Designed to provide broad exposure to the Broad Emerging Market ETFs category of the market, the Schwab Fundamental Emerging Markets Equity ETF (FNDE) is a smart beta exchange traded fund launched on 08/13/2013.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Because market cap weighted indexes provide a low-cost, convenient, and transparent way of replicating market returns, they work well for investors who believe in market efficiency.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

Because the fund has amassed over $6.60 billion, this makes it one of the largest ETFs in the Broad Emerging Market ETFs. FNDE is managed by Charles Schwab. This particular fund seeks to match the performance of the Russell RAFI Emerging Markets Large Co. Index (Net) before fees and expenses.

The RAFI Fundamental High Liquidity Emerging Markets Index measures the performance of large sized companies, based on their fundamental size and weight, in emerging market countries.

Cost & Other Expenses

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Annual operating expenses for FNDE are 0.39%, which makes it on par with most peer products in the space.

FNDE's 12-month trailing dividend yield is 4.50%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

When you look at individual holdings, Taiwan Semiconductor Manufacturing accounts for about 5.02% of the fund's total assets, followed by China Construction Bank Corp H and Alibaba Group Holding Ltd.

The top 10 holdings account for about 27.07% of total assets under management.

Performance and Risk

Year-to-date, the Schwab Fundamental Emerging Markets Equity ETF has added roughly 7.16% so far, and is up about 18.42% over the last 12 months (as of 02/27/2025). FNDE has traded between $27.06 and $33.95 in this past 52-week period.

The fund has a beta of 0.72 and standard deviation of 16.82% for the trailing three-year period, which makes FNDE a medium risk choice in this particular space. With about 421 holdings, it effectively diversifies company-specific risk.

Alternatives

Schwab Fundamental Emerging Markets Equity ETF is a reasonable option for investors seeking to outperform the Broad Emerging Market ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Vanguard FTSE Emerging Markets ETF (VWO) tracks FTSE Emerging Markets All Cap China A Inclusion Index and the iShares Core MSCI Emerging Markets ETF (IEMG) tracks MSCI Emerging Markets Investable Market Index. Vanguard FTSE Emerging Markets ETF has $82.98 billion in assets, iShares Core MSCI Emerging Markets ETF has $83.37 billion. VWO has an expense ratio of 0.07% and IEMG charges 0.09%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Broad Emerging Market ETFs.

Bottom Line

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 Emerging Markets Equity ETF (FNDE): ETF Research Reports

iShares Core MSCI Emerging Markets ETF (IEMG): ETF Research Reports

Vanguard FTSE Emerging Markets ETF (VWO): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

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