Schwab fundamental index funds

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
jaw50
Posts: 7
Joined: Sun Nov 24, 2019 10:10 pm

Schwab fundamental index funds

Post by jaw50 »

My Transamerica 401 keeps changing the funds offered and now it’s dreadful. I’m moving to the PCRA which limits me to Schwab funds without having to pay transaction fees. Are the Schwab fundamental index funds worth the .25% ER? They do get excellent Morningstar ratings.
User avatar
arcticpineapplecorp.
Posts: 15014
Joined: Tue Mar 06, 2012 8:22 pm

Re: Schwab fundamental index funds

Post by arcticpineapplecorp. »

1. do you only have the fundamental index funds to choose from or can you choose from other (index) funds at Schwab?

2. if the latter, why are you considering the fundamental index funds over the plain vanilla index funds?

3. If the former, which of the fundamental index funds are you interested in:

Image

source: https://www.schwabassetmanagement.com/p ... undamental

4. have you compared the performance of the fundamental index funds to their plain vanilla index fund counterparts?

I will start you out with comparing the Schwab Fundamental US Large Company Index vs. Schwab's S&P500 index fund:

Image

source:
https://www.portfoliovisualizer.com/bac ... ion2_2=100

what do you notice?

I notice while the fundamental index fund did outperform the S&P500 index, it had a lower sharpe and sortino ratios. That means it had lower risk adjusted returns than just the plain old vanilla S&P500 index fund. Best year was better (for fundamental) and worst year was worse and max drawdown was worse and standard deviation was worse (greater).

You can see there are periods when it outperformed S&P500 (2010-2018) and other periods where it underperformed (2020-2021). You'll have to deal with it if it lags the market at times. You ok with all that?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
User avatar
typical.investor
Posts: 5247
Joined: Mon Jun 11, 2018 3:17 am

Re: Schwab fundamental index funds

Post by typical.investor »

jaw50 wrote: Sat Mar 18, 2023 9:07 pm My Transamerica 401 keeps changing the funds offered and now it’s dreadful. I’m moving to the PCRA which limits me to Schwab funds without having to pay transaction fees. Are the Schwab fundamental index funds worth the .25% ER? They do get excellent Morningstar ratings.
They basically give value exposure. If you are familiar with that you'll know it can underperform for periods but long term promises a premium. They aren't tilted as deep value as some funds, so will underperform a little less, and perhaps not outperform as much when value does well.

The last decade hasn't been great for value but they haven't done poorly. Well, I'll let you be the judge:


US [Sep 2013 - Feb 2023].
VTSAX (Vanguard Total Stock Mkt.)
10.25% CAGR

-vs-

FNDB (Schwab Fundamental US Broad Market)
10.07% CAGR

INTL [Sep 2013 - Feb 2023].
VXUS Vanguard Total International Stock
3.22% CAGR

-vs-

FNDF Schwab Fundamental Intl Lg Co ETF 80.00%
FNDC Schwab Fundamental Intl Sm Co ETF 5.00%
FNDE Schwab Fundamental Emerg Mkts Lg Co ETF 15.00%
3.63% CAGR

-------------------------
So for a 70% US - 30% Intl, it's about a tie

VXUS Vanguard Total International Stock ETF 40.00%
VTSAX Vanguard Total Stock Mkt Idx Adm 60.00%
7.50% CAGR

-vs-

FNDF Schwab Fundamental Intl Lg Co ETF 32.00%
FNDC Schwab Fundamental Intl Sm Co ETF 2.00%
FNDE Schwab Fundamental Emerg Mkts Lg Co ETF 6.00%
FNDB Schwab Fundamental US Broad Market ETF 60.00%
7.55% CAGR

Note: These results are after expenses

https://www.portfoliovisualizer.com/bac ... tion6_2=60
https://www.portfoliovisualizer.com/bac ... tion6_2=60


--------------------------------

If you use the mutual fund class (which goes back further) of the fundamental indexes in the same 60% US-40% INTL ratio:
Jan 2014 - Feb 2023

VXUS Vanguard Total International Stock ETF 40.00%
VTSAX Vanguard Total Stock Mkt Idx Adm 60.00%
9.89% CAGR

- vs -

SFNNX Schwab Fdmtl Intl Lg Co Idx 32.00%
SFILX Schwab Fdmtl Intl Sm Co Idx 2.00%
SFENX Schwab Fdmtl Emerg Mkts Lg Co Idx 6.00%
SFLNX Schwab Fundamental US Large Company Idx 52.00%
SFSNX Schwab Fundamental US Small Company Idx 8.00%
10.06% CAGR

https://www.portfoliovisualizer.com/bac ... ation7_2=8
Topic Author
jaw50
Posts: 7
Joined: Sun Nov 24, 2019 10:10 pm

Re: Schwab fundamental index funds

Post by jaw50 »

I think I’m relying too much on Morningstar ratings and dividend payouts. I’m keeping it simple with a 4 fund portfolio but I’m also making it difficult because I haven’t read anything negative on the fundamental index funds. I’m starting to get like my wife when picking out clothes to buy.
muffins14
Posts: 5432
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Schwab fundamental index funds

