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

If you are seeking to explore the Small Cap Value segment of the United States equity market, the Schwab Fundamental U.S. Small Company ETF (FNDA) could be a solid choice. This passively managed exchange-traded fund was launched on August 13, 2013, and is sponsored by Charles Schwab.

With total assets exceeding $9.78 billion, FNDA is among the larger ETFs focused on the Small Cap Value segment, providing investors with a compelling option.

Why Consider Small Cap Value?

Investing in small cap companies, particularly those with market capitalizations below $2 billion, can offer significant growth potential, although it comes with higher risk. Value stocks, represented in this segment, typically have lower-than-average price-to-earnings and price-to-book ratios, along with reduced sales and earnings growth rates. Historically, value stocks have outperformed growth stocks across various market conditions, although they may lag during exceptionally strong bull markets.

Cost Efficiency

When selecting an ETF, cost is a critical factor, as lower-cost funds often provide better performance compared to their more expensive counterparts, all else being equal. FNDA features an annual operating expense of just 0.25%, placing it among the more cost-effective options in the market.

Additionally, the ETF boasts a 12-month trailing dividend yield of 0.92%, which can be an appealing aspect for income-focused investors.

Sector Distribution and Major Holdings

Diversification is a key advantage of ETFs, as they reduce the risks associated with individual stocks. However, it's still essential to review a fund's holdings. FNDA discloses its holdings daily, offering transparency to investors.

This ETF primarily allocates about 20.50% of its portfolio to the Industrials sector. Following that, the Financials and Consumer Discretionary sectors make up the next largest portions of the fund.

In terms of individual equities, Royal Caribbean Group Ltd (RCL) represents approximately 0.45% of the total assets, with United Airlines Holdings Inc (UAL) and Geo Group Reit Inc (GEO) also in the mix. Collectively, the top ten stocks constitute about 3.64% of the ETF’s overall assets under management.

Performance Metrics and Risk Assessment

FNDA aims to replicate the performance of the Russell RAFI US Small Co. Index before fees and expenses. The RAFI Fundamental High Liquidity US Small Index evaluates the performance of small U.S. companies based on their fundamental characteristics.

As of December 11, 2024, the ETF has yielded a return of approximately 15.41% year-to-date and about 23.75% over the past year. During the last 52-week period, FNDA has traded between $25.86 and $32.42.

In terms of risk, the ETF has a beta of 1.19 and a standard deviation of 21.20% over the trailing three years, categorizing it as a medium-risk investment within its sector. With around 1037 holdings, it effectively mitigates the risk associated with specific company downturns.

Alternative Options

The Schwab Fundamental U.S. Small Company ETF holds a Zacks ETF Rank of 2 (Buy), signaling strong potential based on expected asset class returns, expense ratio, and momentum. This makes FNDA a noteworthy option for investors interested in the Small Cap Value segment.

For those exploring alternatives, both the Avantis U.S. Small Cap Value ETF (AVUV) and the Vanguard Small-Cap Value ETF (VBR) track similar indices. The Avantis ETF has $15.99 billion in assets, while the Vanguard ETF holds $32.65 billion. Each has competitive expense ratios, with AVUV at 0.25%, whereas VBR charges just 0.07%.

Final Thoughts

Passively managed ETFs are gaining popularity among both institutional and retail investors due to their low costs, transparency, versatility, and tax efficiency. They can serve as excellent investment vehicles for those with a long-term focus.

To explore this ETF and others that may align with your investment goals, consider screening for similar products and staying updated with the latest trends in the ETF investing space.

ETF, Investing, Finance