Certified Annual Shareholder Report for Management Investment Companies (n-csr)

MFR60994-09
00242743

Annual Report  |  February 29, 2020

Schwab Fundamental Index* ETFs

Schwab Fundamental U.S. Broad Market Index ETF	FNDB
Schwab Fundamental U.S. Large Company Index ETF	FNDX
Schwab Fundamental U.S. Small Company Index ETF	FNDA
Schwab Fundamental International Large Company Index ETF	FNDF
Schwab Fundamental International Small Company Index ETF	FNDC
Schwab Fundamental Emerging Markets Large Company Index ETF	FNDE

    

New Notice Regarding Shareholder Report Delivery Options

Beginning on January 1, 2021, paper copies of a fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from your financial intermediary (such as a bank or broker-dealer). Instead, the reports will be made available on a fund’s website www.schwabfunds.com/schwabetfs_prospectus, and you will be notified by mail each time a report is posted and the mailing will provide a website link to access the report. You will continue to receive other fund regulatory documents (such as prospectuses or supplements) in paper unless you have elected to receive all fund documents electronically.

If you would like to receive a fund’s future shareholder reports in paper free of charge after January 1, 2021, you can make that request:

•  If you invest through Charles Schwab & Co, Inc. (broker-dealer), by calling 1-866-345-5954 and using the unique identifier attached to this mailing; or

•  If you invest through another financial intermediary (such as a bank or broker-dealer) by contacting them directly.

If you already receive shareholder reports and other fund documents electronically, you will not be affected by this change and you need not take any action.

*	SCHWAB is a registered trademark of Charles Schwab & Co., Inc. FUNDAMENTAL INDEX is a registered trademark of Research Affiliates LLC.

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Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM)

Distributor: SEI Investments Distribution Co. (SIDCO)

The Sector/Industry classifications in this report use the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of MSCI Inc. (MSCI) and Standard & Poor’s (S&P). GICS is a service mark of MSCI and S&P and has been licensed for use by Charles Schwab & Co., Inc. The Industry classifications used in the schedules of Condensed Portfolio Holdings are sub-categories of Sector classifications.

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Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental Index ETFs

Performance at a Glance

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.

Total Returns for the 12 Months Ended February 29, 2020
Schwab Fundamental U.S. Broad Market Index ETF (Ticker Symbol: FNDB)
Market Price Return1	1.87%
NAV Return1	1.25%
Russell RAFITM US Index	1.43%
Russell 3000® Index	6.90%
ETF Category: Morningstar Large Value2	-0.73%
Performance Details	pages 7-9
Schwab Fundamental U.S. Large Company Index ETF (Ticker Symbol: FNDX)
Market Price Return1	2.20%
NAV Return1	1.98%
Russell RAFITM US Large Company Index	2.19%
Russell 1000® Index	7.82%
ETF Category: Morningstar Large Value2	-0.73%
Performance Details	pages 10-12
Schwab Fundamental U.S. Small Company Index ETF (Ticker Symbol: FNDA)
Market Price Return1	-7.39%
NAV Return1	-7.46%
Russell RAFITM US Small Company Index	-7.25%
Russell 2000® Index	-4.92%
ETF Category: Morningstar Small Blend2	-6.80%
Performance Details	pages 13-15

Total Returns for the 12 Months Ended February 29, 2020
Schwab Fundamental International Large Company Index ETF (Ticker Symbol: FNDF)
Market Price Return1	-5.23%
NAV Return1	-5.32%
Russell RAFITM Developed ex US Large Company Index (Net)*	-5.44%
MSCI EAFE® Index (Net)*	-0.57%
ETF Category: Morningstar Foreign Large Value2	-4.51%
Performance Details	pages 16-18
Schwab Fundamental International Small Company Index ETF (Ticker Symbol: FNDC)
Market Price Return1	-6.36%
NAV Return1	-6.06%
Russell RAFITM Developed ex US Small Company Index (Net)*	-5.82%
S&P Developed ex-U.S. Small Cap Index (Net)*	-2.39%
ETF Category: Morningstar Foreign Small/Mid Blend2	-2.50%
Performance Details	pages 19-21
Schwab Fundamental Emerging Markets Large Company Index ETF (Ticker Symbol: FNDE)
Market Price Return1	-5.19%
NAV Return1	-5.74%
Russell RAFITM Emerging Markets Large Company Index (Net)*	-5.34%
MSCI Emerging Markets Index (Net)*	-1.88%
ETF Category: Morningstar Diversified Emerging Markets2	-0.49%
Performance Details	pages 22-24

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Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental Index ETFs

From the President

Jonathan de St. Paer
President of Charles Schwab
Investment Management, Inc.
and the funds covered
in this report.

Dear Shareholder,

The 12-month reporting period ended February 29, 2020, ushered in a time of uncertainty that most Americans haven’t seen in their lifetimes. Up until the last week of February, U.S. stock market performance was strong, with the longest bull market cycle in history continuing and major equity indices hitting new highs. But then, COVID-19—whose effects had seemed mainly confined to China—began to spread quickly around the world, affecting millions of people and sending stock markets reeling. As February 2020 drew to a close, U.S. stocks experienced their worst week since the 2008 financial crisis. In this period, the S&P 500^® Index, a bellwether for the overall U.S. stock market, dropped more than 10% in six days and global markets saw similar sell-offs. For the 12-month reporting period ended February 29, 2020, the S&P 500^® Index returned 8.2%, erasing double-digit gains from earlier in the period. The MSCI EAFE^® Index (Net)*, a broad measure of developed international equity performance, returned -0.6% over the same period.

We can’t know what the full human impact of the COVID-19 outbreak will be or how long the economic impact will last. The sudden health crisis and U.S. market decline have understandably rattled investors, leading many to seek the perceived safety of asset classes such as cash. Market volatility and declines can be difficult to withstand, and can engender strong emotional reactions, such as selling out of fear or staying on the sidelines. In the longer-term, this can often make the investing outcomes worse. At times like these it’s important to remember that all market cycles, no matter how long—and whether up or down—ultimately come to an end.

At Charles Schwab Investment Management, we are committed to serving our clients through this challenging time. We believe that maintaining a long-term investing plan and a portfolio with exposure to a mix of asset classes that perform differently over time is one of the best ways to weather the inevitable ups and downs that come with investing. While market volatility and uncertainty can be unsettling, we believe that having a diversified portfolio and investing plan to rely on can make it easier for investors to achieve their long-term goals, even during difficult times like these.

