Domestic equity indexes have been grinding sideways all week as mixed economic reports and looming uncertainty over the Fed’s next move have weighed on euphoria levels. The bulls and bears have been at odds all week as lackluster economic growth in Japan has collided with the first positive quarter in the eurozone, making for a mixed international landscape amid a data-heavy week on the home front .

Amid the tug of war on Wall Street, industry giant Charles Schwab is expanding its core equity lineup with “fundamental” products that go beyond traditional market capitalization-weighted ETFs.

Schwab Expands Beyond Market Cap-Weighted Indexes

Today, the company rolled out six new equity ETFs based on fundamentally-weighted indexes from benchmark provider Russell. The firm’s decision to launch new ETFs based around a more compelling weighting-methodology, in lieu of going after the “cheapest” offerings as it previously has, showcases the market’s growing demand for “smarter” index-based products .

The new Schwab ETFs are based on Rob Arnott’s RAFI methodology, focusing on adjusted sales, operating cash flows, and dividends plus buybacks. Below are the new funds along with their respective expense ratios :

  • Fundamental U.S. Broad Market Index ETF costs 0.32%
  • Fundamental U.S. Large Company Index ETF costs 0.32%
  • Fundamental U.S. Small Company Index ETF costs 0.32%
  • Fundamental International Large Company Index ETF costs 0.32%
  • Fundamental International Small Company Index ETF costs 0.46%
  • Fundamental Emerging Markets Large Company Index ETF costs 0.46%

Meet The Competition

The new Schwab ETFs will face some stiff competition from more established PowerShares ETFs, which are also based around Arnott’s RAFI methodology; however, unlike the Schwab ETFs, the PowerShares ETFs focus more on book value, cash flow, sales, and dividends. These more established funds include:

  • FTSE RAFI US 1000 Portfolio with over $2.2 billion in assets under management
  • FTSE RAFI US 1500 Small-Mid Portfolio with over $707 million in AUM
  • FTSE RAFI Developed Markets Ex-US Portfolio with over $580 million in AUM

Schwab’s new fundamentally weighted ETFs warrant a closer look from anyone trying to steer clear of traditional cap-weighted products, which are prone to pesky nuances, namely over-weighting popular companies and overlooking undervalued ones.

Follow me on Twitter @SBojinov

Disclosure: No positions at time of writing.

Related Articles
  1. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  2. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  3. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  4. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  5. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  6. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  7. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  8. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  9. Forex Fundamentals

    How to Buy Chinese Yuan

    Discover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
  10. Mutual Funds & ETFs

    ETF Fees: Why BlackRock is the Latest to Cut Them

    Low expense ratios are a big selling point for ETFs, but are they being focused on too much?
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center