With the current market turmoil and sellers outpacing buyers, now might be the right time to take a look at Schwab’s low-fee exchange-traded funds (ETFs). If you can ignore the fear of buying during a market downturn, you might consider investing in one of the Schwab ETFs I feature here.
Actually, a quick view of historical stock and bond market returns show that down markets offer excellent buying opportunities.
The following funds are culled from the “Schwab Select List”. The “Schwab Select List” ETFs make the grade due to their low cost of ownership, liquidity, viability and structural stability.
Specifically, the “Schwab Select List” screening criteria includes:
- ETFs with more than $20 million in assets under management. The list excludes leveraged funds and exchange-traded notes.
- ETFs must have a minimal tracking error and low bid-ask spread.
- Operating expense ratios must be relatively low.
The following Schwab ETFs have earned a place on the “Select List” and offer diversified holdings from a range of market corners.
These funds lean towards a value bent and strive for both long-term capital appreciation (for the equity funds) and cash flow.
Best Schwab ETFs: Schwab US Large-Cap Value ETF (SCHV)
Expense Ratio: 0.04%, or $4 per $10,000 invested annually
At some point, the growth investing trend will reverse. If you’re a contrarian, value-seeking investor, Schwab US Large-Cap Value ETF (NYSEARCA:SCHV) is a way to invest in overlooked large-cap value stocks. Despite the recent outperformance of growth stocks, value stocks have triumphed over long time periods.
SCHV is an index fund that tracks the return of the Dow Jones US Large-Cap Value Total Stock Market Index. The fund currently owns 411 stocks, offers a 2.93% yield and charges a .04% expense ratio.
With big-name firms in the top 10 positions, you can expect that the yield should hold, making this a potential yield play as well as offering an opportunity for capital appreciation.
The top five holdings include:
- Johnson & Johnson (NYSE:JNJ)
- JP Morgan Chase (NYSE:JPM)
- Procter & Gamble (NYSE:PG)
- AT&T (NYSE:T)
- Verizon Communications (NYSE:VZ)
Brave and patient investors may want to consider this top Schwab ETF.
Schwab Fundamental US Large Company ETF (FNDX)
Expense Ratio: 0.25%
Another niche large-capitalization value fund, Schwab Fundamental US Large Company ETF (NYSEARCA:FNDX) tracks the total return of the Russell RAFITM US Large Company Index. The fund owns large- and mid-cap stocks that are perceived as undervalued by fundamental metrics such as retained operating cash flow and dividends plus share buybacks.
FNDX weights stocks that trade at low multiples higher than in a typical market cap portfolio. The fund is rebalanced quarterly to remain true to its objective.
The fund’s market capitalization includes roughly 45% giant-, 35% large- and 17% mid-cap companies, with the remainder in small firms.
The fund owns 700 companies and charges a 0.25% expense ratio. The current yield of 2.28% is attractive for investors seeking cash flow.
During the one- and five-year periods the fund has been in the top 25% of its category.
There is a small overlap in holdings between SCHV and FNDX. The top five holdings include:
Schwab Fundamental International Large Company (FNDF)
Expense Ratio: 0.25%
Schwab Fundamental International Large Company (NYSEARCA:FNDF) is another contrarian pick, for the international sector. The fund tracks the Russell RAFI developed ex-US Large Company Index. This index fund owns 956 stocks and includes firms that meet fundamental characteristics that measure undervalued companies.
The funds performance is in the top 20% of competitors during the prior five years, according to Morningstar. The current 12-month yield is 3.7% and the fund is currently selling at a -0.58% discount to NAV.
The top five holdings include well-known international companies:
- Toyota (NYSE:TM)
- BP (NYSE:BP)
- Nestle SA (OTCMKTS:NSRGY)
- Roche Holding AG Dividend Right Cert. (OTCMKTS:RHHBY)
Schwab U.S. Aggregate Bond ETF (SCHZ)
Expense Ratio: 0.04%
Despite the low yields, the recent interest rates interest rate drop has led to bond price appreciation. For bond investors, Schwab U.S. Aggregate Bond ETF (NYSEARCA:SCHZ) is a low fee option.
The Schwab U.S. Aggregate Bond ETF is an index fund that tracks the Bloomberg Barclays U.S. Aggregate Bond index. The investments include investment grade taxable corporate, US Treasury, government and mortgage-backed securities. SCHZ also has a 3.77% exposure to foreign government securities. The high credit rating of the fund’s securities make this fund safe from default risk.
SCHZ owns 7,059 bonds and charges a miniscule 0.04% expense ratio. Morningstar categorizes the fund as an intermediate core bond holding, and it is currently selling at an -0.07% discount to NAV. The current yield of 2.07% provides a safe income stream.
The average effective maturity is 7.88 years which means that the share price will be more volatile to interest rate movements than a short-term bond fund. When interest rates rise, bonds and bond funds typically decline in value, and vice versa.
The top 10 bonds are all U.S. Treasury Notes with coupons ranging from 1.75% to 3.12%.
It’s scary to invest during market turmoil, but brave souls have been rewarded by buying when others are selling. Investors seeking a simpler way to invest might consider the Schwab Intelligent Portfolios robo-advisor.
Fundamental index funds may pay off in the long run, due to their tendency to go against the crowd. But, a drawback to the fundamental approach is that stocks with deteriorating fundamentals are overweighed and might to the fund’s risk.
As with all investing, it’s wise to diversify across sectors and investments. The past is clear, but the future is not. As the saying goes, past performance is not an indicator of the future.
Barbara A. Friedberg, MBA, MS is a veteran portfolio manager, expert investor, and former university finance instructor. She is editor/author of Personal Finance; An Encyclopedia of Modern Money Management and two additional money books. She is CEO of Robo-Advisor Pros.com, a robo-advisor review and information website. Additionally, Friedberg is publisher of the well-regarded investment website Barbara Friedberg Personal Finance.com. Follow her on twitter @barbfriedberg and @roboadvisorpros. As of this writing, she did not hold a position in any of the aforementioned securities.