Thank you for investing with Charles Schwab Investment Management. For more information about the Schwab Fundamental Index ETFs, please continue reading this report. In addition, you can find further details about these funds by visiting our website at www.schwabfunds.com. We are also happy to hear from you at 1-877-824-5615.

Sincerely,

“ At Charles Schwab Investment Management, we are committed to serving our clients through this challenging time.”

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Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental Index ETFs

The Investment Environment

Up until the final week of the 12-month reporting period ended February 29, 2020, global equity markets were mixed, with positive U.S. equity markets—as major market indices hit new highs in mid-February—while international markets were mostly flat. In the final week of the reporting period, however, the expanding COVID-19 outbreak sent ripples through every corner of the global economy, driving a global selloff that sent major market indices into bear-market territory resulting in the fastest stock market correction (commonly defined as a decline of 10% or more) in the U.S. on record, more than erasing 2020’s strong gains. For the reporting period, the S&P 500^® Index, a bellwether for the overall U.S. stock market, returned 8.19%. Large-cap stocks outperformed small-caps, with the Russell RAFI™ US Large Company Index returning 2.19% for the reporting period and the Russell 2000^® Index and Russell RAFI™ US Small Company Index returning -4.92% and -7.25%, respectively, for the reporting period. International equities were weaker. The U.S. dollar, which had modestly strengthened against a basket of international currencies over much of the reporting period, fell steeply in the final days of the reporting period. The MSCI EAFE^® Index (Net)*, a broad measure of developed international equity performance, and the Russell RAFI™ Developed ex US Large Company Index (Net)* returned -0.57% and -5.44%, respectively, and the MSCI Emerging Markets Index (Net)* and the Russell RAFI™ Emerging Markets Large Company Index (Net)* returned -1.88% and -5.34%, respectively.

Economic growth around the globe was uneven. The U.S. economy, despite escalating trade tensions with China over much of the reporting period, maintained steady growth in its record eleventh year of expansion, albeit at a slowing pace. In December, an announced partial trade resolution between the U.S. and China helped ease market tensions. U.S. gross domestic product (GDP) grew at an annual rate of 2.1% in the third and fourth quarters of 2019, up from 2.0% in the second quarter. Unemployment remained low, ending the period close to its lowest rate in 50 years. Consumer confidence remained solid for most of the reporting period. Inflation crept slightly higher over the reporting period.

Asset Class Performance Comparison % returns during the 12 months ended February 29, 2020    

 

Index figures assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized. Past performance is not an indication of future results.

For index definitions, please see the Glossary.

Data source: Index provider websites and CSIM.

Nothing in this report represents a recommendation of a security by the investment adviser.

Management views may have changed since the report date.

*	The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.

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Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental Index ETFs

The Investment Environment (continued)

Outside the U.S., conditions continued to soften, dampened by slowing economic output, slumping world trade, geopolitical concerns, and, particularly towards the end of the reporting period, the COVID-19 outbreak. Oil prices struggled for much of the period amid rising U.S. crude production, falling steeply to the lowest price in over a year by the end of the reporting period. In the eurozone, growth slowed, subdued by strikes in France that dampened manufacturing output and political unrest in Italy, among other things. In January, Brexit occurred with the formal departure of the United Kingdom from the European Union, although many uncertainties remain. Amid the economic and political turmoil leading up to its departure, the United Kingdom’s growth was volatile with GDP growing in the first and third quarters of 2019 but shrinking in the second quarter. United Kingdom GDP was flat in the fourth quarter of 2019. Japan’s economy shrank over the reporting period, particularly during the final quarter of 2019 as a sales tax increase took effect and business spending tumbled. Several Asian economies, including emerging market countries such as China and India, slowed but still outpaced many developed economies. China’s economy slowed amid trade pressure from the U.S. and sluggish demand from home and abroad, while India’s economy was dampened primarily as a result of a fall in factory output and exports and a slowdown in investment.

In response to the economic environment, to bolster growth, and to help ensure stability given ongoing trade tensions, a number of central banks reduced their policy rates, including the U.S. Federal Reserve (Fed), while others maintained low—and for some international central banks, negative—interest rates. In the U.S., following four interest rate hikes in 2018, the Fed held interest rates unchanged over the first half of 2019. But amid growing signs of global economic weakness that threatened to dampen U.S. economic growth, along with continued low inflation and weakness in manufacturing, the Fed enacted three interest rate cuts by the end of the period—in July, September, and October. The federal funds rate ended the reporting period in a range of 1.50% to 1.75%. The European Central Bank held interest rates steady, unchanged since March 2016. The Bank of Japan upheld its short-term interest rate target of –0.1%, also unchanged since 2016. The Bank of England maintained its key official bank rate at 0.75%, where it has remained since August 2018. Central banks in key emerging market economies—including China, India, Mexico, and Thailand—lowered their policy rates in response to inflation and trade-related pressures. The changing interest rate landscape particularly towards the end of the period, resulted in significant currency volatility and, as a result, the U.S. dollar suffered.

COVID-19, first reported in China at the end of December and rapidly spreading to other countries by February, took a dramatic toll on global markets particularly towards the end of the reporting period, disrupting supply chains, lowering earnings expectations, and spooking investors. Over the course of the final six trading days of the reporting period, the S&P 500^® Index fell over 10% from its peak, wiping out trillions in market value. The market drop was broadly felt. Fed Chairman Jerome Powell signaled that the Fed was prepared to cut interest rates to help protect the economy from the widening global slowdown. (Following the end of the reporting period, at the beginning of March, the Fed cut the federal funds rate by 0.50%. In mid-March, the Fed lowered the federal funds rate again, cutting it by 1.00% to a range of 0.00% to 0.25%.)

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Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental Index ETFs

Fund Management

Christopher Bliss, CFA, Vice President and Head of Passive Equity Strategies, leads the portfolio management team for Schwab’s passive equity mutual funds and ETFs. He also has overall responsibility for all aspects of the management of the funds. Prior to joining CSIM in 2016, Mr. Bliss spent 12 years at BlackRock (formerly Barclays Global Investors) managing and leading institutional index teams, most recently as a managing director and head of the Americas institutional index team. Prior to BlackRock, he worked as an equity analyst and portfolio manager for Harris Bretall and before that, as a research analyst for JP Morgan.

