Exchange Traded Funds (ETFs)

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.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.