· Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE), which tracks the Russell Fundamental Emerging Markets Large Company Index
Fundamental indexes screen and weight companies based on objective measures such as adjusted sales, cash flow and dividends/buybacks. That differs from traditional market-cap weighted indexes, which tend to overweight popular stocks and underweight value stocks.
Fundamentally weighted strategies break the link with price and have historically produced excess returns relative to the market-cap equivalent, Tony Davidow, vice president at the Schwab Center for Financial Research, said during the call. He added that fundamental strategies follow a disciplined rules-based approach with pre-determined rebalancing intervals.
He noted that Schwab’s research indicates that fundamental index strategies, when used in tandem with cap-weighted index strategies and active strategies, deliver better risk-adjusted results and less volatility over time.
Rob Arnott, CEO at Research Affiliates, said that fundamental strategies tend to lag cap-weighted indexes modestly during trend-driven and growth-dominated markets, and outperform substantially during periods of mean reversion.
Chandoha said that 59 percent of Schwab’s RIA clients said they use fundamentally weighted products, and that about 20 percent said they will invest in them more going forward.
CSIM is an asset management subsidiary of The Charles Schwab Corp. It had AUM of more than $205 billion as of June 30, and manages 76 mutual funds, 21 ETFs and two separate account model portfolios.