    

Jeremy Brown, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental U.S. Broad Market Index ETF, Schwab Fundamental U.S. Large Company Index ETF, and Schwab Fundamental U.S. Small Company Index ETF. Prior to joining CSIM in 2017, Mr. Brown spent six years with ALPS Advisors, Inc. in Denver, most recently as a senior analyst on the ETF portfolio management and research team where he performed portfolio management, trading and analytics/research functions for ALPS ETFs and passive funds. Additionally, Mr. Brown led a number of investment research, commentary, industry trend analysis, and sales and marketing support initiatives.

    

Chuck Craig, CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental International Large Company Index ETF, Schwab Fundamental International Small Company Index ETF, and Schwab Fundamental Emerging Markets Large Company Index ETF. Prior to joining CSIM in 2012, Mr. Craig worked at Guggenheim Funds (formerly Claymore Group), where he spent more than five years as a managing director of portfolio management and supervision, and three years as vice president of product research and development. Prior to that, he worked as an equity research analyst at First Trust Portfolios (formerly Niké Securities), and a trader and analyst at PMA Securities, Inc.

    

Ferian Juwono, CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental U.S. Broad Market Index ETF, Schwab Fundamental U.S. Large Company Index ETF, and Schwab Fundamental U.S. Small Company Index ETF. Prior to joining CSIM in 2010, Mr. Juwono worked at BlackRock (formerly Barclays Global Investors), where he spent more than three years as a portfolio manager, managing equity index funds for institutional clients, and two years as a senior business analyst. Prior to that, Mr. Juwono worked for more than four years as a senior financial analyst with Union Bank of California.

    

Jane Qin, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental International Large Company Index ETF, Schwab Fundamental International Small Company Index ETF, and Schwab Fundamental Emerging Markets Large Company Index ETF. Prior to joining CSIM in 2012, Ms. Qin spent more than four years at The Bank of New York Mellon Corporation. During that time, Ms. Qin spent more than two years as an associate equity portfolio manager and nearly two years as a performance analyst. She also worked at Wells Fargo Funds Management as a mutual fund analyst and at CIGNA Reinsurance in the risk management group as a risk analyst.

    

David Rios, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental International Large Company Index ETF, Schwab Fundamental International Small Company Index ETF, and Schwab Fundamental Emerging Markets Large Company Index ETF. Prior to this role, Mr. Rios was an associate portfolio manager on the Schwab equity index strategies team for four years. His first role with CSIM was as a trade operations specialist. Prior to joining CSIM in 2008, Mr. Rios was a senior fund accountant at Investors Bank & Trust (subsequently acquired by State Street Corporation).

    

Sabya Sinha, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Fundamental U.S. Broad Market Index ETF, Schwab Fundamental U.S. Large Company Index ETF, and Schwab Fundamental U.S. Small Company Index ETF. Prior to joining CSIM in 2015, Mr. Sinha spent a year at F-Squared Investments on the product development and analytics team. Prior to F-Squared, he worked at IndexIQ Advisors as a senior index portfolio manager for three years and for Bank of America’s Columbia Management subsidiary as a portfolio manager for three years.

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Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental U.S. Broad Market Index ETF as of February 29, 2020

The Schwab Fundamental U.S. Broad Market Index ETF (the fund) seeks to track as closely as possible, before fees and expenses, the total return of the Russell RAFI^TM US Index (the index). The index measures the performance of the constituent companies by fundamental overall company scores, which are created using as the universe the U.S. companies in the FTSE Global Total Cap Index. To pursue its investment objective, the fund invests in a representative sample of the securities included in the index which, when taken together, are expected to perform similarly to the index as a whole. Due to the use of sampling techniques, the fund may not hold all of the securities in the index. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Market Highlights. Up until the final week of the 12-month reporting period ended February 29, 2020, U.S. equity markets were positive and major market indices hit new highs in mid-February. However, amid growing signs of global economic weakness that threatened to dampen U.S. economic growth, along with continued low inflation and weakness in manufacturing, the U.S. Federal Reserve (Fed) enacted three interest rate cuts by the end of the period—in July, September, and October. In the final week of the reporting period however, COVID-19 sent ripples through every corner of the global economy, driving a global selloff that sent major market indices into bear-market territory resulting in the fastest stock market correction (commonly defined as a decline of 10% or more) in the U.S. on record, more than erasing 2020’s strong gains. In response, Fed Chairman Jerome Powell signaled that the Fed was prepared to cut interest rates to help protect the economy from the widening global slowdown. (Following the end of the reporting period, at the beginning of March, the Fed cut the federal funds rate by 0.50%. In mid-March, the Fed lowered the federal funds rate again, cutting it by 1.00% to a range of 0.00% to 0.25%.)

Performance. For the 12-month reporting period ended February 29, 2020, the fund generally tracked the index. The fund’s market price return was 1.87% and its NAV return was 1.25% (for an explanation of the market price and NAV returns, please refer to footnote 2 on the following page). The index returned 1.43% during the same period. Differences between the return of the fund and the return of the index may be attributable to, among other things, the trading and management costs incurred by the fund and not the index.

Contributors and Detractors. The information technology sector was the largest contributor to the return of the fund. Stocks in the information technology sector represented an average weight of approximately 17% of the fund’s investments and returned approximately 22% for the reporting period. One example from this sector is Apple, Inc. The fund’s holdings of Apple, Inc. represented approximately 4% of the fund’s investments and returned approximately 60% for the reporting period.

The consumer staples sector also contributed to the return of the fund, representing an average weight of approximately 9% of the fund’s investments and returning approximately 6% for the reporting period.

The energy sector was the largest detractor from the return of the fund. Stocks in the energy sector represented an average weight of approximately 9% of the fund’s investments and returned approximately -28% for the reporting period. One example from this sector is Exxon Mobil Corp. The fund’s holdings of Exxon Mobil Corp. represented an average weight of approximately 3% of the fund’s investments and returned approximately -32% for the reporting period.

The materials sector also detracted from the return of the fund, representing an average weight of approximately 4% of the fund’s investments and returning approximately -11% for the reporting period.

    

Management views and portfolio holdings may have changed since the report date.

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Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental U.S. Broad Market Index ETF

Performance and Fund Facts as of February 29, 2020

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.    

 

    

All total returns on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.

The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.

For index definitions, please see the Glossary.

