Analyzing a ‘Foreign’ ETF

Sometimes, it is best to stay at home and remain faithful to the tried-and-true experiences that you’ve known all your life. Such a decision provides one with a safe harbor during tumultuous times. At other times, it is wiser to cast off, explore new horizons and experience new sensations.

This dilemma also applies to the stock market. At certain periods in the market cycle, it is wise to remain faithful to the well-known and stable companies and funds that are stalwarts in any balanced portfolio. Such a decision often produces a reliable, if not spectacular, return. At other times, investing in foreign or less-well-known companies may be the wiser decision to maximize returns, at, of course, the risk of incurring heavier losses.

One exchange-traded fund (ETF) that is heavily involved in foreign companies is the Schwab Fundamental International Large Company Index ETF (NYSEARCA: FNDF). This ETF tracks an index of large firms from developed markets that are not in the United States. To select the stocks in its portfolio, it consults three different metrics: sales, cash flow and dividends. The fund’s managers then measure large-cap companies from FNDF’s parent index, the FTSE Global Total Cap Index, by these metrics. The top 87.5% of the companies by score are included in the portfolio.

Interestingly, while the index weights are determined annually, they are implemented across the year instead of all at once. That is, the fund’s managers divide the portfolio into four equal segments, and each segment is rebalanced on a quarterly basis. Not only does this methodology reduce the risk of buying shares of the fund at a bad time, but it also increases investment capacity.

Currently, the fund’s top holdings include Shell PLC (NYSE: SHEL), BP plc (NYSE: BP), Toyota Motor Corp. (NYSE: TM), Samsung Electronics Co., Ltd. (KRX: 005930), TotalEnergies SE (NYSE: TTE), HSBC Holdings Plc (NYSE: HSBC), Nestle SA (OTCMKTS: NSRGY) and Glencore plc (OTCMKTS: GLNCY).

This fund’s performance has been problematic, especially when including the damage done by the COVID-19 pandemic. As of Feb. 15, FNDF has been down 1.14% over the past month and up 2.64% over the past three months. It is currently up 3.72% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $7.70 billion in assets under management and has an expense ratio of 0.25%.

While FNDF does provide an investor with a way to profit from foreign companies, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors should always conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.