If you put $10,000 into Schwab Fundamental International Large Company Index ETF (NYSEARCA:FNDF) on the last trading day of 2025, you were sitting on roughly $11,920 by the close on June 11, 2026, a 19.2% gain in a little over five months. Run the same exercise on the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) and your $10,000 grew to about $10,820, an 8% gain. Stretch the window back twelve months and the gap widens, with FNDF up 41% against SPY’s 23%. The headline figures get rounded to 21% and 45% in the marketing copy, but the math holds either way. A boring international index fund has, on the tape, run laps around the S&P 500.
The more interesting story is where the outperformance came from. This particular international ETF, a Schwab product that almost nobody talks about, also beat the standard international benchmark. The iShares MSCI EAFE ETF (NYSEARCA:EFA), which is the cap-weighted yardstick most allocators use for developed-markets-ex-US, is up 9% year to date and 21% over the past year. FNDF roughly doubled both of those numbers. Same continents, same companies in many cases, very different weights.
Why a Schwab Index Fund Outran the Cap-Weighted World
FNDF tracks the Russell RAFI Developed ex-US Large Company Index, which is the polite name for fundamental indexing. Instead of weighting holdings by market capitalization, the index weights them by a mix of adjusted sales, retained operating cash flow, and dividends plus buybacks. The mechanical effect is a persistent tilt toward cheaper, more cash-generative stocks and away from whatever has been bid up the most. In US large cap that tilt has been a headwind for fifteen years because the cap-weighted winners (the mega-cap technology names) actually deserved their weights. In international developed, where the cap-weighted index leans heavily on a narrow band of European luxury, pharma, and Japanese exporters that had drifted expensive, the tilt is now a tailwind.
Two outside forces did the rest. The first is the dollar. JPMorgan’s 2026 outlook notes that a weaker U.S. dollar contributed another 7 ppts to international equity returns over the prior year, with the bank still calling the dollar 10% overvalued versus fair value. When a US investor owns FNDF, the underlying euros, yen, and pounds get translated back into a softer dollar, and the translation alone is worth a chunk of the return. The second is fiscal. Vanguard’s house view is that Germany’s fiscal loosening will boost German GDP by 0.5 ppts in 2026 and euro area GDP by 0.2 ppts, with a further 0.2 percentage-point lift to euro area GDP from increased defense spending by other E.U. nations. Goldman pegs euro area growth at 1.3% in 2026, modest in absolute terms but a clear upgrade from the multi-year stagnation that had compressed valuations.
Put it together and you get a portfolio of cheap industrials, financials, and energy names in Europe and Japan getting re-rated as German infrastructure money, European rearmament, and a soft dollar all hit at once. The fundamental weighting amplified the move because it was overweight exactly the kinds of value-leaning names that had been left behind in the cap-weighted index.
The Long-Horizon Reality Check
Before anyone reads this as a generational shift, it is worth zooming out. Over the past five years, FNDF returned 84%, while SPY returned 74%. A small edge, and a relatively recent one. Over ten years FNDF is up 214% against SPY’s 254%. The cumulative scoreboard still belongs to the US, by a wide margin. What the last twelve months represent is mean reversion working off an extreme starting valuation. JPMorgan’s same outlook flagged that the U.S. equity premium over international equities is still at 34% versus its 19% long-run average, which is the polite way of saying there is still rope here even after the run.
What Has to Stay True for the Trade to Keep Working
The forward look comes down to three observable things, and a reader can track all of them without a Bloomberg terminal.
The dollar is the first. The DXY index, published daily, is the cleanest read on whether the translation tailwind is still helping. If the dollar stabilizes, FNDF still earns its underlying returns. If the dollar rallies on a Fed pivot back toward hawkishness or a global growth scare, a chunk of the past year’s outperformance unwinds quickly. BlackRock’s 2026 piece is explicit on this point, noting they enter the year short the US dollar as a core macro position. That is the consensus trade now, which is a reason to watch it carefully rather than assume it.
European fiscal follow-through is the second. The German infrastructure package and EU defense outlays are budget items, not promises, and the difference between announced and disbursed is where rallies die. Quarterly Eurostat fixed-investment prints and German industrial production data will tell you whether the spending is actually showing up.
Valuation spread is the third and the one that matters most for FNDF specifically. The fundamental index’s edge over EFA comes from owning the cheap part of developed-ex-US. As the cheap part gets re-rated, the edge compresses. You can watch this indirectly by tracking FNDF’s price-to-earnings ratio against EFA’s on Schwab’s own fact sheet, updated quarterly. When the gap closes, the structural tailwind from the weighting methodology fades, and FNDF starts behaving more like a plain international fund with a low expense ratio.
The honest read is that the last twelve months were a value-tilted, currency-translated international fund finally getting paid for a decade of patience, in a window where every variable lined up. The structural argument (a 34% valuation premium for US stocks, a still-overvalued dollar, and a European fiscal cycle that is only just starting) suggests the conditions remain broadly intact. The tactical argument (FNDF is down roughly 1% in the past week even after a midweek 3% bounce) is that you are buying after the easy money has been made. Watch the dollar, watch the German prints, and watch the valuation gap close. When two of those three turn, the trade that just doubled the S&P will start behaving like the boring international fund it always was on paper.
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