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

Index ownership — The Schwab Fundamental U.S. Broad Market Index ETF is not in any way sponsored, endorsed, sold or promoted by Frank Russell Company (Russell), by the London Stock Exchange Group companies (LSEG), or by Research Affiliates LLC (RA) (collectively the Licensor Parties), and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell RAFI™ US Index (the Index) or otherwise. The Index is compiled and calculated by Russell in conjunction with RA. None of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. “Russell^®” is a trademark of Russell. The trade names “Research Affiliates^®”, “Fundamental Index^®” and “RAFI^®” are registered trademarks of RA. CSIM has obtained full license from Russell to use the Index. For full disclaimer please see the fund’s statement of additional information.

*	Inception (8/15/13) represents the date that the shares began trading in the secondary market.
1	Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares.
2	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined using the Official Closing Price on the primary stock exchange (generally, 4:00 p.m. Eastern time) and may not represent the returns you would receive if shares were traded at other times. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively.
3	Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date.
4	As stated in the prospectus.

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Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental U.S. Large Company Index ETF as of February 29, 2020

The Schwab Fundamental U.S. Large Company Index ETF (the fund) seeks to track as closely as possible, before fees and expenses, the total return of the Russell RAFI^TM US Large Company Index (the index). The index measures the performance of the large company size segment by fundamental overall company scores, which are created using as the universe the U.S. companies in the FTSE Global Total Cap Index. To pursue its investment objective, the fund uses a replication investment approach and generally gives the same weight to a given stock as the index does. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Market Highlights. U.S. large-cap stocks outperformed small-cap stocks over the reporting period. Up until the final week of the 12-month reporting period ended February 29, 2020, U.S. equity markets were positive and major market indices hit new highs in mid-February. However, amid growing signs of global economic weakness that threatened to dampen U.S. economic growth, along with continued low inflation and weakness in manufacturing, the U.S. Federal Reserve (Fed) enacted three interest rate cuts by the end of the period—in July, September, and October. In the final week of the reporting period however, COVID-19 sent ripples through every corner of the global economy, driving a global selloff that sent major market indices into bear-market territory resulting in the fastest stock market correction (commonly defined as a decline of 10% or more) in the U.S. on record, more than erasing 2020’s strong gains. In response, Fed Chairman Jerome Powell signaled that the Fed was prepared to cut interest rates to help protect the economy from the widening global slowdown. (Following the end of the reporting period, at the beginning of March, the Fed cut the federal funds rate by 0.50%. In mid-March, the Fed lowered the federal funds rate again, cutting it by 1.00% to a range of 0.00% to 0.25%.)

Performance. For the 12-month reporting period ended February 29, 2020, the fund generally tracked the index. The fund’s market price return was 2.20% and its NAV return was 1.98% (for an explanation of the market price and NAV returns, please refer to footnote 2 on the following page). The index returned 2.19% during the same period. Differences between the return of the fund and the return of the index may be attributable to, among other things, the trading and management costs incurred by the fund and not the index.

Contributors and Detractors. The information technology sector was the largest contributor to the return of the fund. Stocks in the information technology sector represented an average weight of approximately 17% of the fund’s investments and returned approximately 23% for the reporting period. One example from this sector is Apple, Inc. The fund’s holdings of Apple, Inc. represented an average weight of approximately 4% of the fund’s investments and returned approximately 60% for the reporting period.

The consumer staples sector also contributed to the return of the fund, representing an average weight of approximately 9% of the fund’s investments and returning approximately 7% for the reporting period.

The energy sector was the largest detractor from the return of the fund. Stocks in the energy sector represented an average weight of approximately 9% of the fund’s investments and returned approximately -27% for the reporting period. One example from this sector is Exxon Mobil Corp. The fund’s holdings of Exxon Mobile Corp. represented an average weight of approximately 3% of the fund’s investments and returned approximately -32% for the reporting period.

The materials sector also detracted from the return of the fund, representing an average weight of approximately 3% of the fund’s investments and returning approximately -10% for the reporting period.

    

Management views and portfolio holdings may have changed since the report date.

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Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental U.S. Large Company Index ETF

Performance and Fund Facts as of February 29, 2020

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.    

 

    

All total returns on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.

The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.

For index definitions, please see the Glossary.

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

Index ownership — The Schwab Fundamental U.S. Large Company Index ETF is not in any way sponsored, endorsed, sold or promoted by Frank Russell Company (Russell), by the London Stock Exchange Group companies (LSEG), or by Research Affiliates LLC (RA) (collectively the Licensor Parties), and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell RAFI™ US Large Company Index (the Index) or otherwise. The Index is compiled and calculated by Russell in conjunction with RA. None of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. “Russell^®” is a trademark of Russell. The trade names “Research Affiliates^®”, “Fundamental Index^®” and “RAFI^®” are registered trademarks of RA. CSIM has obtained full license from Russell to use the Index. For full disclaimer please see the fund’s statement of additional information.

*	Inception (8/15/13) represents the date that the shares began trading in the secondary market.
1	Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares.
2	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined using the Official Closing Price on the primary stock exchange (generally, 4:00 p.m. Eastern time) and may not represent the returns you would receive if shares were traded at other times. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively.
3	Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date.
4	As stated in the prospectus.

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Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental U.S. Small Company Index ETF as of February 29, 2020

The Schwab Fundamental U.S. Small Company Index ETF (the fund) seeks to track as closely as possible, before fees and expenses, the total return of the Russell RAFI^TM US Small Company Index (the index). The index measures the performance of the small company size segment by fundamental overall company scores, which are created using as the universe the U.S. companies in the FTSE Global Total Cap Index. To pursue its investment objective, the fund uses a replication investment approach and generally gives the same weight to a given stock as the index does. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Market Highlights. U.S. small-cap stocks underperformed large-cap stocks over the reporting period. Up until the final week of the 12-month reporting period ended February 29, 2020, U.S. equity markets were positive and major market indices hit new highs in mid-February. However, amid growing signs of global economic weakness that threatened to dampen U.S. economic growth, along with continued low inflation and weakness in manufacturing, the U.S. Federal Reserve (Fed) enacted three interest rate cuts by the end of the period—in July, September, and October. In the final week of the reporting period however, COVID-19 sent ripples through every corner of the global economy, driving a global selloff that sent major market indices into bear-market territory resulting in the fastest stock market correction (commonly defined as a decline of 10% or more) in the U.S. on record, more than erasing 2020’s strong gains. In response, Fed Chairman Jerome Powell signaled that the Fed was prepared to cut interest rates to help protect the economy from the widening global slowdown. (Following the end of the reporting period, at the beginning of March, the Fed cut the federal funds rate by 0.50%. In mid-March, the Fed lowered the federal funds rate again, cutting it by 1.00% to a range of 0.00% to 0.25%.)

