Fundamental indices weight individual stocks by economic factors rather than by market capitalization like most traditional equity benchmarks. Fundamental factors include adjusted sales, cash flow, dividends and buybacks.
The fundamental approach “breaks the link between price and weight in the portfolio,” Arnott said during a conference call with reporters on Thursday.
“Some experts believe that because traditional market-cap indexing over-emphasizes popular stocks and de-emphasizes undervalued securities, it can over-expose investors’ portfolios to market speculation, bubbles and fads,” Schwab said in a press release.
“The world is not black and white when it comes to indexing,” added Marie Chandoha, president of Charles Schwab Investment Management. “We believe the systematic approach inherent in fundamentally weighted methodologies, when used alongside cap-weighted strategies, enables investors to diversify and balance their exposure. These ETFs add a new flavor to our ‘pure vanilla’ ETF market-cap line-up and further demonstrate our commitment to offering core products that help investors build their portfolios and potentially achieve better outcomes.”
The ETFs launching Aug. 15 are:
- Schwab Fundamental U.S. Broad Market Index ETF (FNDB) – Seeks to track the Russell Fundamental U.S. Index; OER – 0.32%
- Schwab Fundamental U.S. Large Company Index ETF (FNDX) – Seeks to track the Russell Fundamental U.S. Large Company Index; OER – 0.32%
- Schwab Fundamental U.S. Small Company Index ETF (FNDA) – Seeks to track the Russell Fundamental U.S Small Company Index; OER – 0.32%
- Schwab Fundamental International Large Company Index ETF (FNDF) – Seeks to track the Russell Fundamental Developed ex-U.S. Large Company Index; OER – 0.32%
- Schwab Fundamental International Small Company Index ETF (FNDC) – Seeks to track the Russell Fundamental Developed ex-U.S. Small Company Index; OER – 0.46%
- Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE) – Seeks to track the Russell Fundamental Emerging Markets Large Company Index; OER – 0.46%