Morningstar - Q3 2020 - 54

Strategies

Low Costs Seal the Deal
Schwab Fundamental International Large Company ETF gets
an upgrade to Gold.
BEST IDEAS: PASSIVE

Daniel Sotiroff

Schwab Fundamental International Large Company ETF FNDF

This article is adapted from the ETF's Morningstar Global Fund Report dated
June 26, 2020.

Stats 06/30/2020

Schwab Fundamental International Large Company ETF FNDF has much
to offer. This inexpensive strategy uses fundamental weighting to emphasize
stocks trading at lower valuations, which can be an advantage when
market valuations reach extremes. Morningstar's enhanced ratings framework
determined that its low fee is a considerable advantage, so it earns
a Morningstar Analyst Rating upgrade to Gold from Bronze.

Morningstar Analyst Rating
Œ

Morningstar Category
Foreign Large Value

Expense Ratio
0.25%

Total Assets
$3.9 Billion

10-Yr Annlzd Return
0.46%

10-Yr % Rank in Cat
20

Morningstar Pillars 06/30/2020
Process
Above Avg

People
Above Avg

This fund tracks the Russell RAFI Developed ex-U.S. Large Company Index. It
targets large- and mid-cap stocks from overseas developed markets and
weights its holdings based on sales (adjusted for leverage), retained operating
cash flow, and dividends plus buybacks. When the fund rebalances, it will
increase its exposure to stocks that have become cheaper relative to these
metrics and underweight those that have become more expensive. This
approach has advantages. Steering the portfolio away from the most expensive
stocks can help performance if and when valuations mean revert. But
there is a trade-off: Ignoring prices means the fund can overweight stocks
with declining fundamentals, which can add to its risk.

Growth of 10K 06/30/2020

The index calculates each stock's fundamental weight annually in March, but
it rebalances a different fourth of its portfolio each quarter. Breaking up the
rebalancing trades in this way helps reduce the risk of poorly timed rebalances
and the market-impact costs of trading.

Equity Style Map 06/30/2020

$12K

Morningstar Global Markets xUS

10.36
10
9.38
Schwab Fundamental Interntl Large Co
07/2017

07/2018

Morningstar Ratings 06/30/2020

Investment
07/05/2020

Category Index
05/31/2020
Deep Core Core Core High
Value Value
Grwth Grwth

8

07/2019

Centroid
Mstar
Ownership Zone Period Return

Micro Small Mid Large Giant

While the fund includes growth stocks, they do not detract from the portfolio's
value orientation because it underweights them compared to a broad
market index, like the MSCI ACWI Ex USA Index. This benefits investors because
it helps diversify stock-specific risk.

Parent
Above Avg

Category Avg.
06/30/2020

Mstar
Risk

Mstar
Rating

3-Yr

Above Avg Average

QQQ

5-Yr

Above Avg Average

QQQQ

10-Yr

-

-

-

QQQQ

Overall Rating

Top 5 Regions 06/30/2020

Value strategies like this one have not performed well relative to the market
over the past decade. But sweeping growth stocks into the portfolio has
been an advantage, helping the fund beat the MSCI ACWI Ex USA Value Index
by 1.8 percentage points annually from its launch in August 2013 through
May 2020. The fund's 0.25% expense ratio places it among the cheapest funds
in the category and should continue to provide a durable edge. K
Daniel Sotiroff is a manager research analyst with Morningstar.

Sectors

■ Fund % 

39.0 39.0

Japan

21.0 24.9
14.5

United Kingdom
8.7

Asia-Developed
North America

Morningstar Q3 2020

16.3

11.4

4.5 7.0
0%

54

❙ Category Average %

Europe-Developed

10

20

30

40
Morningstar - Q3 2020

Table of Contents for the Digital Edition of Morningstar - Q3 2020