Performance. For the 12-month reporting period ended February 29, 2020, the fund generally tracked the index. The fund’s market price return was -7.39% and the fund’s NAV return was -7.46% (for an explanation of the market price and NAV returns, please refer to footnote 2 on the following page). The index returned -7.25% during the same period. Differences between the return of the fund and the return of the index may be attributable to, among other things, the trading and management costs incurred by the fund and not the index.

Contributors and Detractors. The energy sector was the largest detractor from the return of the fund. Stocks in the energy sector represented an average weight of approximately 4% of the fund’s investments and returned approximately -50% for the reporting period. One example from this sector is McDermott International, Inc., a worldwide energy services company. The fund’s holdings of McDermott International, Inc. represented an average weight of less than 1% of the fund’s investments and returned approximately -99% for the reporting period.

The consumer discretionary sector also detracted from the return of the fund, representing an average weight of approximately 14% of the fund’s investments and returning approximately -13% for the reporting period.

The information technology sector was the largest contributor to the return of the fund. Stocks in the information technology sector represented approximately 12% of the fund’s investments and returned approximately 6% for the reporting period. One example from this sector is Cirrus Logic, Inc., a semiconductor company development company. The fund’s holdings of Cirrus Logic, Inc. represented an average weight of less than 1% of the fund’s investments and returned approximately 71% for the reporting period.

The utilities sector also contributed to the return of the fund, representing an average weight of approximately 4% of the fund’s investments and returning approximately 3% for the reporting period.

    

Management views and portfolio holdings may have changed since the report date.

₁₃

Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental U.S. Small Company Index ETF

Performance and Fund Facts as of February 29, 2020

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.    

 

    

All total returns on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.

The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.

For index definitions, please see the Glossary.

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

Small-company stocks may be subject to greater volatility than many other asset classes.

Index ownership — The Schwab Fundamental U.S. Small Company Index ETF is not in any way sponsored, endorsed, sold or promoted by Frank Russell Company (Russell), by the London Stock Exchange Group companies (LSEG), or by Research Affiliates LLC (RA) (collectively the Licensor Parties), and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell RAFI™ US Small Company Index (the Index) or otherwise. The Index is compiled and calculated by Russell in conjunction with RA. None of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. “Russell^®” is a trademark of Russell. The trade names “Research Affiliates^®”, “Fundamental Index^®” and “RAFI^®” are registered trademarks of RA. CSIM has obtained full license from Russell to use the Index. For full disclaimer please see the fund’s statement of additional information.

*	Inception (8/15/13) represents the date that the shares began trading in the secondary market.
1	Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares.
2	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined using the Official Closing Price on the primary stock exchange (generally, 4:00 p.m. Eastern time) and may not represent the returns you would receive if shares were traded at other times. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively.
3	Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date.
4	As stated in the prospectus.

₁₄

Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental International Large Company Index ETF as of February 29, 2020

The Schwab Fundamental International Large Company Index ETF (the fund) seeks to track as closely as possible, before fees and expenses, the total return of the Russell RAFI^TM Developed ex US Large Company Index (the index). The index measures the performance of the large company size segment by fundamental overall company scores, which are created using as the universe the developed ex U.S. companies in the FTSE Total Global Cap Index. To pursue its investment objective, the fund invests in a representative sample of the securities included in the index which, when taken together, are expected to perform similarly to the index as a whole. Due to the use of sampling techniques, the fund may not hold all of the securities in the index. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Market Highlights. Overall, stocks of large companies in developed international markets generated negative returns for the reporting period. Up until the final week of the 12-month reporting period ended February 29, 2020, global equity markets were mixed, with positive U.S. equity markets while international markets were mostly flat. In the final week of the reporting period however, COVID-19 sent ripples through every corner of the global economy, driving a global selloff that sent major market indices into bear-market territory. In response to the economic environment, to bolster growth, and to help ensure stability given ongoing trade tensions, a number of central banks reduced their policy rates, including the U.S. Federal Reserve, while others maintained low—and for some international central banks, negative—interest rates. The U.S. dollar, which had modestly strengthened against a basket of international currencies over much of the reporting period, fell steeply in the final days of the reporting period.

Performance. For the 12-month reporting period ended February 29, 2020, the fund’s market price return was -5.23% and its NAV return was -5.32% (for an explanation of the market price and NAV returns, please refer to footnote 2 on the following page). The index returned -5.44%¹ during the same period. Income, primarily due to tax rate differences between the fund and the index, contributed to the fund’s performance.

Contributors and Detractors. Stocks from Switzerland were the largest contributor to the return of the fund. Swiss stocks represented an average weight of approximately 6% of the fund’s investments and returned approximately 11% in U.S. dollar terms for the reporting period. One example from this market is Nestle S.A. The fund’s holdings of Nestle S.A. represented an average weight of approximately 1% of the fund’s investments and returned approximately 16% in U.S. dollar terms for the reporting period.

Italian stocks also contributed to the return of the fund, representing an average weight of approximately 3% of the fund’s investments and returning approximately 3% in U.S. dollar terms for the reporting period.

Stocks from the United Kingdom were the largest detractor from the return of the fund. Stocks from the United Kingdom represented an average weight of approximately 16% of the fund’s investments and returned approximately -11% in U.S. dollar terms for the reporting period. One example from this market is Royal Dutch Shell plc, a company which, through subsidiaries, explores, produces, and refines petroleum. The fund’s Class A holdings of Royal Dutch Shell plc represented an average weight of less than 1% of the fund’s investments and returned approximately -28% in U.S. dollar terms for the reporting period.

Japanese stocks also detracted from the return of the fund, representing an average weight of approximately 24% of the fund’s investments and returning approximately -3% in U.S. dollar terms for the reporting period.

Management views and portfolio holdings may have changed since the report date.

1	The total return cited for the index is calculated net of foreign withholding taxes.

₁₆

Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental International Large Company Index ETF

Performance and Fund Facts as of February 29, 2020

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.    

 

    

All total returns on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.

The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.

For index definitions, please see the Glossary.

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.

Index ownership — The Schwab Fundamental International Large Company Index ETF is not in any way sponsored, endorsed, sold or promoted by Frank Russell Company (Russell), by the London Stock Exchange Group companies (LSEG), or by Research Affiliates LLC (RA) (collectively the Licensor Parties), and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell RAFI™ Developed ex US Large Company Index (the Index) or otherwise. The Index is compiled and calculated by Russell in conjunction with RA. None of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. “Russell^®” is a trademark of Russell. The trade names “Research Affiliates^®”, “Fundamental Index^®” and “RAFI^®” are registered trademarks of RA. CSIM has obtained full license from Russell to use the Index. For full disclaimer please see the fund’s statement of additional information.

