FNDX: Why a Value-Focused, Fundamentally Weighted ETF Still Matters in a Growth-Driven Market

In an era where growth stocks dominate headlines and speculative fervor often overshadows fundamentals, the Schwab Fundamental U.S. Large Company ETF (FNDX) stands as a testament to the enduring value of disciplined, value-oriented investing. While the market has been captivated by the meteoric rises of growth-centric ETFs like the Vanguard Information Technology ETF (VGT) and the Invesco S&P 500 Top 50 ETF (XLG), FNDX's performance during recent market cycles underscores its unique role in strategic diversification and resilience amid shifting regimes. This analysis examines FNDX's track record during the 2020 crash, the 2022 correction, and the 2023 recovery, highlighting why its fundamentally weighted approach remains indispensable in today's volatile landscape.

Resilience in the Face of Downturns

The 2020 market crash, triggered by the pandemic, and the 2022 correction, driven by inflation and rate hikes, tested the mettle of even the most robust portfolios. FNDX demonstrated its resilience by navigating these crises with a blend of stability and recovery. During the 2020 crash, FNDX recorded a worst three-month return of -26.09% (December 2019–March 2020) but rebounded with a best three-month return of +22.47% (October 2020–January 2021). In contrast, VGT, a growth-heavy tech ETF, saw a -13.14% return in Q1 2020 but surged to a +46.04% annual return for 2020. While VGT's recovery was impressive, its volatility-evidenced by a Sharpe ratio of 0.44 in 2020-pales against FNDX's 0.60 Sharpe ratio during the same period.

The 2022 correction further highlighted FNDX's advantages. As inflation spiked and the Federal Reserve aggressively raised rates, FNDX's annual return fell to -24.29%, but its risk-adjusted performance (Sharpe ratio of 0.72) outperformed VGT's 0.32. XLG, another growth ETF, fared better with a Sharpe ratio of 1.44, yet its annual return of -24.29% in 2022 underscores the shared vulnerabilities of growth-oriented strategies during liquidity crunches.

FNDX's fundamentally weighted approach, which prioritizes companies with strong balance sheets and sustainable earnings, mitigated downside risks compared to growth ETFs, which often overexpose portfolios to speculative, high-beta assets.

Strategic Diversification in a Polarized Market

The case for FNDX extends beyond crisis resilience; it lies in its ability to diversify portfolios in a market increasingly polarized between growth and value. While growth ETFs like VGT and XLG thrive in low-interest-rate environments, their performance deteriorates when valuations normalize or macroeconomic headwinds emerge. FNDX, by contrast, offers a counterbalance. Its 10-year annualized return of 12.23% and 3-year annualized return of 20.46% reflect a consistent, less volatile trajectory. During the 2023 recovery, FNDX delivered an 18.23% total return, outperforming the S&P 500's rebound from a 19% 2022 decline. This performance aligns with academic insights on ESG and fundamentally weighted strategies, which emphasize resilience through diversified, high-quality holdings.

Moreover, FNDX's structure inherently reduces concentration risk. Unlike growth ETFs, which often overweight sectors like technology (e.g., VGT's 90% tech exposure), FNDX's broad, fundamentally weighted basket of large-cap U.S. companies ensures a more balanced exposure. This diversification is critical in an era where sector-specific shocks-such as the 2022 tech selloff-can disproportionately impact growth-heavy portfolios.

Risk-Adjusted Returns: A Quantitative Edge

Risk-adjusted returns further cement FNDX's case. Over the 3-year period ending in 2025, FNDX's Sharpe ratio stood at 0.72, outperforming VGT's 0.66 lifetime Sharpe ratio and matching XLG's 1.15–1.44 range. While XLG's higher Sharpe ratios are notable, they often reflect shorter-term performance and do not account for the broader volatility of growth sectors. FNDX's 5-year Sharpe ratio of 1.04 underscores its ability to deliver consistent returns with lower volatility, a critical attribute in a market where sudden corrections are increasingly common.

Academic studies reinforce this narrative. Research on ESG and fundamentally weighted strategies during crises highlights that portfolios emphasizing quality, profitability, and balance-sheet strength-hallmarks of FNDX-tend to exhibit lower volatility and higher resilience. These findings align with FNDX's performance during the 2020–2022 period, where its fundamentally weighted approach mitigated downside risks compared to growth ETFs.

The Case for FNDX in a Growth-Driven World

Critics may argue that FNDX's value orientation is out of step with a market dominated by growth narratives. However, this perspective overlooks the cyclical nature of markets and the necessity of strategic diversification. As geopolitical tensions, inflationary pressures, and regulatory shifts reshape the investment landscape, the ability to hedge against growth-centric overexposure becomes paramount. FNDX's fundamentally weighted, value-oriented approach provides a buffer against these uncertainties, offering investors a reliable anchor in turbulent times.

Moreover, the evolving ESG landscape underscores the relevance of FNDX's strategy. While ESG ETFs have gained traction for their sustainability focus, FNDX's emphasis on fundamentals-such as strong governance, profitability, and low debt-aligns with the principles of long-term value creation. This alignment positions FNDX as a complementary asset to ESG strategies, enhancing portfolio resilience without sacrificing returns.

Conclusion

In a market where growth stocks often dominate headlines, FNDX serves as a reminder that value and fundamentals remain the bedrock of sustainable investing. Its performance during the 2020 crash, 2022 correction, and 2023 recovery, coupled with superior risk-adjusted returns, underscores its role in strategic diversification. As investors navigate an increasingly volatile and polarized market, the case for FNDX is not just about preserving capital-it's about building resilience in the face of uncertainty.