Emerging markets equities have shown significant resilience after a prolonged period of underperformance, with the MSCI Emerging Markets index outperforming the S&P 500 nearly two-to-one last year. This positive trajectory has continued into 2026, with emerging markets up 7.4% year-to-date, while the S&P 500 has seen a decline of 1.64%. However, navigating the stock landscape in countries like Brazil, China, and India can be challenging for U.S. investors, as analysts and media tend to concentrate on domestic companies.
Despite these challenges, exchange-traded funds (ETFs) have emerged as valuable tools for accessing emerging market stocks efficiently. Among these, the Schwab Fundamental Emerging Markets Equity ETF (FNDE) has distinguished itself. This ETF stands out due to its focus on fundamental metrics instead of the traditional market capitalization-weighted approach employed by many of its peers.
Tracking the RAFI Fundamental High Liquidity Emerging Markets index, FNDE emphasizes three key factors: cash flow, sales, and shareholder rewards, which include dividends and share buybacks. This methodology, while straightforward, has proven effective, as evidenced by the ETF’s strong performance that has consistently exceeded the average returns in the emerging markets ETF category over the past five years.
Moreover, FNDE is passively managed but incorporates a level of active management through quarterly rebalancing. This strategy helps increase exposure to value-oriented stocks while reducing allocations to those that have become overly valued. As a result, investors may expect better risk-adjusted returns.
With a current value of approximately $9.4 billion, the Schwab ETF holds a diversified portfolio of 379 stocks. However, it is important to note that its value-oriented strategy has led to significant allocations in commodities-heavy sectors such as energy and materials, comprising nearly 30% of its weight. This contrasts sharply with the MSCI index’s 11% weight in these sectors.
Despite concerns that a heavy focus on value could limit growth opportunities, FNDE maintains a robust growth component, with over 17% of its holdings in technology. Notably, the ETF includes stocks from South Korea and Taiwan, two regions poised for advancements in artificial intelligence, increasing its growth potential.
In South Korea, share repurchase activity reached an all-time high last year, and in China, the combination of dividends and buybacks surged by 20%. Such trends suggest that FNDE’s focus on shareholder returns may yield favorable results for investors moving forward.
With an annual fee of 0.39%, or $39 on a $10,000 investment, FNDE offers a cost-effective entry into emerging markets, making it a compelling option for investors looking to diversify their portfolios with exposure to developing economies.