*	Inception (8/15/13) represents the date that the shares began trading in the secondary market.
1	Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares.
2	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined using the Official Closing Price on the primary stock exchange (generally, 4:00 p.m. Eastern time) and may not represent the returns you would receive if shares were traded at other times. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively.
3	The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.
4	Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date.
5	As stated in the prospectus.

₁₇

Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental International Small Company Index ETF as of February 29, 2020

The Schwab Fundamental International Small Company Index ETF (the fund) seeks to track as closely as possible, before fees and expenses, the total return of the Russell RAFI^TM Developed ex US Small Company Index (the index). The index measures the performance of the small company size segment by fundamental overall company scores, which are created using as the universe the developed ex U.S. companies in the FTSE Global Total Cap Index. To pursue its investment objective, the fund invests in a representative sample of the securities included in the index which, when taken together, are expected to perform similarly to the index as a whole. Due to the use of sampling techniques, the fund may not hold all of the securities in the index. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Market Highlights. Overall, stocks of small companies in developed international markets generated negative returns for the reporting period. Up until the final week of the 12-month reporting period ended February 29, 2020, global equity markets were mixed, with positive U.S. equity markets while international markets were mostly flat. In the final week of the reporting period however, COVID-19 sent ripples through every corner of the global economy, driving a global selloff that sent major market indices into bear-market territory. In response to the economic environment, to bolster growth, and to help ensure stability given ongoing trade tensions, a number of central banks reduced their policy rates, including the U.S. Federal Reserve, while others maintained low—and for some international central banks, negative—interest rates. The U.S. dollar, which had modestly strengthened against a basket of international currencies over much of the reporting period, fell steeply in the final days of the reporting period.

Performance. For the 12-month reporting period ended February 29, 2020, the fund’s market price return was -6.36% and its NAV return was -6.06% (for an explanation of the market price and NAV returns, please refer to footnote 2 on the following page). The index returned -5.82%¹ during the same period. Differences between the return of the fund and the return of the index may be attributable to, among other things, the trading and management costs incurred by the fund and not the index. Also, income, primarily due to tax rate differences between the fund and the index, contributed slightly to the fund’s performance.

Contributors and Detractors. Stocks from Japan were the largest detractor from the return of the fund. Japanese stocks represented an average weight of approximately 35% of the fund’s investments and returned approximately -6% in U.S. dollar terms for the reporting period. One example from this market is Aoyama Trading Co., Ltd., a menswear chain store. The fund’s holdings of Aoyama Trading Co., Ltd. represented an average weight of less than 1% of the fund’s investments and returned approximately -52% in U.S. dollar terms for the reporting period.

South Korean stocks also detracted from the return of the fund, representing an average weight of approximately 5% of the fund’s investments and returning approximately -29% in U.S. dollar terms for the reporting period.

Stocks from Sweden were the largest contributor to the return of the fund. Swedish stocks represented an average weight of approximately 3% of the fund’s investments and returned approximately 14% in U.S. dollar terms for the reporting period. One example from this market is Getinge AB, a company that develops, manufactures, and sells equipment and systems for sterilization and disinfection. The fund’s Class B holdings of Getinge AB represented an average weight of less than 1% of the fund’s investments and returned approximately 44% in U.S. dollar terms for the reporting period.

Swiss stocks also contributed to the return of the fund, representing an average weight of approximately 3% of the fund’s investments and returning approximately 8% in U.S. dollar terms for the reporting period.

Management views and portfolio holdings may have changed since the report date.

1	The total return cited for the index is calculated net of foreign withholding taxes.

₁₉

Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental International Small Company Index ETF

Performance and Fund Facts as of February 29, 2020

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.    

 

    

All total returns on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.

The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.

For index definitions, please see the Glossary.

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.

Small-company stocks may be subject to greater volatility than many other asset classes.

Index ownership — The Schwab Fundamental International Small Company Index ETF is not in any way sponsored, endorsed, sold or promoted by Frank Russell Company (Russell), by the London Stock Exchange Group companies (LSEG), or by Research Affiliates LLC (RA) (collectively the Licensor Parties), and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell RAFI™ Developed ex US Small Company Index (the Index) or otherwise. The Index is compiled and calculated by Russell in conjunction with RA. None of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. “Russell^®” is a trademark of Russell. The trade names “Research Affiliates^®”, “Fundamental Index^®” and “RAFI^®” are registered trademarks of RA. CSIM has obtained full license from Russell to use the Index. For full disclaimer please see the fund’s statement of additional information.

*	Inception (8/15/13) represents the date that the shares began trading in the secondary market.
1	Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares.
2	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined using the Official Closing Price on the primary stock exchange (generally, 4:00 p.m. Eastern time) and may not represent the returns you would receive if shares were traded at other times. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively.
3	The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.
4	Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date.
5	As stated in the prospectus.

₂₀

Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental Emerging Markets Large Company Index ETF as of February 29, 2020

The Schwab Fundamental Emerging Markets Large Company Index ETF (the fund) seeks to track as closely as possible, before fees and expenses, the total return of the Russell RAFI^TM Emerging Markets Large Company Index (the index). The index measures the performance of the large company size segment by fundamental overall company scores, which are created using as the universe the emerging markets companies in the FTSE Global Total Cap Index. To pursue its investment objective, the fund invests in a representative sample of the securities included in the index which, when taken together, are expected to perform similarly to the index as a whole. Due to the use of sampling techniques, the fund may not hold all of the securities in the index. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Market Highlights. Stocks in emerging markets produced negative returns for the reporting period. Up until the final week of the 12-month reporting period ended February 29, 2020, global equity markets were mixed, with positive U.S. equity markets while international markets were mostly flat. In the final week of the reporting period however, COVID-19 sent ripples through every corner of the global economy, driving a global selloff that sent major market indices into bear-market territory. In response to the economic environment, to bolster growth, and to help ensure stability given ongoing trade tensions, a number of central banks reduced their policy rates, including the U.S. Federal Reserve, while others maintained low—and for some international central banks, negative—interest rates. The U.S. dollar, which had modestly strengthened against a basket of international currencies over much of the reporting period, fell steeply in the final days of the reporting period.

