SWISX vs SFNNX: Ultimate Comparison of Schwab’s International Index Funds

SWISX vs SFNNX: Understanding Schwab’s International Titans

When building a globally diversified portfolio, Schwab’s SWISX and SFNNX stand out as popular international index fund options. Both offer exposure to developed markets outside the U.S., but their distinct strategies create meaningful differences for investors. SWISX (Schwab International Index Fund) tracks the traditional market-cap-weighted MSCI EAFE Index, while SFNNX (Schwab Fundamental International Large Company Index) follows a fundamentally weighted approach. This 900-word analysis breaks down their strategies, performance, costs, and ideal use cases to help you determine which aligns best with your investment goals.

Core Investment Strategies Compared

The foundational difference lies in how these funds select and weight holdings:

• SWISX Strategy: Passively tracks the MSCI EAFE Index, holding large/mid-cap stocks across 21 developed markets (Europe, Australasia, Far East). Companies are weighted by market capitalization – larger firms have greater influence.
• SFNNX Strategy: Follows the Russell RAFI Developed ex-U.S. Large Company Index, using fundamental factors like sales, cash flow, and dividends to determine weighting. This approach intentionally tilts away from overvalued stocks regardless of size.

Historical Performance Analysis

Performance diverges significantly due to their methodologies:

• Over the past decade, SFNNX’s fundamental approach has generally outperformed SWISX during value-driven markets but lagged during growth-dominated periods.
• SWISX offers pure exposure to market trends, closely mirroring broad international equity performance without style biases.
• SFNNX tends to be more volatile during market rotations but may deliver higher long-term returns according to back-tested fundamental indexing models.

Expense Ratios and Cost Efficiency

Both funds are exceptionally low-cost, but SFNNX carries a slight premium:

• SWISX Expense Ratio: 0.06% – among the cheapest international index funds available
• SFNNX Expense Ratio: 0.25% – still low-cost but 4x higher than SWISX
• No transaction fees or minimums apply for either fund at Schwab, making both accessible to small investors.

Portfolio Holdings and Diversification

While both cover developed markets, their sector allocations differ:

• SWISX Top Sectors: Financials (20%), Industrials (14%), Healthcare (13%) – reflects market-cap dominance
• SFNNX Top Sectors: Financials (25%), Industrials (16%), Energy (12%) – fundamental weighting favors value-oriented industries
• SFNNX holds fewer stocks (~800 vs SWISX’s ~1,000) but maintains similar country exposure including Japan, UK, France, and Canada.

Risk and Volatility Profile

Key risk considerations:

• SFNNX exhibits higher volatility (5-year beta of 0.98 vs SWISX’s 0.94) due to its value tilt and rebalancing mechanics
• SWISX has greater exposure to mega-cap stocks like Nestlé and ASML, potentially increasing concentration risk
• Both exclude emerging markets and small-caps – investors seeking broader exposure may need complementary funds

Which Fund Is Right For Your Portfolio?

Choose based on your investment philosophy:

• Pick SWISX if: You want ultra-low-cost, pure market representation with minimal tracking error. Ideal for core international allocation in passive portfolios.
• Choose SFNNX if: You believe in the long-term premium of fundamental weighting and can tolerate higher volatility. Suitable for investors seeking a systematic value tilt.

Frequently Asked Questions (FAQs)

Do SWISX and SFNNX pay dividends?

Yes, both pay quarterly dividends. SFNNX typically yields slightly higher due to its value orientation (recent 3.5% vs SWISX’s 3.1%).

Can these funds replace US market exposure?

No. Both exclusively hold non-US developed market stocks. Investors should pair them with domestic equity funds for balanced diversification.

How often do these funds rebalance?

SWISX rebalances quarterly to match MSCI EAFE changes. SFNNX rebalances annually based on fundamental data updates, potentially creating higher turnover.

Are there tax efficiency differences?

SFNNX’s higher turnover may generate more capital gains distributions in taxable accounts. SWISX is generally more tax-efficient for non-retirement portfolios.

Which has better emerging markets exposure?

Neither fund includes emerging markets. Consider Schwab’s SCHE (0.11% expense ratio) for complementary EM exposure.

Final Verdict

SWISX and SFNNX both offer cost-effective access to international equities but serve different strategic purposes. SWISX wins for investors prioritizing low expenses and pure market replication, while SFNNX appeals to those seeking an algorithmic value tilt despite slightly higher costs. Analyze your risk tolerance, cost sensitivity, and belief in fundamental indexing before choosing. For maximum diversification, many investors wisely hold both as complementary pieces in a global asset allocation strategy.