Small-Cap Value Exchange-Traded Fund Exceeding Traditional Benchmark Performance
The Schwab Fundamental U.S. Small Company ETF (FNDA), launched on August 15, 2013, has shown consistent performance since its inception. Tracking the RAFI Fundamental High Liquidity U.S. Small Index, FNDA has a turnover rate of 26% in the most recent fiscal year.
With 978 holdings, FNDA offers a 30-day SEC yield of 1.29%, an expense ratio of 0.25%, and distributions are paid quarterly. The index selects, ranks, and weights securities by fundamental measures of company size - adjusted sales, retained operating cash flow, and dividends plus buybacks. As a result, FNDA has significant exposure in financials (20.3% of asset value), industrials (17.2%), and consumer discretionary (14.4%).
Since March 2022, FNDA has outperformed the Russell 2000 in total return but has lower returns compared to some competitors. It has an annual return of 6.17% and a total return of 23.67%, with a maximum drawdown of -25.92%. The ETF's volatility since March 2022 is 22.20%.
In terms of risk-adjusted performance, FNDA comes in fourth position, with a Sharpe ratio of 0.17 since March 2022. The best performers in this category are the actively managed ETFs AVUV and DFSV. However, the top three FNDA competitors with the best total return and Sharpe ratio since March 2022 are not specified in the available data.
Despite the competition, FNDA has outperformed the iShares Russell 2000 ETF (IWM) by 84 bps in annualized return since August 22, 2013, with a slightly deeper maximum drawdown and similar volatility.
FNDA is classified by Morningstar in the Small Blend category, but fundamental metrics show a clear tilt to value. The top 10 issuers in the FNDA portfolio represent only 4.1% of asset value, with the heaviest position weighing 0.83%.
An interesting point to note is the growth in the annual sum of FNDA's distributions. Over the past 10 years, the sum has increased by 188%, from $0.16 per share in 2014 to $0.46 in 2024.
In conclusion, FNDA offers a unique approach to small-cap investing, focusing on fundamental measures of company size. While it has faced competition, its risk-adjusted performance and consistent growth in distributions make it an attractive option for investors seeking value in the small-cap market.
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