Post by muffins14 »

I don’t think morningstar ratings or dividends should play any role in your 401k fund selection

Instead, focus on your desired factor loadings, if any, and the expense ratios. If you wanted total market before, keep total market now. Personally, I do like the fundamental funds and I use a lot of FNDA currently after tax-loss harvesting into it in 2020. FNDF was good for me too, and it generated a lot of share lending revenue for me, but it has a lot of dividends and wasn’t tax efficient in taxable. I tax loss harvested out of it and hold AVDV in tax-deferred now, and just IXUS in taxable for international
Crom laughs at your Four Winds
anil686
Posts: 1316
Joined: Thu May 08, 2014 12:33 pm

Re: Schwab fundamental index funds

Post by anil686 »

TBH, there is never going to be a lot of daylight btw cap weighted and fundamental index funds. Their top 20 holdings are pretty much the same just arranged slightly differently with their weightings. Sometimes cap weighted will be higher, sometimes fundamental will be higher. Others are right - fundamental has a slight value tilt that originated as a way to avoid the problems with cap weighted indexes during the dot com bubble. In some respects, you can attribute fighting the last war to fundamental indexes. They will throw off a slightly higher dividend yield and so if taxes are in issue in that account, that could be a consideration. But, they are pretty cheap (ER wise) and if you like it and can stick with it for many years, probably going to end up in the same spot as the market cap weighted indexes…. JMO though….
User avatar
typical.investor
Posts: 5247
Joined: Mon Jun 11, 2018 3:17 am

Re: Schwab fundamental index funds

Post by typical.investor »

anil686 wrote: Wed Mar 22, 2023 8:56 pm Others are right - fundamental has a slight value tilt that originated as a way to avoid the problems with cap weighted indexes during the dot com bubble.
It's more than slight really, I'd call it a value fund.

HML (value loading 4 factor model)
0.44 Vanguard Small-Cap Value ETF VBR
0.44 DFA US Large Cap Value I DFLVX
0.42 Schwab Fundamental US Small Company ETF FNDA
0.31 Schwab Fundamental US Large Company ETF FNDX

0.32 Vanguard Value Index Adm VVIAX
0.27 Schwab US Large-Cap Value ETF SCHV
0.02 Vanguard Total Stock Market ETF



https://www.portfoliovisualizer.com/fac ... sion=false
Topic Author
jaw50
Posts: 7
Joined: Sun Nov 24, 2019 10:10 pm

Re: Schwab fundamental index funds

Post by jaw50 »

muffins14 wrote: Tue Mar 21, 2023 10:38 pm I don’t think morningstar ratings or dividends should play any role in your 401k fund selection


Curious as to why dividends shouldn’t play a role in a 401k when deciding on funds? My only decent fund in my Transamerica choices is a sizable Fidelity Total Stock index. I made just under $28,000 in dividends last year from that one fund. My wife made just over $22,000 in dividends from her Vanguard SP500. That’s 50,000 reasons to take a good hard look at dividends. We’re still in the accumulation stage of life.
User avatar
typical.investor
Posts: 5247
Joined: Mon Jun 11, 2018 3:17 am

Re: Schwab fundamental index funds

Post by typical.investor »

jaw50 wrote: Thu Mar 23, 2023 12:51 am
muffins14 wrote: Tue Mar 21, 2023 10:38 pm I don’t think morningstar ratings or dividends should play any role in your 401k fund selection
Curious as to why dividends shouldn’t play a role in a 401k when deciding on funds? My only decent fund in my Transamerica choices is a sizable Fidelity Total Stock index. I made just under $28,000 in dividends last year from that one fund. My wife made just over $22,000 in dividends from her Vanguard SP500. That’s 50,000 reasons to take a good hard look at dividends. We’re still in the accumulation stage of life.
Because $50k in dividends + $25k in capitol gains is the same as $25k in dividends + $50k in capitol gains.

The total return for a dividend fund won’t be more

You could go dividend funds in the 401k and growth funds in taxable if tax is a concern I guess
muffins14
Posts: 5432
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Schwab fundamental index funds

Post by muffins14 »

jaw50 wrote: Thu Mar 23, 2023 12:51 am
muffins14 wrote: Tue Mar 21, 2023 10:38 pm I don’t think morningstar ratings or dividends should play any role in your 401k fund selection
Curious as to why dividends shouldn’t play a role in a 401k when deciding on funds? My only decent fund in my Transamerica choices is a sizable Fidelity Total Stock index. I made just under $28,000 in dividends last year from that one fund. My wife made just over $22,000 in dividends from her Vanguard SP500. That’s 50,000 reasons to take a good hard look at dividends. We’re still in the accumulation stage of life.
In a 401k or IRA, you don’t pay tax on dividends so there’s no reason to care about them.

In a taxable account, you do pay tax on dividends, so you should try to minimize them or accept that you’re paying tax for forced liquidity regardless of your need for that liquidity.

Like typical.investor said, dividends are irrelevant aside from tax. Yes you got 28k dividends last year, but if the price has gone up by 28k instead of paying the dividend, you’d still have 28k more money either way
Crom laughs at your Four Winds
Post Reply