neutral with strength in areas such as People offset by weaker spots such as Process. The portfolio maintains a sizable cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy earns a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in yield exposure and momentum exposure compared with category peers. Low yield exposure is attributed to holding fewer stocks with high dividend or buyback yields -- instead, typically holding companies with a stronger focus on growth opposed to returning capital. And low momentum exposure is rooted in holding stocks that are not currently on a winning streak and instead holding those that managers believe are undervalued. The strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Celestica

InterContinental Hotels Group

Eaton Vance

Avino Silver & Gold Mines

Ritchie Bros. Auctioneers

Stantec

Adams Natural Resources Fund Inc

Center Coast Brookfield MLP & Energy Infrastructure Fund

Montrose Environmental Group, Inc.

Vermilion Energy

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Schwab Fundamental Intl Sm Co ETF earns a Below Average Process Pillar rating. 

The process is bolstered by tracking an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. However, the rating is weakened by the fund's unremarkable long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period. 

 This strategy leans toward smaller, higher-growth companies compared with its average peer in the Foreign Small/Mid Value Morningstar Category. Analyzing additional factors, this strategy has shown a strong tendency to hold fewer stocks with high dividend or buyback yields compared with Morningstar Category peers in recent years. Its preference for stocks with lower yields may well lead to a growthier portfolio. However, growth stocks court additional risks if their forecasts do not come to fruition and are often more volatile than companies with stable dividends. In the latest month, the strategy was also less exposed to the Yield factor compared with Morningstar Category peers. This strategy has also demonstrated a bias towards lower-momentum stocks over its peers over the past years. Momentum investors tend to expect stocks that have done well recently to continue to do so in the short term. Momentum approaches can entail higher turnover and trading costs since the top stocks can often change. Similarly, in recent months, the strategy also had less exposure to the Momentum factor than peers. Additionally, this strategy has tilted toward illiquid stocks during these years, evidenced by holding companies with relatively lower trading volumes than peers. Less-liquid stocks might offer strong returns to compensate for their risks, but they can be harder and more expensive to trade in bear markets. In recent months, the strategy also had less Liquidity factor exposure than its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in industrials and real estate relative to the category average by 4.8 and 3.3 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and energy, underweight the average by 4.7 and 3.4 percentage points of assets, respectively. The portfolio is positioned across 1,764 holdings and is less top-heavy than peers. Specifically, 2.4% of the fund’s assets are concentrated within the top 10 fund holdings, as opposed to the category’s 13.2% average. And finally, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

Below Average

Process

Schwab Fundamental Intl Sm Co ETF benefits considerably from its team, earning it an Above Average People Pillar rating. There are two managers listed on the fund: Christopher Bliss, David Rios. Experience on the team is abundant, with 11 years of average portfolio management experience. Together, they manage a total of 12 strategies, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate. The team has lacked continuity recently, with Chuck Craig leaving in the last five months, detracting from its rating. Even though it is a passive fund, high turnover can still hinder the effectiveness of the investment process. 

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Above Average

People

Schwab Asset Management Solutions continues moving along the path established years ago, focusing on low-cost core investment strategies and solutions. It maintains its Above Average Parent Pillar rating.

Rick Wurster oversees SAMS--Schwab’s asset-management arm, which as of late 2019 houses its legacy investment management, advisory, research, and client solutions businesses under one roof. The division maintains a strong focus on Schwab’s core fund lineup while investing in other areas to reduce costs and grow its investment capabilities. Its recent investments have focused on new technology to improve operational efficiency and risk management, including automated risk reporting. Portfolio management teams have benefited from some of those advances. The index-tracking portfolio management team, which oversees about half of the firm’s assets, consistently delivers tight index tracking that is on par with the best teams in the business.

SAMS supports Schwab’s brokerage business, and its funds are used in many client solutions. That setup, along with a more efficient operation, helps funds grow quickly and allows Schwab to keep management fees in line with its bigger competitors’. Historically, Schwab has quickly responded to fee cuts from its competitors by lowering the expense ratios on its own funds. The firm’s index-tracking mutual funds and exchange-traded funds typically sport some of the lowest expense ratios in their respective categories.

The firm has remained disciplined in its product development. New strategies are few and far between, and recent launches fit well with its low-cost core lineup.

Parent

Schwab Fundamental International Small Co. Index ETF

FNDC tracks a fundamentally-selected and -weighted Russell index of small firms in developed ex-US markets based on adjusted sales, retained operational cash flow, and dividends/buybacks.

Designed to provide broad exposure to the World ETFs category of the market, the Schwab Fundamental International Small Company Index ETF (FNDC) is a smart beta exchange traded fund launched on 08/13/2013.

Is Schwab Fundamental International Small Company Index ETF (FNDC) a Strong ETF Right Now?

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Although they've performed well for decades, international small caps have been out of favor for at least 10 years.

News for Schwab Fundamental International Small Co. Index ETF ETF (FNDC)