Schwab Expands Fundamental Index Line-up with Introduction of Six Exchange-Traded Funds

Schwab Expands Fundamental Index Line-up with Introduction of Six Exchange-Traded Funds

New ETFs use same approach as Schwab’s Fundamental Index mutual funds, complement cap-weighted ETF offering

SAN FRANCISCO--(BUSINESS WIRE)-- Charles Schwab Investment Management (CSIM), an exchange-traded funds (ETFs) industry leader, announced today that six new Schwab Fundamental Index® ETFs will begin trading next week. Along with Schwab’s other 15 proprietary ETFs, these new core funds will be available for purchase commission-free online in Schwab accounts beginning August 15.

CSIM is the sole asset manager to offer ETFs and mutual funds tracking the Russell Fundamental Index® Series, which is based on methodology developed by Rob Arnott and Research Affiliates, LLC. Since launching its first Fundamental Index mutual funds in 2007, Schwab has seen a steady increase in demand and its five mutual funds using this approach now have $4.5 billion in total assets under management as of June 30, 2013.

Fundamentally weighted methodologies are often referred to as “smart beta” because securities are screened and weighted based on objective factors like adjusted sales, cash flow, and dividends/buybacks. Traditional market-cap indexes weight securities based on market capitalization, so the largest companies have the largest weight in the index. Some experts believe that because traditional market-cap indexing over-emphasizes popular stocks and de-emphasizes undervalued securities, it can over-expose investors’ portfolios to market speculation, bubbles and fads. Fundamental Index methodologies break the link with price, and historically delivered excess returns relative to the market-cap equivalent1.

CSIM believes both index structures should be used in combination to access the core markets and build portfolios with the potential for better results because they perform differently across market cycles.

“The world is not black and white when it comes to indexing,” said Marie Chandoha, president of CSIM. “We believe the systematic approach inherent in fundamentally weighted methodologies, when used alongside cap-weighted strategies, enables investors to diversify and balance their exposure.”

Chandoha added, “These ETFs add a new flavor to our ‘pure vanilla’ ETF market-cap line-up and further demonstrate our commitment to offering core products that help investors build their portfolios and potentially achieve better outcomes. We’re pleased to be able to join with other industry leaders to offer these competitively priced, well-constructed ETFs and educate investors through plain-talk and tools.”

Schwab’s newest ETFs will deliver many of the key benefits of ETF investing in general, including diversification, intra-day trading and transparency, with operating expense ratios that are priced competitively relative to others using a fundamental approach. All six ETFs will be added to Schwab ETF OneSource™ — the ETF platform that gives investors and advisors access to the most commission-free ETFs anywhere in the industry2 — on the first day of trading. The new ETFs are as follows:

  • Schwab Fundamental U.S. Broad Market Index ETF (FNDB) – Seeks to track the Russell Fundamental U.S. Index; OER – 0.32%
  • Schwab Fundamental U.S. Large Company Index ETF (FNDX) – Seeks to track the Russell Fundamental U.S. Large Company Index; OER – 0.32%
  • Schwab Fundamental U.S. Small Company Index ETF (FNDA) – Seeks to track the Russell Fundamental U.S Small Company Index; OER – 0.32%
  • Schwab Fundamental International Large Company Index ETF (FNDF) – Seeks to track the Russell Fundamental Developed ex-U.S. Large Company Index; OER – 0.32%
  • Schwab Fundamental International Small Company Index ETF (FNDC) – Seeks to track the Russell Fundamental Developed ex-U.S. Small Company Index; OER – 0.46%
  • Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE) – Seeks to track the Russell Fundamental Emerging Markets Large Company Index; OER – 0.46%

Appetite Among RIAs

Like its five Fundamental Index mutual fund counterparts, Schwab expects the new Fundamental Index ETFs will be embraced first by Registered Investment Advisors (RIAs). These advisors have already shown an avid interest in understanding how Fundamental Index strategies compare to a market-cap index approach. This year alone, more than 900 RIAs have attended three Schwab-hosted special events aimed at educating advisors about the two forms of index strategies, and three white papers for RIAs have been distributed by Schwab. Seven additional regional events for advisors on this topic are scheduled to take place before year-end.

According to the latest Independent Advisor Outlook Study by Schwab Advisor Services, 59 percent of its RIA clients currently invest in fundamentally weighted products, and roughly one in five plan to invest more in the near term. Additionally, the research shows that 34 percent of RIAs believe fundamentally weighted products can serve as an effective complement to market-cap weighted and actively managed products.

“We’re here to help advisors and investors alike recognize that Fundamental Index funds – whether ETFs or mutual funds – are a thoughtful way to gain broad industry exposure, right alongside their market cap-weighted counterparts,” said Chandoha. “Fundamental Index methodologies have become important to the institutional investing community, and we think it’s time all investors benefit from this approach.”

The new funds are grouped alongside cap-weighted Schwab ETFs, which continue to have the lowest operating expenses in their respective Lipper categories3.

