Choosing between Schwab’s international index funds SWISX and SFNNX is a critical decision for investors seeking global diversification. Both offer low-cost exposure to developed markets outside the U.S., but their contrasting strategies can lead to significantly different outcomes. This comprehensive comparison breaks down their differences in strategy, performance, costs, and risk profiles to help you determine which fund aligns with your investment goals.
Key Differences Between SWISX and SFNNX
While both funds target non-U.S. developed markets, their core methodologies diverge:
- Index Strategy: SWISX tracks the market-cap-weighted MSCI EAFE Index, while SFNNX follows the fundamentally weighted Russell RAFI Developed ex-U.S. Large Company Index.
- Stock Selection: SWISX includes ~950 large/mid-cap stocks based purely on company size. SFNNX selects ~800 companies screened by financial fundamentals (sales, cash flow, dividends).
- Style Bias: SWISX reflects broad market trends. SFNNX has a deliberate value tilt, overweighting financially robust companies trading below intrinsic value.
- Geographic Allocation: Both cover Europe, Japan, and Pacific regions, but SFNNX’s methodology often results in higher allocations to countries with stronger corporate fundamentals.
Historical Performance Comparison
Performance diverges based on market conditions:
- In bull markets favoring growth stocks, SWISX typically outperforms due to its market-cap weighting of trending companies.
- During value-driven or volatile periods, SFNNX often shines by emphasizing financially stable firms with lower valuations.
- Over the past decade, SFNNX delivered slightly higher returns (6.8% annualized vs SWISX’s 6.2%), though past performance doesn’t guarantee future results.
- SFNNX shows marginally lower volatility (standard deviation of 15.1 vs SWISX’s 15.7 over 10 years), attributed to its fundamental filters.
Expense Ratios and Fees Breakdown
Cost efficiency varies between these low-fee funds:
- SWISX: Charges a razor-thin 0.06% expense ratio with no transaction fees or minimums for Schwab clients.
- SFNNX: Costs 0.25% annually – still below category average – reflecting its more complex index methodology.
- Neither fund imposes loads or 12b-1 fees, but SFNNX’s higher expense ratio could cost $190 more annually per $100,000 invested compared to SWISX.
Investment Strategy Deep Dive
SWISX’s Market-Cap Approach: Passively mirrors the MSCI EAFE Index, making it ideal for investors seeking pure exposure to international market movements. Its “own the market” philosophy ensures broad diversification but can overweight overvalued stocks during bubbles.
SFNNX’s Fundamental Weighting: Uses financial metrics to select and weight companies, tilting toward value stocks with strong balance sheets. This approach historically provides downside protection but may lag during growth-dominated cycles. The RAFI methodology rebalances quarterly, systematically buying undervalued stocks.
Which Fund Is Right for Your Portfolio?
Choose based on your investment profile:
- Pick SWISX if: You want ultra-low-cost broad market exposure, prefer simplicity, or are building a core international holding for long-term growth.
- Choose SFNNX if: You seek a value tilt, believe in fundamental metrics for stock selection, or want potential downside cushion during market stress.
- Risk Note: Both carry international risks (currency fluctuations, political instability), but SFNNX’s concentrated portfolio (top 10 holdings = 15% vs SWISX’s 10%) adds idiosyncratic risk.
Many investors hold both: SWISX for core exposure and SFNNX as a strategic satellite holding to enhance diversification.
Frequently Asked Questions (FAQ)
Q: Can I hold both SWISX and SFNNX in my portfolio?
A: Absolutely. Combining them provides blended exposure to both market-cap and fundamental strategies, potentially reducing overall volatility.
Q: Do these funds include emerging markets?
A: No. Both exclude emerging markets, focusing solely on developed countries. Consider Schwab’s SCHE for EM exposure.
Q: Which fund is more tax-efficient?
A: SWISX typically generates fewer capital gains distributions due to lower turnover. SFNNX’s quarterly rebalancing may create slightly higher taxable events in non-retirement accounts.
Q: How often do these funds rebalance?
A: SWISX rebalances with its index (semi-annually). SFNNX rebalances quarterly per RAFI methodology.
Q: Are dividends reinvested automatically?
A: Yes, both offer automatic dividend reinvestment if selected in your brokerage account settings.
Ultimately, SWISX offers purist market exposure at minimal cost, while SFNNX provides strategic value exposure at a slightly higher price. Analyze your risk tolerance, investment horizon, and belief in fundamental indexing before deciding. Both remain excellent low-cost options for diversifying beyond U.S. borders.
