In the growing field of robo-advisors, Charles Schwab is trying to augment and diversify returns through smart-beta exchange traded funds.
The Schwab Intelligent Portfolios allocates about 60% to Charles Schwab’s suite of alternatively weighted ETFs that utilize Research Affiliates’ fundamental indexing methodology, reports Jackie Noblett for Ignites.
David Koenig, chief investment strategist at Schwab Wealth Investment Advisory, argues that the large tilt toward smart beta in the Schwab Intelligent Portfolios provide a suitable alternative to actively managed strategies. [Schwab Puts a Personal Touch on Intelligent Portfolio Construction]
“We’re able to add an additional layer of diversity and potentially improve risk-adjusted returns over time, with allocations to fundamentally weighted index funds,” Koenig said in the Ignites article.
There are six Schwab fundamental ETF strategies. The Schwab Fundamental U.S. All Company ETF (NYSEArca: FNDB) includes components from the Russell 3000 Index. The Schwab Fundamental U.S. Large Company ETF (NYSEArca: FNDX) takes the the top companies that weight above 87.5% from the Russell 3000 Index. The Schwab Fundamental U.S. Small Company ETF (NYSEArca: FNDA) tracks the bottom companies that weight below 87.5% from the Russell 3000 Index. The Schwab Fundamental International Large Company ETF (NYSEArca: FNDF) includes companies with weights above 87.5% of the Russell Developed ex-U.S. Index. The Schwab Fundamental International Small Company ETF (NYSEArca: FNDC) takes companies with weights below 87.5% of the Russell Developed ex-U.S. Index. Lastly, the Schwab Fundamental Emerging Markets Large Company ETF (FNDE) holds companies with weights above 87.5% of the Russell Emerging Markets Index.
The six funds’ fundamental indexing methodology weights holdings by company sized based on adjusted sales, operating cash flow, and dividends plus buyback.