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

If you're seeking a way to invest in a broad array of small cap value companies in the U.S., you might want to explore the Schwab Fundamental U.S. Small Company ETF (FNDA - Free Report). This exchange-traded fund (ETF) was launched on August 13, 2013, and aims to provide investors with passive exposure to the small cap value segment of the U.S. equity market.

Managed by Charles Schwab, this ETF has attracted significant interest, accumulating over $9.78 billion in assets, making it one of the larger funds in this category.

Why Invest in Small Cap Value?

Investing in small cap companies, defined as those with a market capitalization below $2 billion, can present substantial growth potential. However, it is crucial to recognize that this potential comes with heightened risk. Typically, these value stocks have lower price-to-earnings and price-to-book ratios compared to their growth counterparts, reflecting traditionally lower sales and earnings growth rates. Historically, value stocks have outshined growth stocks in most market conditions, although they may lag during strong bull markets.

Cost Considerations

When selecting an ETF, costs are a vital consideration, as lower-cost funds can significantly outperform more expensive options when all other factors are comparable. The Schwab Fundamental U.S. Small Company ETF has annual operating expenses of only 0.25%, which is relatively low in the industry.

Additionally, the ETF provides a 12-month trailing dividend yield of 0.92%, adding to its appeal for income-seeking investors.

Sector Exposure and Key Holdings

While one of the advantages of ETFs is their ability to offer diversified exposure and reduce single stock risk, investors should still review the fund's holdings. This ETF has a notably high allocation to the Industrials sector, which constitutes about 20.50% of its portfolio. The Financials and Consumer Discretionary sectors follow closely behind.

Examining the individual components, the Royal Caribbean Group Ltd (RCL - Free Report) represents around 0.45% of the total assets, along with notable mentions such as United Airlines Holdings Inc (UAL - Free Report) and Geo Group Reit Inc (GEO - Free Report). The top 10 holdings collectively account for approximately 3.64% of the assets under management.

Performance and Risk Factors

FNDA's objective is to mirror the performance of the Russell RAFI US Small Co. Index before fees and expenses. This index evaluates the performance of small U.S. companies based on fundamental factors. As of December 11, 2024, the ETF has achieved a return of approximately 15.41% year-to-date and has increased by about 23.75% over the past year. Over the last 52 weeks, the ETF has traded between $25.86 and $32.42.

With a beta of 1.19 and a standard deviation of 21.20% for the trailing three-year period, FNDA is categorized as a medium risk investment. Notably, the ETF contains approximately 1,037 holdings, which effectively helps mitigate risks associated with individual stocks.

Alternative Options

The Schwab Fundamental U.S. Small Company ETF holds a Zacks ETF Rank of 2 (Buy), reflecting anticipated asset class returns, expense ratios, and overall momentum among other factors. For investors interested in the small cap value category, FNDA presents a compelling choice. However, there are other alternatives available as well.

For instance, the Avantis U.S. Small Cap Value ETF (AVUV - Free Report) and the Vanguard Small-Cap Value ETF (VBR - Free Report) also track similar indices. Currently, Avantis has $15.99 billion in assets, while Vanguard boasts $32.65 billion. Both AVUV and VBR charge expense ratios of 0.25% and 0.07%, respectively.

Final Thoughts

Passively managed ETFs have gained traction among both institutional and retail investors, thanks to their low costs, transparency, flexibility, and tax efficiency. They serve as effective vehicles for long-term investment strategies.

For more detailed insights about this product and other ETF offerings, it can be beneficial for investors to screen for products aligning with their investment goals and explore literature on recent developments in the ETF space.

ETF, Investment, Finance