Performance. For the 12-month reporting period ended February 29, 2020, the fund’s market price return was -5.19% and its NAV return was -5.74% (for an explanation of the market price and NAV returns, please refer to footnote 2 on the following page). The index returned -5.34%¹ during the same period. Differences between the return of the fund and the return of the index may be attributable to, among other things, the trading and management costs incurred by the fund and not the index. Also, income, primarily due to tax rate differences between the fund and the index, contributed to the fund’s performance.

Contributors and Detractors. Stocks from Russia were the largest contributor to the return of the fund. Russian stocks represented an average weight of approximately 16% of the fund’s investments and returned approximately 19% in U.S. dollar terms for the reporting period. One example from this market is Gazprom PJSC, a company that operates gas pipeline systems, produces and explores gas, and transports high pressure gas. The fund’s holdings of Gazprom PJSC represented an average weight of approximately 5% of the fund’s investments and returned approximately 34% in U.S. dollar terms for the reporting period.

Taiwanese stocks also contributed to the return of the fund, representing an average weight of approximately 17% of the fund’s investments and returning approximately 15% in U.S. dollar terms for the reporting period.

Stocks from China were the largest detractor from the return of the fund. Chinese stocks represented an average weight of approximately 25% of the fund’s investments and returned approximately -12% in U.S. dollar terms for the reporting period. One example from this market is China Petroleum & Chemical Corp. The fund’s Class H holdings of China Petroleum & Chemical Corp. represented an average weight of approximately 2% of the fund’s investments and returned approximately -35% in U.S. dollar terms for the reporting period.

Brazilian stocks also detracted from the return of the fund, representing an average weight of approximately 12% of the fund’s investments and returning approximately -16% in U.S. dollar terms for the reporting period.

Management views and portfolio holdings may have changed since the report date.

1	The total return cited for the index is calculated net of foreign withholding taxes.

₂₂

Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental Emerging Markets Large Company Index ETF

Performance and Fund Facts as of February 29, 2020

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabetfs_prospectus.    

 

    

All total returns on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.

The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.

For index definitions, please see the Glossary.

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.

Emerging markets involve heightened risks related to the same factors as international investing, as well as increased volatility and lower trading volume.

Index ownership — The Schwab Fundamental Emerging Markets Large Company Index ETF is not in any way sponsored, endorsed, sold or promoted by Frank Russell Company (Russell), by the London Stock Exchange Group companies (LSEG), or by Research Affiliates LLC (RA) (collectively the Licensor Parties), and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the Russell RAFI™ Emerging Markets Large Company Index (the Index) or otherwise. The Index is compiled and calculated by Russell in conjunction with RA. None of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. “Russell^®” is a trademark of Russell. The trade names “Research Affiliates^®”, “Fundamental Index^®” and “RAFI^®” are registered trademarks of RA. CSIM has obtained full license from Russell to use the Index. For full disclaimer please see the fund’s statement of additional information.

*	Inception (8/15/13) represents the date that the shares began trading in the secondary market.
1	Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares.
2	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share NAV is the value of one share of the fund. NAV is calculated by taking the fund’s total assets (including the market value of securities owned), subtracting liabilities, and dividing by the number of shares outstanding. The NAV Return is based on the NAV of the fund, and the Market Price Return is based on the market price per share of the fund. The price used to calculate market return (Market Price) is determined using the Official Closing Price on the primary stock exchange (generally, 4:00 p.m. Eastern time) and may not represent the returns you would receive if shares were traded at other times. NAV is used as a proxy for purposes of calculating Market Price Return on inception date. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively.
3	The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.
4	Source for category information: Morningstar, Inc. The Morningstar Category return represents all passively- and actively-managed ETFs within the category as of the report date.
5	As stated in the prospectus.

₂₃

Schwab Fundamental Index ETFs  |  Annual Report

Schwab Fundamental Index ETFs

Fund Expenses (Unaudited)

	Expense Ratio (Annualized)1	Beginning Account Value at 9/1/19	Ending Account Value (Net of Expenses) at 2/29/20	Expenses Paid During Period 9/1/19-2/29/202
Schwab Fundamental U.S. Broad Market Index ETF
Actual Return	0.25%	$1,000.00	$990.30	$1.24
Hypothetical 5% Return	0.25%	$1,000.00	$1,023.66	$1.26
Schwab Fundamental U.S. Large Company Index ETF
Actual Return	0.25%	$1,000.00	$992.60	$1.24
Hypothetical 5% Return	0.25%	$1,000.00	$1,023.66	$1.26
Schwab Fundamental U.S. Small Company Index ETF
Actual Return	0.25%	$1,000.00	$960.30	$1.22
Hypothetical 5% Return	0.25%	$1,000.00	$1,023.66	$1.26
Schwab Fundamental International Large Company Index ETF
Actual Return	0.25%	$1,000.00	$980.10	$1.23
Hypothetical 5% Return	0.25%	$1,000.00	$1,023.66	$1.26
Schwab Fundamental International Small Company Index ETF
Actual Return	0.39%	$1,000.00	$976.70	$1.92
Hypothetical 5% Return	0.39%	$1,000.00	$1,022.96	$1.96
Schwab Fundamental Emerging Markets Large Company Index ETF
Actual Return	0.39%	$1,000.00	$979.50	$1.92
Hypothetical 5% Return	0.39%	$1,000.00	$1,022.96	$1.96

₂₅

Schwab Fundamental U.S. Broad Market Index ETF

Financial Statements

Financial Highlights

	3/1/19– 2/29/20	3/1/18– 2/28/19	3/1/17– 2/28/18	3/1/16– 2/28/17	3/1/15– 2/29/16
Per-Share Data
Net asset value at beginning of period	$37.60	$36.95	$33.82	$27.37	$30.54
Income (loss) from investment operations:
Net investment income (loss)1	0.94	0.84	0.75	0.67	0.65
Net realized and unrealized gains (losses)	(0.43)	0.62	3.09	6.45	(3.18)
Total from investment operations	0.51	1.46	3.84	7.12	(2.53)
Less distributions:
Distributions from net investment income	(0.94)	(0.81)	(0.71)	(0.67)	(0.64)
Net asset value at end of period	$37.17	$37.60	$36.95	$33.82	$27.37
Total return	1.25%	3.98%	11.51%	26.32%	(8.34%)
Ratios/Supplemental Data
Ratios to average net assets:
Total expenses	0.25%	0.25%	0.25%	0.32%	0.32%
Net investment income (loss)	2.38%	2.26%	2.14%	2.17%	2.23%
Portfolio turnover rate2	13%	11%	10%	10%	12%
Net assets, end of period (x 1,000)	$262,018	$276,382	$260,469	$263,785	$166,985

¹

Calculated based on the average shares outstanding during the period.

