FNDX: Why This Smart-Beta ETF Should Beat Both VTV And VOO

Summary

• There's an ongoing debate about cap-weighted and smart-beta indexes, which look past crowd opinion to weight operating metrics like P/E, PB, P/S, and dividends.
• Rob Arnott challenged cap-weighted indexes as precipitating bubbles and created the RAFI index used by Schwab's FNDX and Invesco's PRF which have outperformed ordinary cap-weighted Value like VTV.
• Both FNDX and PRF are cheaper than the popular Vanguard Value ETF by the above metrics but have a higher growth rate.
• Representing all large caps, both fundamental ETFs have Apple and Microsoft near the top, showing that Apple and Microsoft fundamentals support the price.
• FNDX has beaten PRF for total return over all time frames and has a lower expense ratio; PRF might be preferred by income investors because of its 3.12% dividend yield.

NicoElNino

What's the best way to buy diversified value? The default answer is usually Vanguard's Value ETF (VTV), at least judging by assets under management of $153 billion, but you can make a pretty good case that the Schwab Fundamentals U.S. Large Company

Analyst’s Disclosure: I/we have a beneficial long position in the shares of GOOG, BRK.B either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.