Six new Schwab Fundamental Index ETFs are to begin trading next week.
Along with Schwab’s other 15 proprietary ETFs, these new core funds will be available for purchase commission-free online in Schwab accounts from 15 August.
Charles Schwab Investment Management (CSIM) is the sole asset manager to offer ETFs and mutual funds tracking the Russell Fundamental Index Series, which is based on methodology developed by Rob Arnott and Research Affiliates. Since launching its first Fundamental Index mutual funds in 2007, Schwab has seen a steady increase in demand and its five mutual funds using this approach now have USD4.5bn in total assets under management as of 30 June 2013.
Fundamentally weighted methodologies are often referred to as “smart beta” because securities are screened and weighted based on objective factors like adjusted sales, cash flow, and dividends/buybacks. Traditional market-cap indexes weight securities based on market capitalisation, so the largest companies have the largest weight in the index. Some experts believe that because traditional market-cap indexing over-emphasises popular stocks and de-emphasises undervalued securities, it can over-expose investors’ portfolios to market speculation, bubbles and fads. Fundamental Index methodologies break the link with price, and historically delivered excess returns relative to the market-cap equivalent.
CSIM believes both index structures should be used in combination to access the core markets and build portfolios with the potential for better results because they perform differently across market cycles.
“The world is not black and white when it comes to indexing,” says Marie Chandoha (pictured), president of CSIM. “We believe the systematic approach inherent in fundamentally weighted methodologies, when used alongside cap-weighted strategies, enables investors to diversify and balance their exposure.
“These ETFs add a new flavour to our ‘pure vanilla’ ETF market-cap line-up and further demonstrate our commitment to offering core products that help investors build their portfolios and potentially achieve better outcomes. We’re pleased to be able to join with other industry leaders to offer these competitively priced, well-constructed ETFs and educate investors through plain-talk and tools.”
Schwab’s newest ETFs will deliver many of the key benefits of ETF investing in general, including diversification, intra-day trading and transparency, with operating expense ratios that are priced competitively relative to others using a fundamental approach. All six ETFs will be added to Schwab ETF OneSource on the first day of trading. The new ETFs are as follows:
• Schwab Fundamental US Broad Market Index ETF (FNDB) – Seeks to track the Russell Fundamental US Index; OER – 0.32 per cent
• Schwab Fundamental US Large Company Index ETF (FNDX) – Seeks to track the Russell Fundamental US Large Company Index; OER – 0.32 per cent
• Schwab Fundamental US Small Company Index ETF (FNDA) – Seeks to track the Russell Fundamental USSmall Company Index; OER – 0.32 per cent
• Schwab Fundamental International Large Company Index ETF (FNDF) – Seeks to track the Russell Fundamental Developed ex-US Large Company Index; OER – 0.32 per cent
• Schwab Fundamental International Small Company Index ETF (FNDC) – Seeks to track the Russell Fundamental Developed ex-US Small Company Index; OER – 0.46 per cent
• Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE) – Seeks to track the Russell Fundamental Emerging Markets Large Company Index; OER – 0.46 per cent