VEA - FNDF: A Good International Fund

2023-12-29 11:22:07 ET

Summary

• Schwab Fundamental International Large Company Index ETF offers exposure to international large-cap stocks and has outperformed its peers.
• The FNDF ETF holds diverse assets across sectors, with a focus on value-style investments.
• Pros of investing in FNDF include diversification benefits and a low expense ratio, but performance may be influenced by external factors.

At some point in my lifetime (I hope), international stocks will sustainably outperform U.S. equities. They've lagged badly for over a decade, and unless cycles don't matter anymore, it's only a matter of time until they lead again. That's why the Schwab Fundamental International Large Company Index ETF ( FNDF ) is worth a look given the way the portfolio is constructed.

FNDF is a smart-beta exchange-traded fund, or ETF, launched on August 13, 2013, by Charles Schwab Investment Management, with the fundamental aim of tracking as closely as possible, before fees and expenses, the total return of the Russell RAFITM Developed ex US Large Company Index. This index is a benchmark for the largest companies in developed markets outside the United States. FNDF offers a straightforward, low-cost, and potentially tax-efficient way for investors to gain exposure to this category of equities.

This ETF employs a representative sampling technique, investing at least 90% of its net assets in stocks included in the index. It leverages a proprietary quantitative methodology to select and weight its holdings based on certain fundamental measures such as adjusted sales, retained operating cash flow, dividends, and buybacks. The fund's assets under management, or AUM, stands at over $11 billion, spread across 943 unique holdings.

FNDF Top 5 Individual Holdings

FNDF is widely diversified across a range of sectors and geographies, with its heaviest concentration in Japan, the United Kingdom, France, Germany, and Canada. However, the top five holdings of the fund, which account for approximately 9% of the total assets (as of September 30), are:

1. Shell Plc (2.58%) : An energy giant based in the UK, Shell is the largest holding in the portfolio. Shell is a global group of energy and petrochemical companies involved in every aspect of the energy system.

2. Samsung Electronics Co., Ltd. (2.07%) : A multinational electronics company headquartered in South Korea, Samsung is a global leader in technology, advancing digital convergence and innovating in semiconductors, skyscraper and plant construction, petrochemicals, fashion, medicine, finance, hotels, and more.

3. Toyota Motor Corp. (1.75%) : As the world's largest automobile manufacturer, Japan-based Toyota Motor Corporation is known for its full range of models, from mini-vehicles to large trucks.

4. TotalEnergies SE (1.38%) : A French multinational integrated oil and gas company, TotalEnergies is one of the seven "supermajor" oil companies in the world.

5. BP p.l.c. (1.22%) : Another energy giant from the UK, BP is one of the world's leading integrated oil and gas companies, providing customers with fuel for transportation, energy for heat and light, lubricants to keep engines moving, and the petrochemicals products used to make everyday items as diverse as paints, clothes, and packaging.

Sector Composition of FNDF

FNDF holds a broad spectrum of assets across multiple sectors. This is tilted to more of a value style given sector allocations.

1. Financials (18.8%) : This sector includes banks, insurance companies, and investment firms.
2. Industrials (15.1%) : This sector encompasses a range of companies involved in the manufacturing, construction, and distribution of goods.
3. Consumer Discretionary (13.4%) : Companies in this sector produce goods and services that people want but don't necessarily need, such as entertainment, retail items, and automobiles.
4. Materials (11.0%) : Companies in this sector are involved in the discovery, development, and processing of raw materials.
5. Energy (9.3%) : This sector includes companies involved in the production and supply of energy.

Comparing FNDF with Peers

The Vanguard Total International Stock Index Fund ETF Shares (VXUS) and the Vanguard FTSE Developed Markets Index Fund ETF Shares (VEA) are two other popular ETFs in this segment. VXUS tracks the FTSE Global All Cap ex US Index, while VEA tracks the FTSE Developed All Cap ex US Index. FNDF has outperformed both.

Pros and Cons of Investing in FNDF

Like any investment, investing in the FNDF comes with its share of pros and cons. On the positive side, FNDF offers investors exposure to a broad range of international large-cap stocks, providing diversification benefits. The fund's low expense ratio of 0.25% makes it a cost-effective option for investors seeking exposure to international equities.

On the downside, the fund's performance can be influenced by factors beyond the control of the fund managers, including changes in global economic conditions, currency fluctuations, geopolitical risks, and regulatory changes. The fund's focus on large-cap international stocks also means that it may not be suitable for investors seeking exposure to smaller, potentially faster-growing companies.

Conclusion: To Invest or Not to Invest?

The Schwab Fundamental International Large Company Index ETF offers a unique investment proposition for investors seeking broad exposure to international large-cap stocks. Its low expense ratio and potential for tax efficiency make it an attractive option for cost-conscious investors. Overall, while FNDF may not be suitable for all investors, it could be a valuable addition to a diversified portfolio for those looking to gain exposure to international large-cap stocks.

For further details see: