On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research, Todd Rosenbluth, discussed the Schwab Fundamental U.S. Large Company ETF (FNDX A) with Chuck Jaffe of Money Life. The pair discussed several topics related to the ETF, in order to give investors a deeper understanding of it.Chuck Jaffe: One fund, on point for today. The expert to talk about it. This is the ETF of the Week!
Yes, welcome to the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange-traded funds with Todd Rosenbluth. He’s the head of research at VettaFi. And if you go to ETFDb.com, which is a VettaFi sister site, you will find all the tools and research you need to make yourself a savvier, smarter investor in exchange-traded funds.
Todd Rosenbluth, great to chat with you again!
Todd Rosenbluth: It’s great to be back, Chuck!
Chuck Jaffe: We need to tell people some news about ETF of the Week, which is that this is our penultimate episode — that after 14-plus years, 744 episodes as of today, next week will be the final ETF of the Week.
And it’s done for good reasons, not necessarily so much for us on Money Life, because we love chatting with you and the folks at VettaFi and we started this with Tom Lydon, who, in iterations before VettaFi… But because VettaFi and ETFdb have some big plans, and so, we can’t announce all those plans, what we can tell people is that if they go to ETFDb.com, they’ll be able to find it. And of course, ETF of the Week, a standalone, independent podcast, in addition to being part of Money Life.
So folks, find and subscribe as you guys make your transition to what’s next. Everybody will be able to follow along, and we encourage them to do that. Todd, and I’ll just point out, this is not going to be the end of you and me talking, because you’ve been on the show — you are a top-10 guest on Money Life.
Do you have any idea how many times you’ve been on the show, or how many ETFs of the Week you and I have done together?
Todd Rosenbluth: So, you and I have probably done well over 100 ETF of the Weeks. If I had to guess how many times I’ve been on the program, I’ll go with a round number of 150, even though I don’t think that’s possible!
Chuck Jaffe: You are close, but also wrong! Because we have done — by the time we finish, it will be 132 episodes, I believe is the count. And you have been on the show about 160 times, and we know you will come back to talk ETFs with us. So we look forward to doing that on Money Life with you as well.
So, but that’s for another day. So Todd, for the next-to-last time, your ETF of the Week is…
Todd Rosenbluth: The Schwab Fundamental U.S. Large Company Index ETF, FNDX.
Chuck Jaffe: FNDX, Schwab Fundamental U.S. Large Company ETF. This is an established classic — I mean, a fund with like $28 billion in it. But, you know, we talked about blue-chip stocks last week when we were talking about the Fidelity Blue Chip Growth ETF. Why are we coming back with a U.S. large-company ETF and this specific one now?
Todd Rosenbluth: Partially because it’s index-based. But you’re right, we’ve talked about how many people are concerned about stock concentration and they’ve looked for the market to broaden out. The Schwab Fundamental U.S. Large Company Index ETF, or FNDX, addresses this in an index-based way by weighting companies on real financial health — revenue, cash flow — as opposed to market hype.
And so, we believe this approach caps an investor’s exposure in a rules-based manner towards those mega-cap giants. It caps the cap giants and spreads that risk around. So it’s systematically selling overvalued, high-flying companies and buying the steady-earning companies. We just think it’s a smoother way of balancing out the portfolio over the long haul. So, this is a high-quality, index-based approach.
You’re right. It’s got almost $30 billion, I believe you said, and it’s got a 20-plus-year track record. So this is not new and newsworthy from an ETF standpoint. But one last thing: We at VettaFi are now the index provider behind this—VettaFi and RAFI indices have come together, and that’s exciting.
Chuck Jaffe: When you talk about that, one of the things we haven’t talked about a lot on ETF of the Week is, just like we talk about expenses all the time and we say expenses matter, index construction matters too. But how should the listener to this podcast kind of take that?
Because, you know, the public still thinks the Dow is important, and the Dow is a price-weighted index — the dumbest way you could possibly index. So if index construction matters, how does somebody size up and go, “Yeah, I like this index,” whether it’s VettaFi, RAFI, or anybody else who’s providing it?
Todd Rosenbluth: Yeah, I think with an index-based ETF, you need to understand the rules of the index and then understand what is inside as a result of the rules. So since you touched on the expense ratio, let me just tick that box for us: For FNDX, it’s 25 basis points. That’s a reasonably low fee. It’s a little bit more expensive than a market-cap-weighted approach.
It’s definitely less expensive than an active approach. But the rules of this are, I think, pretty straightforward. Instead of treating a company based on its valuation — which is what you’d find with the S&P 500 or the Russell 1000-based products — what’s happening here is each company is assessed based on its financial health, its actual business. So, sales, dividends, earnings — those things are all part of the overall mix. And then this is rebalanced to make sure that the stocks that have worked out well get reduced in size, and the stocks that haven’t done as well, that they regain their overall weighting.
And when I look at this ETF, FNDX, versus the S&P 500-based products — think of (VOO A), which is the largest of those ETFs — you’re going to have less mega-cap technology exposure, more exposure to energy companies like Exxon and Chevron, more exposure to healthcare companies. You’re going to have, as we talked about earlier, blue-chip companies, but blue-chip companies on an ongoing, steady, rules-based manner.
Chuck Jaffe: Last week, again, it was Fidelity Blue Chip Growth, (FBCG B-) — that, of course, is a growth fund. Technically, this fund, Schwab Fundamental U.S. Large Company, tracks out as a value fund. So do these play well together, and how much do people need this? Like, is this fund good enough that you consider this if you have the space covered?
Or is this, again, for somebody who is basically saying, “Okay, I need to go get something big, and I want an index fund to cover the top of the market for me”?
Todd Rosenbluth: So we’ve seen FNDX used in a couple of manners. I think primarily it’s a complement to the broader S&P 500, the market-cap-weighted approach, because you get that rules-based approach to rebalancing.
You get a focus on financial health. You reduce your mega-cap growth exposure. You still have some exposure to it—so Apple is still a large holding, Microsoft is still a large holding, Nvidia is not at all. And so you’re either eliminating some of those individual companies or certainly reducing the overall weighting, and boosting exposure to companies that are financially stronger but just haven’t moved to the same degree.
So, FNDX can pair nicely with a market-cap-weighted approach. It can also pair nicely with an active approach because, again, that lower-cost, index-based approach is going to offset the concentration.
FBCG, that we talked about last time from Fidelity, is concentrated in a handful of those mega-cap stocks because that’s how management was favoring the individual companies. And then lastly, we have seen people who are building portfolios using the fundamental suite from RAFI, including this product. There are some international products that pair well with it.
So, this can be a core or this can be a complement.
Chuck Jaffe: I have to ask, you know, although this fund does not have Nvidia, it does have a couple of things that overlap with the fund we talked about last week. And there’s an interesting statistic right now that talks about how value is doing way better than growth this year.
But the oddity of that is that a number of things that are on the value index are also on the growth index. Here we were talking about index construction and how these things can play together. But are value and growth less valuable as markers when you can literally look at a number of indexes and go, “Wait, hold it. What do you mean this is on the same thing?”
You know, the value index was benefiting from Micron up until the middle of this year. It really benefited from when it sold Micron and the growth ones didn’t, but they both were holding it at the same time! So how much of that distinction is important to you anymore? I can’t let you end ETF of the Week without at least telling us if you still think it’s a valuable distinction.
Todd Rosenbluth: So, I think it’s valuable in that it’s easier to compare like for like. So FNDX shows up in Morningstar’s categorization as a large-cap value fund, and so you can compare the performance of FNDX versus other large-cap value strategies. And I think if you do, you’ll be very pleased. I believe FNDX is a five-star-rated Morningstar fund, which again adds to its credibility.
I think of this as more of a core approach, because you’re right — Apple and Microsoft are two of the larger holdings. I believe Alphabet is another top holding, but the devil is in the detail in the index construction. So some index providers consider stocks of growth, some consider them value, and in some, they appear in both growth and value.
So I think when you’re pairing a fund, if this is going to be the value slice of your portfolio, FNDX, then make sure that it doesn’t have too much overlap with what you’re currently using as the growth slice of your portfolio, if you’re using growth and value to tilt up or down more. If this is a core fund for you, which I think can pair nicely with the S&P 500—it’s going to give you a bit of a value tilt to your core, but still have core-like characteristics.
Chuck Jaffe: It’s FNDX, the Schwab Fundamental U.S. Large Company ETF, the ETF of the Week, the second-to-last ETF of the Week from Todd Rosenbluth, head of research at VettaFi. Todd, great stuff. I’ll be sad next week when we do the last one, but I’ll be happy to see you again!
Todd Rosenbluth: Well, I’ll be happy to be here. And as you mentioned, I’ve been a regular guest; I’m happy to return as a guest in a different format. But thanks a lot for the time to you and to the listeners!
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe — and yes, that’s me. You can learn all about my hour-long weekday show by going to MoneyLifeShow.com, or you can search for it wherever you find great podcasts.
And if you’re searching for great information on exchange-traded funds, check out ETFDb.com. It is a sister site to VettaFi, and they have all the tools you need to make yourself a better investor. They’re on X @ETFDb. And Todd Rosenbluth, head of research, my guest—he’s there too. He’s @ToddRosenbluth.
The ETF of the Week is here for you for one more Thursday, but [ETFDb] will continue, and they will be morphing into new things. So if you haven’t followed along, make sure you do that so you don’t miss anything as they make their next transition. But we will be back next week with the last ETF of the Week.
Until then, happy investing, everybody!
Note: This article was created in part through assistance from AI tools. The content has been thoroughly reviewed and edited by the author.
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VettaFi LLC (“VettaFi”) is the index provider for FNDX, for which it receives an index licensing fee. However, FNDX is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of FNDX.