Charles Schwab & Co., Inc. continues to be a mainstay in the retail ETF marketplace, with more than $167 billion in total ETF assets custodied on its platform and $12 billion in assets under management in Schwab ETFs as of June 30, 2013.

Retail investors can learn about and choose ETFs through Schwab’s online tutorials, research and tools such as the ETF Select List™ and Schwab ETF Portfolio Builder™, as well as by attending live events in local Schwab branches. Investors at every level of the investing spectrum can also visit the Schwab ETF Education Exchange™ (www.schwabetfeducationexchange.com), to access timely education and information about ETFs and the markets from some of the leading ETF experts across the industry. And with more than 100 ETFs to choose from, Schwab ETF OneSource™ offers investors the most commission-free ETFs from a range of top providers2.

About Charles Schwab Investment Management

Founded in 1989, CSIM, a subsidiary of The Charles Schwab Corporation, is one of the nation's largest asset management companies with more than $205 billion in assets under management as of June 30, 2013. It is among the country's largest money market fund managers and is the third-largest provider of retail index funds. In addition to managing Schwab’s proprietary funds, CSIM provides oversight for the sub-advised Laudus Fund family. CSIM currently manages 76 mutual funds in addition to two separate account model portfolios, and 15 ETFs.

About Charles Schwab

At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.

More information is available at www.aboutschwab.com. Follow us on Twitter, Facebook, YouTube, LinkedIn and our Schwab Talk blog.

Disclosures

SCHWAB is a registered trademark of Charles Schwab & Co., Inc. FUNDAMENTAL INDEX is a registered trademark of Research Affiliates LLC.

Through its operating subsidiaries, The Charles Schwab Corporation (NYSE: SCHW  ) provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; compliance and trade monitoring solutions; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products. More information is available at www.schwab.com and www.aboutschwab.com.

Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus  by calling Schwab at 800-435-4000. Please read the prospectus carefully before investing.

Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV).

Past performance is not a guarantee of future results.

Charles Schwab & Co., Inc. receives remuneration from third-party ETF companies participating in Schwab ETF OneSource™ for record keeping, shareholder services and other administrative services, including program development and maintenance.

Diversification does not eliminate the risk of investment losses.

Schwab ETFs are distributed by SEI Investments Distribution Co. (SIDCO). SIDCO is not affiliated with Charles Schwab & Co., Inc. Learn more at schwab.com/SchwabETFs.

Charles Schwab Investment Management, Inc. ("CSIM"), the investment advisor for Schwab's proprietary funds, and Charles Schwab & Co., Inc. ("Schwab"), the distributor for Schwab Funds, are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation.

Russell Investments and Research Affiliates, LLC have entered into a strategic alliance with respect to the Russell Fundamental Index Series. Subject to Research Affiliates’ intellectual property rights in certain content, Russell Investments is the owner of all copyrights related to the Russell Fundamental Indexes. Russell Investments and Research Affiliates jointly own all trademark and service mark rights in and to the Russell Fundamental Index Series. Charles Schwab & Co., Inc. is not affiliated with Russell Investments or Research Affiliates. The Schwab Fundamental Index Funds are not sponsored, endorsed, sold or promoted by Russell Investments or Research Affiliates, and Russell Investments and Research Affiliates do not make any representation regarding the advisability of investing in shares of the funds.

Brokerage Products: Not FDIC Insured • No Bank Guarantee • May Lose Value

1 Arnott, Robert D., Jason C. Hsu and Philip Moore, 2005. “Fundamental Indexation” Financial Analysts Journal, vol. 61, no. 2 [March/April]: 83-89.

2 Conditions Apply: Trades in ETFs available through Schwab ETF OneSourceTM (including Schwab ETFs™) are available without commissions when placed online in a Schwab account. Service charges apply for trade orders placed through a broker ($25) or by automated phone ($5). An exchange processing fee applies to sell transactions. Certain types of Schwab ETF OneSource transactions are not eligible for the commission waiver, such as short sells and buys to cover (not including Schwab ETFs). Schwab reserves the right to change the ETFs we make available without commissions. All ETFs are subject to management fees and expenses. See the pricing guide for additional information.

3 Conditions apply: This claim is based on expense ratio data comparisons between Schwab Market-Cap ETFs and non-Schwab Market-Cap ETFs in their respective Lipper categories. Securities in Market-Cap ETFs are selected and weighted based on the size of their market capitalization. Expense ratio data for non-Schwab Market-Cap ETFs were obtained from Strategic Insight Simfund as of 05/31/13. ETFs in the same Lipper category may track different indexes, have differences in holdings, and show different performance. Competitors may offer more than one ETF in a Lipper category. Expense ratios are subject to change.

(0813-5322)



Charles Schwab
Alison Wertheim, 415-667-0475
alison.wertheim@schwab.com
or
The Neibart Group
David Neibart, 718-875-4198
dneibart@neibartgroup.com

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