Charles Schwab Investment Management (CSIM), an exchange-traded funds (ETFs) provider, has reported that six new Schwab Fundamental Index(R) ETFs will 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 beginning 15 August 2013.
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CSIM is the asset manager to offer ETFs and mutual funds tracking the Russell Fundamental Index(R) 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 US$4.5 billion 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 capitalization, so the largest companies have the largest weight in the index.
Some experts believe that because traditional market-cap indexing over-emphasizes popular stocks and de-emphasizes 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.
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By GlobalDataMarie Chandoha, president of CSIM, said:"The world is not black and white when it comes to indexing. 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 flavor 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," Chandoha added.
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(TM) — the ETF platform that gives investors and advisors access to the most commission-free ETFs anywhere in the industry(2) — on the first day of trading.
The new ETFs are as follows:
- Schwab Fundamental U.S. Broad Market Index ETF (FNDB) — Seeks to track the Russell Fundamental U.S. Index; OER — 0.32%,
- Schwab Fundamental U.S. Large Company Index ETF (FNDX) — Seeks to track the Russell Fundamental U.S. Large Company Index; OER — 0.32%,
- Schwab Fundamental U.S. Small Company Index ETF (FNDA) — Seeks to track the Russell Fundamental U.S Small Company Index; OER — 0.32%,
- Schwab Fundamental International Large Company Index ETF (FNDF) — Seeks to track the Russell Fundamental Developed ex-U.S. Large Company Index; OER — 0.32% and
- Schwab Fundamental International Small Company Index ETF (FNDC) — Seeks to track the Russell Fundamental Developed ex-U.S. Small Company Index; OER — 0.46%
- Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE) Seeks to track the Russell Fundamental Emerging Markets Large Company Index; OER — 0.46%
