Schwab Fundamental U.S. Small Company ETF (FNDA) breaks the link between market prices and portfolio weightings, which injects a contrarian rebalancing approach that should give the fund an edge over its peers over the long term. This is a value strategy, though it falls in the small-blend Morningstar Category. While there is much to like about this strategy, its weighting approach may cause it to overweight stocks with deteriorating fundamentals, and it charges more than market-cap-weighted value alternatives, limiting its Morningstar Analyst Rating to Bronze.
This fund offers broad exposure to small-cap U.S. stocks but weights them on fundamental measures of size, including sales (adjusted for leverage), retained operating cash flow, and dividends plus share buybacks, rather than market cap. This causes the fund to tilt toward stocks trading at low multiples of these metrics and away from stocks trading at higher valuations. However, it does not exclude growth stocks.
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Alex Bryan does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.