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A Foreign Large-Blend Fund With a Cost Advantage

Tue, 16 May 2017

Silver-rated Schwab International Index is among the best diversified portfolios in its category.

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Video Transcript

Daniel Sotiroff: Silver-rated Schwab International Index is a great fund for investors seeking a diversified portfolio of foreign stocks. This fund tracks the MSCI EAFE Index, which includes large- and mid-cap stocks listed in 21 developed markets in Europe, Asia, and Australia. It holds over 900 stocks, and its top 10 holdings represent less than 11% of assets, making it one of the best diversified portfolios in the foreign large-blend Morningstar Category. 

This fund uses a market-cap weighted approach that helps reduce turnover and the associated transaction costs. This also skews the portfolio toward stocks from the eurozone, Japan, and the U.K. Japanese stocks represent the largest country weighting at about 24% of assets. The portfolio's sector and country allocations are similar to the typical fund in this category. However, unlike many of its peers, the fund excludes stocks from Canada and South Korea.

The fund began tracking the MSCI EAFE index in December 2011, and since then performance has been in line with this mandate. From January 2012 through February 2017 the fund lagged its benchmark by only 6 basis points, which was less than its fee over that period.

Investment in foreign stocks carries an additional layer of risk from fluctuations in currency exchange rates. Like many of its peers this fund does not hedge against this currency risk. Schwab recently made two successive price cuts from 19 basis points to 6, making this fund among the cheapest available in its category.

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