A Value Fund That Goes Beyond Tradition
This bronze-rated fund has benefits that its peers lack, and it should reward investors who can stomach some volatility.
This bronze-rated fund has benefits that its peers lack, and it should reward investors who can stomach some volatility.
Alex Bryan: Unlike most value index funds, Schwab Fundamental US Large Company Index, weights its holdings based on fundamental measures of size, including operating cash flow, sales, and capital distribution, such as dividends and share repurchases.
This introduces a value tilt because it tends to overweight some of the companies that are trading at low multiples of these metrics and underweights companies that are trading at more expensive multiples.
However, unlike a traditional value index mutual fund, it doesn’t restrict its holdings to the value side of the style box. Rather it provides broad diversification and broad exposure to the U.S. market, and that can be an advantage relative to a traditional value index fund.
As an added benefit, it tends to increase its exposure to stocks that have become cheaper relative to their fundamentals and parse back on stocks that have become more expensive. And this can allow investors to more efficiently capture the value effect than [they can with] a traditional value index fund.
So far this approach has worked fairly well. Over the past five years, the fund landed in the top decile of the U.S. large-value category. It also outpaced the Russell 1000 Value Index by more than 2 percentage points during that time.
However, it’s not a free lunch. There are very good reasons that different stocks can trade at different valuations, such as differences in risk and growth. By ignoring differences in valuations, this particular fund tends to overweight some of the more risky names within the market, and as a result it’s been a little bit more volatile than the category average over the past five years. However, it will likely continue to reward long-term investors who can stomach a little extra volatility.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals
and individual investors. These products and services are usually sold through
license agreements or subscriptions. Our investment management business generates
asset-based fees, which are calculated as a percentage of assets under management.
We also sell both admissions and sponsorship packages for our investment conferences
and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.