FNDE: Solid Value-Tilted EM Exposure

seekingalpha05-31

FNDE tracks the Russell RAFI Emerging Markets Index, offering large and mega-cap exposure across emerging markets with $6 billion in assets, providing growth potential and diversification. The...

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href=https://seekingalpha.com/article/4696702-fnde-solid-value-tilted-em-exposure><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>FNDE tracks the Russell RAFI Emerging Markets Index, offering large and mega-cap exposure across emerging markets with $6 billion in assets, providing growth potential and diversification.\n        The...</p>\n\n<a href=\"https://seekingalpha.com/article/4696702-fnde-solid-value-tilted-em-exposure\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0878005551.USD","symbol_name":"UBS (LUX) KEY SELEC ASIA ALLOCATION OPPORTUNITY (USD) \"P\" (USD) 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billion in assets, providing growth potential and diversification.\n        The fund is heavily weighted towards China (33%) and Taiwan (22%), focusing on financials and tech sectors, and mitigates risk with well-diversified holdings.\n        FNDE has attractive valuation multiples and a 4.32% dividend yield, with low volatility compared to single-country ETFs, but faces geopolitical risks from China-Taiwan tensions.\n           William_Potter Today I'm taking a look at the Schwab Fundamental Emerging Markets Large Company ETF (NYSEARCA:FNDE). The fund tracks the Russell RAFI Emerging Markets Large Company Index and has roughly $6B in assets at the time of writing. The fund provides large and mega-cap exposure across emerging markets.  Until earlier this week, I've mostly been focused on single-country ETFs in both developed and emerging markets. But today, I want to focus on a broad-based emerging markets ETF. From an investment perspective, I've always been interested in emerging markets, for their growth potential and diversification benefits. They also tend to have fascinating, niche industries and unique political backdrops that make them interesting to research. By bundling multiple EM exposures into into one ETF, the fund can capture capture some of the merits of EM countries mentioned above, while also adding in another layer of risk management by avoiding single country bias. This can smooth some of the hazards of single country EM exposures. China and financials heavy fund FNDE invests across 370 companies in 20 different emerging market countries. The benchmark construction methodology weights fundamental criteria including yield, size, and value. From a country perspective, the largest weights are owed to China ( ~33%) and Taiwan (~22%), with other sizable allocations to both India and Brazil. This means the fund is highly concentrated in Asia, with about two-thirds of the fund invested in that region.    Charles SchwabFrom a sector perspective, we see a large allocation to both financials and tech, followed by energy and basic materials. This is a nice blend of export and import-oriented sectors, as well as growth and value styles. This combination of exposures can help offset periods of cyclical underperformance in the energy and basic materials sectors, which are sectors that also typically carry higher levels of volatility than financials and tech.    Seeking AlphaFrom an individual holdings perspective, the fund is well diversified. The total assets in the top 10 holdings only amount to just over a quarter of the fund, with the largest holding, Taiwan Semiconductor Manufacturing (TSM) not breaching 5% of the fund. This is due to the size consideration in the portfolio construction and helps mitigate concentration in any single stock.   Seeking AlphaCheaper valuation multiples vs. other EM funds  When comparing FNDE to the MSCI Emerging Markets index, we see that it retains both a more attractive book value (1.16 vs 1.94), as well as earnings (8.66 vs. 14.10). Given the level of tech exposure in this fund, its earnings multiple is particularly attractive. The fund's trailing twelve-month dividend yield is 4.32%. When looking at dividend growth over the long-term, the fund is exceptional, providing 25% compound annual growth over the last 10 years.    Charles SchwabComparative performance Below I've charted FNDE's performance versus representative single country ETFs that make up the largest segments of the fund from a country allocation perspective. As we can see, the fund has underperformed both India and Taiwan, likely hampered by the underperformance of China in the recent period. Given the fund is comprised of around a third of Chinese equities, this is in line with expectations. Data by YChartsFrom a risk perspective we see that the fund's volatility is quite low relative to representative single country ETFs. The volatility of FNDE is roughly half of that of China (MCHI), and significantly lower than that of Taiwan (EWT). This is a nice by product of the size feature embedded into the fund's portfolio construction. Given the breadth of the securities, and the relatively limited concentration, the fund has been able to sustain a very reasonable volatility profile. India's (INDA) 30-day rolling volatility is surprisingly low for a an emerging market that has been able to capture that much return in the past year.  Data by YChartsGeographical risks loom This fund is an interesting one because about half of its assets are allocated between two countries that have been experiencing a period of escalating geopolitical tension with one another. The territorial dispute between China and Taiwan recently reached new heights, as China completed two days of war games around Taiwan's borders. There are countless scenarios that could play out that would have a very direct impact on FNDE, but at the very least, increased aggression on behalf of Beijing is likely to result in further sanctions by the US, negatively impacting FNDE. Of course, Taiwan plays an enormous role in critical AI supply chain links. As such, it is the many countries' best interest to keep that supply chain intact, at least for the time being. However, if another threshold of aggression were to be reached, it would be entirely reasonable to see further drag on behalf of both the China and Taiwanese allocation on the fund.  Closing thoughts  I see FNDE as a compliment to a core allocation, providing diversified growth potential, coupled with limited volatility for an emerging markets fund. The fund has delivered nearly 20% on a trailing 1-year basis. It is a large fund $6B with ample liquidity. I like how size constraints limit single stock concentration. It's large allocations to both China and Taiwan will continue to pose risk in the near to medium-term, however I see this is a great opportunity. I rate FNDE as a buy.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2439119996"}