Schwab’s New Actively Managed Fundamental ETFs

| August 23, 2013 | 0 Comments

Actively managed ETFs are opening up new opportunities for investors. 

These cutting edge investments use innovative indexes to combine the benefits of active portfolio management with the low-cost of passive investing.

Charles Schwab jumped on the actively managed ETF bandwagon when they launched six new funds earlier this month.  The “Fundamental Index ETFs From Schwab” are a departure from the Market-Cap Index ETFs that weight each stock based on a passive index. 

In order to create these new ETFs, Schwab turned to actively managed indexing specialist Russell Investments and Research Associates. 

What they came up with is a way to use a few key metrics to gauge the health of a company-   

Adjusted sales – top line revenue growth…  Retained cash flow – the amount of cash the company makes that they can invest back into the business… And dividend plus buybacks – the portion of earnings that benefit stockholders.  

Then they weight the companies contained in the index based on how well the business is doing based on these three metrics.  That’s a big change from market-cap weighted indexes.

In fact, Schwab’s new ETFs don’t use the size of the company or the share price of the stock at all to determine how big of an impact a stock will have on the ETF. 

Obviously, only time will tell how well this methodology works.  But Schwab has used the indexes with mutual funds to great success.

Let’s take a closer look at Schwab’s new ETFs –

Schwab Fundamental U.S. Broad Market Index ETF (FNDB) provides diversified exposure across large and small US stocks with an expense ratio of 0.32%.

Schwab Fundamental U.S. Large Company Index ETF (FNDX) is focused on large US companies with an expense ratio of 0.32%. 

Schwab Fundamental U.S. Small Company Index ETF (FNDA) is focused on small US companies with an expense ratio of 0.32%.

Schwab Fundamental International Large Company Index ETF (FNDF) tracks an index of large companies outside of the US with an expense ratio of 0.32%.

Schwab Fundamental International Small Company Index ETF (FNDC) tracks an index of small companies outside of the US with an expense ratio of 0.46%.

Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE) tracks an index of large companies in emerging markets with an expense ratio of 0.46%.

Good Investing,

Corey Williams

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Category: ETFs

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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