Yield strategies have become extremely popular with investors
for a few reasons. First, the low interest rate environment has
pushed many investors to dividend stocks for income, while the
booming stock market has made bonds pale in comparison to their
stock counterparts, leaving a push to dividend paying equities as a
The ETF world has adapted to this reality with ease, offering up
investors a variety of choices in the space targeting a
wide number of yield strategies. These range from companies
increasing dividends, weighting by dividends, and simply just
focusing on high yield stocks as well (read 3 Red Hot Dividend ETFs ).
Some might think that given the proliferation of dividend ETFs as of late,
all the strategies have already been claimed and there isn't really
anything new that can be done in the dividend world. Cambria has
proven those doubters wrong though, with its latest ETF launch
which looks to give a brand new-and innovative-way to target yield
via an ETF structure.
Shareholder Yield ETF in Focus
Cambria's new fund is the Shareholder Yield ETF which will trade
under the ticker symbol of SYLD. The product is actively managed
and looks to charge investors 59 basis points a year in fees for
The novelty for the fund comes from the quantitative algorithm
that is used in order to select about 100 stocks that have strong
characteristics for returning free cash flow to shareholders. In
particular, the fund will zero in on firms that rank highly for
paying cash dividends, net share repurchases, and paying down debt
on balance sheets.
Why all three components?
According to Cambria research, free cash flow has been a key
predictor of company strength. While dividends are an important
component of this, it fails to include other key aspects of the
equation such as debt paydown and share repurchases (see 4 Excellent Dividend ETFs for Income and
By combining all three factors they get a group that is
collectively known as 'shareholder yield', or what is believed to
be a more holistic view of a company's free cash flow position.
This is especially important given the changing capital
structure mix over the past few decades, and the focus of companies
on buybacks over dividend payouts. In fact, according to research
done by Jeremy Schwartz, seven of the 10 S&P 500 sectors in 2011
offered a higher yield resulting from share repurchases than
resulting from cash dividend payments, suggesting that these
factors need to be taken into account as well.
And most importantly of all, recent
research shows that portfolios of companies with high
shareholder yields outperform broad markets by a substantial
margin. Furthermore, they also outperform high dividend yield
portfolios as well, meaning that this approach could be the way to
go in today's market environment (read Retire Early with these 3 Dividend ETFs ).
"Investors continue to search for income, but they should be
wary of a narrow focus on dividends," said Mebane Faber Cambria's CEO . "Historically,
assessing stocks based on their collective shareholder yield is a
strategy that has outperformed vanilla dividend investing."
The result from this focus is a fund that is skewed towards
large caps, but still has a big chunk in mid and small cap
securities. In total, mid caps account for about one-third of the
portfolio while small caps make up one-tenth of the assets.
Financials currently take the top spot from a sector
perspective, at roughly 20% of assets. Beyond that, consumer
discretionary and technology round out the top three sectors, while
surprisingly utilities take the bottom allocation at just 1% of the
It is hard to say which funds are the direct competitors
for SYLD given its innovative structure. Clearly, the large number
of dividend ETFs already on the market are potential foes, while
one could probably argue that the buyback ETF ( PKW ) is also a bit of competition.
Given this, it could allow Cambria to expand its lineup in the
ETF world with relative ease. After all, this is only the second
product from the company as its only other ETF is GTAA .
This is an actively managed fund as well, except GTAA provides
exposure to a global tactical strategy that uses an ETF-of-ETFs
approach to construct its portfolio. This fund has seen decent
interest of about $60 million, an impressive figure given its
relatively high cost of 1.41% (see Have you Overlooked These Dividend ETFs? ).
So, undoubtedly Cambria is looking to expand on this success in
a big way with its new shareholder yield ETF over the next few
months and years. Investors have embraced dividends across the
board, and given the fund's novel focus, Cambria could have a
winner on its hands with this intriguing yield option as well.
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