²

Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.

₂₆

Schwab Fundamental Index ETFs  |  Annual Report

See financial notes

Schwab Fundamental U.S. Broad Market Index ETF

Condensed Portfolio Holdings  as of February 29, 2020

This section shows the fund’s 50 largest portfolio holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab ETFs at 1-877-824-5615. This complete schedule, filed on the fund’s Form N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.

In addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund’s website at www.schwabfunds.com/schwabetfs_prospectus.    

 

Schwab Fundamental Index ETFs  |  Annual Report

See financial notes

Schwab Fundamental U.S. Broad Market Index ETF

Statement of Assets and Liabilities

As of February 29, 2020

Assets
Investments in affiliated issuer, at value (cost $135,285)		$159,373
Investments in unaffiliated issuers, at value (cost $238,981,799) including securities on loan of $746,446		261,123,510
Collateral invested for securities on loan, at value (cost $774,735)		774,735
Deposit with broker for futures contracts		121,093
Receivables:
Investments sold		73,415
Dividends		723,995
Income from securities on loan	+	5,196
Total assets		262,981,317
Liabilities
Collateral held for securities on loan		774,735
Payables:
Investments bought		53,766
Management fees		56,595
Variation margin on futures contracts	+	78,568
Total liabilities		963,664
Net Assets
Total assets		262,981,317
Total liabilities	–	963,664
Net assets		$262,017,653
Net Assets by Source
Capital received from investors		246,087,747
Total distributable earnings		15,929,906

    

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$262,017,653		7,050,000		$37.17

₃₀

Schwab Fundamental U.S. Broad Market Index ETF

Statement of Operations

For the period March 1, 2019 through February 29, 2020

Investment Income
Dividends received from affiliated issuer		$2,540
Dividends received from unaffiliated issuers (net of foreign withholding tax of $628)		7,477,074
Securities on loan, net	+	47,659
Total investment income		7,527,273
Expenses
Management fees		716,999
Total expenses	–	716,999
Net investment income		6,810,274
Realized and Unrealized Gains (Losses)
Net realized losses on affiliated issuer		(1,900)
Net realized losses on unaffiliated investments		(3,046,937)
Net realized gains on in-kind redemptions on affiliated issuer		3,680
Net realized gains on in-kind redemptions on unaffiliated investments		11,662,067
Net realized gains on futures contracts	+	99,380
Net realized gains		8,716,290
Net change in unrealized appreciation (depreciation) on affiliated issuer		(19,718)
Net change in unrealized appreciation (depreciation) on unaffiliated investments		(10,727,444)
Net change in unrealized appreciation (depreciation) on futures contracts	+	(86,747)
Net change in unrealized appreciation (depreciation)	+	(10,833,909)
Net realized and unrealized losses		(2,117,619)
Increase in net assets resulting from operations		$4,692,655

₃₁

Schwab Fundamental U.S. Broad Market Index ETF

Statement of Changes in Net Assets

For the current and prior report periods

Operations
	3/1/19-2/29/20		3/1/18-2/28/19
Net investment income		$6,810,274	$5,939,857
Net realized gains		8,716,290	11,356,465
Net change in unrealized appreciation (depreciation)	+	(10,833,909)	(6,239,613)
Increase in net assets resulting from operations		4,692,655	11,056,709
Distributions to Shareholders
Total distributions		($6,831,860)	($5,622,015)

    

Transactions in Fund Shares
		3/1/19-2/29/20		3/1/18-2/28/19
		SHARES	VALUE	SHARES	VALUE
Shares sold		450,000	$17,693,623	1,250,000	$46,522,467
Shares redeemed	+	(750,000)	(29,918,728)	(950,000)	(36,044,678)
Net transactions in fund shares		(300,000)	($12,225,105)	300,000	$10,477,789
Shares Outstanding and Net Assets
		3/1/19-2/29/20		3/1/18-2/28/19
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		7,350,000	$276,381,963	7,050,000	$260,469,480
Total increase or decrease	+	(300,000)	(14,364,310)	300,000	15,912,483
End of period		7,050,000	$262,017,653	7,350,000	$276,381,963

₃₂

Schwab Fundamental U.S. Large Company Index ETF

Financial Statements

Financial Highlights

	3/1/19– 2/29/20	3/1/18– 2/28/19	3/1/17– 2/28/18	3/1/16– 2/28/17	3/1/15– 2/29/16
Per-Share Data
Net asset value at beginning of period	$37.83	$37.20	$33.91	$27.57	$30.55
Income (loss) from investment operations:
Net investment income (loss)1	0.99	0.87	0.78	0.70	0.69
Net realized and unrealized gains (losses)	(0.20)	0.57	3.21	6.29	(3.10)
Total from investment operations	0.79	1.44	3.99	6.99	(2.41)
Less distributions:
Distributions from net investment income	(0.95)	(0.81)	(0.70)	(0.65)	(0.57)
Net asset value at end of period	$37.67	$37.83	$37.20	$33.91	$27.57
Total return	1.98%	3.92%	11.91%	25.66%	(7.92%)
Ratios/Supplemental Data
Ratios to average net assets:
Total expenses	0.25%	0.25%	0.25%	0.32%	0.32%
Net investment income (loss)	2.47%	2.33%	2.22%	2.26%	2.39%
Portfolio turnover rate2	12%	11%	9%	10%	11%
Net assets, end of period (x 1,000)	$5,557,983	$4,596,260	$4,016,040	$2,197,623	$893,389

¹

Calculated based on the average shares outstanding during the period.

²

Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.

₃₃

Schwab Fundamental Index ETFs  |  Annual Report

See financial notes

Schwab Fundamental U.S. Large Company Index ETF

Condensed Portfolio Holdings  as of February 29, 2020

This section shows the fund’s 50 largest portfolio holdings in unaffiliated issuers, any holdings exceeding 1% of the fund’s net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab ETFs at 1-877-824-5615. This complete schedule, filed on the fund’s Form N-CSR(S), is also available on the U.S. Securities and Exchange Commission (SEC)’s website at www.sec.gov.

In addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website. The fund also makes available its complete schedule of portfolio holdings on a daily basis on the fund’s website at www.schwabfunds.com/schwabetfs_prospectus.    

 

Schwab Fundamental Index ETFs  |  Annual Report

See financial notes