Looking for broad exposure to the Small Cap Value segment of the US equity market? You should consider the Schwab Fundamental U.S. Small Company ETF (FNDA), a passively managed exchange traded fund launched on 08/13/2013.

The fund is sponsored by Charles Schwab. It has amassed assets over $9.78 billion, making it one of the larger ETFs attempting to match the Small Cap Value segment of the US equity market.

Why Small Cap Value

There's a lot of potential to investing in small cap companies, but with market capitalization below $2 billion, that high potential comes with even higher risk.

Carrying lower than average price-to-earnings and price-to-book ratios, value stocks also have lower than average sales and earnings growth rates. Looking at their long-term performance, value stocks have outperformed growth stocks in almost all markets. They are however likely to underperform growth stocks in strong bull markets.

Costs

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive counterparts if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.25%, making it one of the cheaper products in the space.

It has a 12-month trailing dividend yield of 0.92%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Industrials sector--about 20.50% of the portfolio. Financials and Consumer Discretionary round out the top three.

Looking at individual holdings, Royal Caribbean Group Ltd (RCL) accounts for about 0.45% of total assets, followed by United Airlines Holdings Inc (UAL) and Geo Group Reit Inc (GEO).

The top 10 holdings account for about 3.64% of total assets under management.

Performance and Risk

FNDA seeks to match the performance of the Russell RAFI US Small Co. Index before fees and expenses. The RAFI Fundamental High Liquidity US Small Index measures the performance of small U.S. companies based on their fundamental size and weight.

The ETF has added roughly 15.41% so far this year and was up about 23.75% in the last one year (as of 12/11/2024). In the past 52-week period, it has traded between $25.86 and $32.42.

The ETF has a beta of 1.19 and standard deviation of 21.20% for the trailing three-year period, making it a medium risk choice in the space. With about 1037 holdings, it effectively diversifies company-specific risk.

Alternatives

Schwab Fundamental U.S. Small Company ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, FNDA is an outstanding option for investors seeking exposure to the Style Box - Small Cap Value segment of the market. There are other additional ETFs in the space that investors could consider as well.

The Avantis U.S. Small Cap Value ETF (AVUV) and the Vanguard Small-Cap Value ETF (VBR) track a similar index. While Avantis U.S. Small Cap Value ETF has $15.99 billion in assets, Vanguard Small-Cap Value ETF has $32.65 billion. AVUV has an expense ratio of 0.25% and VBR charges 0.07%.

Bottom-Line

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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Schwab Fundamental U.S. Small Company ETF (FNDA): ETF Research Reports

United Airlines Holdings Inc (UAL) : Free Stock Analysis Report

Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report

Geo Group Inc (The) (GEO) : Free Stock Analysis Report

Vanguard Small-Cap Value ETF (VBR): ETF Research Reports

Avantis U.S. Small Cap Value ETF (AVUV): ETF Research Reports

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