2023-03-28 09:30:29 ET
Summary
- Schwab Fundamental International Large Company Index ETF’s portfolio is composed of globally listed large-cap growth and value stocks and the fund is currently trading at a marginal premium of 0.4 percent.
- Sectors and nations on which FNDF is banking upon are performing decently and the fund is diversified enough to protect itself against hyper fluctuations.
- FNDF’s steady yield between 2 to 4 percent, also with a semi-annual payout, will surely fail to meet the requirements of income-seeking investors.
- Only a handful of its stocks from the financial, energy, healthcare, automobile, and communication technology sectors generated reasonably good price growth.
~ by Snehasish Chaudhuri, MBA (Finance).
Schwab Fundamental International Large Company Index ETF ( FNDF ) invests in growth and value stocks of large-cap companies all over the world except in the U.S. market. FNDF diversifies its investments across multiple sectors and nations. The holdings are established blue chip companies with proven track records.
As the basket of large cap stocks in the world is huge, funds like FNDF face the challenges of deciding which assets to include in their portfolios. Thus, FNDF has investments in every sector and also in every type of stocks. Still, the fund has been more focussed on certain sectors - information & communication technology ("ICT"), industrial, financial, and consumer cyclical.
FNDF Focuses On Japan, The United Kingdom, France, Germany, And Canada
Schwab Fundamental International Large Company Index ETF seeks to track the performance of the Russell RAFI Developed ex-US Large Company Index, by using representative sampling technique. At least 90 percent of FNDF's net assets are invested in stocks included in the index. This index is created using ex-U.S. companies that are part of FTSE Global Total Cap Index (" GEIS "). FTSE Russell classifies almost 25 countries as developed markets and focuses on the largest global economies like Japan, France, Germany, the United Kingdom and Canada. 65 percent of FNDFs assets are invested in stocks from these five markets, which are among the largest and most credible economies.
FNDF Generated Low Yield And A Poor 5-Year Annual Average Total Return
This exchange traded fund was launched and is managed by Charles Schwab Investment Management, Inc. FNDF tracks the Russell RAFI Developed ex-US Large Company Index, which is considered to be a smart-beta benchmark. It has an asset under management of $9.24 billion, and a low expense ratio of 0.25 percent. Turnover ratio is well under control at 15 percent. The fund distributes dividends on a semi-annual basis and has a low but decent yield. It was established almost 10 years back, and for the past eight years has generated a yield within a range of 2 to 4 percent. Annual average total return generated during the past five years was even more disappointing at almost 3 percent.
Price Performance of FNDFs Top Holdings Over Past 5 Years Has Been Poor
Top 25 holdings of Schwab Fundamental International Large Company Index ETF include stocks of some of the largest automobile manufacturers like Toyota Motor Corporation ( TM ), Honda Motor Co., Ltd. ( HMC ) Mercedes-Benz Group AG ( MBGAF ), and Bayerische Motoren Werke Aktiengesellschaft ( BMWYY ); and stocks of few energy giants like Shell PLC ( RYDAF ), TotalEnergies SE ( TTE ), BP p.l.c ( BP ), and BASF SE ( BASFY ). Healthcare and communication technology stocks are also much in favor for the fund managers of FNDF. Significant investments in the healthcare sector included pharmaceutical giants such as Roche Holding AG ( RHHBY ), Sanofi SA ( SNY ) and Novartis AG ( NVS ). Communication stocks like Vodafone Group Public Limited Company ( VOD ), Deutsche Telekom AG ( DTEGF ), and Siemens Aktiengesellschaft ( SMAWF ) are also included among its top 25 investments.
The above-listed stocks belong to large-cap renowned brands, and are expected to have a steady and superior price growth over others. However, the price performance has been disappointing. Barring DTEGF, BP, TTE, and BMWYY, no other stock was able to generate a double-digit price growth during the past 12 months. A poor 2022 could be the most prominent reason for such poor price growth. Unfortunately, price performance over the past five years has not been impressive, either. Again, only four stocks - DTEGF, SNY, RHHBY and SMAWF - were able to register a price growth in excess of 12 percent. Again, over the short run, i.e., during the past three months, only DTEGF, MBGAF, HMC and BMWYY were able to register a double-digit price growth.
Price performance of FNDF’s financial holdings was even worse. Its portfolio of financial stocks is dominated by banking stocks. But since the portfolio excludes stocks from the U.S. market, most of the large banks are missing in this list. Still, most of its top holdings in the financial sector are fortune 500 firms like Banco Santander, S.A. ( SAN ), HSBC Holdings plc ( HSBC ), Allianz SE ( ALIZF ), SoftBank Group Corp. ( SFTBF ), BNP Paribas SA ( BNPQF ), Mitsubishi UFJ Financial Group, Inc, ( MUFG ), and Banco Bilbao Vizcaya Argentaria, S.A. ( BBVA ) and Royal Bank of Canada ( RY ). Barring RY, all other stocks recorded negative price growth during the past 5 years. The broader market and stocks from the overall banking sector performed much better during this period. However, the past six months have been extremely positive for these stocks, as they mostly (except SFTBF and RY) grew within a range of 25 to 53 percent.
Investment Thesis
Performance of international large-cap equity funds like Schwab Fundamental International Large Company Index ETF are mostly in sync with global economies. And currently, there is an anticipation of a global recession all over the world, especially in the developed economies. In case a recession takes place, economies will contract, and it will lead to a decline in production, development and a defensive monetary policy. Fortunately, FNDF is diversified enough to protect itself against hyper fluctuations or volatility. Industries and economies, on which FNDF is banking upon are also performing decently. Unfortunately, FNDF has a low yield, extremely poor total return, has a low turnover ratio and is currently trading at a marginal premium of 0.4 percent.
A yield between 2 to 4 percent, that also with a semi-annual pay-out will surely fail to meet the requirements of income-seeking investors. Growth seeking investors may not be impressed with this fund either, due to the poor price performance of its top investments. Only a handful of stocks from the healthcare, automobile, energy and communication technology sectors generated reasonably good price growth. Performance of FNDF’s financial holdings were even worse. A low turnover means that the composition of stocks is not going to change dramatically.
Securities like Schwab Fundamental International Large Company Index ETF with an average total return of almost 3 percent over the past five years would be better off ignored, irrespective of its fundamentals and prospects. Overall, Schwab Fundamental International Large Company Index ETF doesn’t offer enough spunk.
For further details see:
FNDF: This Diversified International Large-Cap Ex-U.S. ETF Does Not Impress