3 ETFs for Contrarians

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These low-cost exchange-traded funds could provide exceptional long-term performance— for those willing to wait.

0:00 Introduction
0:27 Schwab Fundamental U.S. Large Company Index ETF (FNDX)
1:54 Dimensional US Small Cap Value ETF (DFSV)
3:17 Vanguard Total Stock Market ETF (VTI)

Daniel Sotiroff: Contrarian strategies have a certain appeal. They tend to avoid popular stocks and gravitate toward names trading at prices below their true underlying value. Done well, these types of investments can provide great long-term performance. But the payoff may take a while to show up, so a long holding period is often necessary, and these strategies may incur some incremental risk for that additional reward. But there are some great options to consider.

The first ETF on my list is a true contrarian strategy. Silver-rated Schwab Fundamental U.S. Large Company Index ETF, which trades under the ticker FNDX, holds almost all of the large- and mid-cap stocks in the U.S. market. But it cuts against the grain when weighting its constituents, positioning stocks using several fundamental characteristics.

The index this ETF tracks assigns larger weights to names with greater sales, retained cash flows, and cash returned to investors through dividends and buybacks. When the index rebalances, it doubles down on stocks that have declined in price relative to those fundamentals, while trimming exposure to names on the rise. This buy-low tack sets the ETF up to capitalize on mean-reverting prices. But there is a downside. It may extend too much rope to floundering firms and prematurely cut ties with winners.

Learn more about these exchange-traded funds:

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