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Schwab Expands Fundamental Index Line-up With Introduction Of Six Exchange-Traded Funds

Charles Schwab Investment Management (CSIM), an exchange-traded funds (ETFs) industry leader, announced today that six new Schwab Fundamental Index® ETFs will begin trading next week. Along with Schwab’s other 15 proprietary ETFs, these new core funds will be available for purchase commission-free online in Schwab accounts beginning August 15.

CSIM is the sole asset manager to offer ETFs and mutual funds tracking the Russell Fundamental Index® Series, which is based on methodology developed by Rob Arnott and Research Affiliates, LLC. Since launching its first Fundamental Index mutual funds in 2007, Schwab has seen a steady increase in demand and its five mutual funds using this approach now have $4.5 billion in total assets under management as of June 30, 2013.

Fundamentally weighted methodologies are often referred to as “smart beta” because securities are screened and weighted based on objective factors like adjusted sales, cash flow, and dividends/buybacks. Traditional market-cap indexes weight securities based on market capitalization, so the largest companies have the largest weight in the index. Some experts believe that because traditional market-cap indexing over-emphasizes popular stocks and de-emphasizes undervalued securities, it can over-expose investors’ portfolios to market speculation, bubbles and fads. Fundamental Index methodologies break the link with price, and historically delivered excess returns relative to the market-cap equivalent 1.

CSIM believes both index structures should be used in combination to access the core markets and build portfolios with the potential for better results because they perform differently across market cycles.

“The world is not black and white when it comes to indexing,” said Marie Chandoha, president of CSIM. “We believe the systematic approach inherent in fundamentally weighted methodologies, when used alongside cap-weighted strategies, enables investors to diversify and balance their exposure.”

Chandoha added, “These ETFs add a new flavor to our ‘pure vanilla’ ETF market-cap line-up and further demonstrate our commitment to offering core products that help investors build their portfolios and potentially achieve better outcomes. We’re pleased to be able to join with other industry leaders to offer these competitively priced, well-constructed ETFs and educate investors through plain-talk and tools.”

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