Charles Schwab has launched three index mutual funds based on fundamentally weighted, rather than market cap-weighted, indexes. They are the Schwab Fundamental U.S. Large Company Index Fund, the Schwab Fundamental U.S. Small-Mid Company Index Fund and the Schwab Fundamental International Large Company Fund.

The funds weight stocks based on four fundamental financial measures: sales, cash flow, book value and dividends.

“The fundamental index methodology is the most important innovation in passive investing since indexing was popularized in the 1970s,” said Charles R. Schwab, chairman and chief executive officer of Charles Schwab. “Investors who need broad exposure to markets and diversification within their portfolios at a low cost are going to appreciate this new investment tool and its potential to capture greater return with lower volatility. I think we’ll look back at this innovation as a watershed moment for the mutual fund investor and for the $5 trillion index fund industry.”

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