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Schwab Fundamental Emerging Markets ETF targets value amid EM divergence

Research Affiliates Chief Investment Officer Jim Mesterzo pointed to a wider split between expensive U.S. valuations and cheaper emerging market areas, arguing for a non-cap-weighted approach.

Reported · Written up by our desk · ETFs

U.S. mega-cap dominance and historically high valuations are pushing some investors to look beyond traditional U.S. benchmarks, with emerging markets drawing attention as a value opportunity, according to a mid-year recap by Research Affiliates cited by ETF Trends.

Research Affiliates Chief Investment Officer Jim Mesterzo said the divergence across global markets matters because emerging markets cannot be treated as one uniform asset class. He noted that broad EM benchmarks can be skewed by regional valuation spikes, including speculative runs in parts of East Asia, while other EM regions remain discounted versus underlying fundamentals.

For investors seeking disciplined emerging market exposure, ETF Trends highlighted the Schwab Fundamental Emerging Markets Equity ETF (FNDE), which uses a fundamental methodology intended to reduce the tendency of cap-weighted strategies to add more weight to areas that have already become expensive.

The article described FNDE’s index approach as tracking the RAFI Fundamental High Liquidity Emerging Markets Index, which decouples portfolio weight from stock prices, and cited a total expense ratio of 0.39% as the fund’s fee level.

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