Cambria Debuts U.S. ETF with Zero Management Fee

The expense ratio is one of the important factors that investors usually look for before investing in any exchange traded fund (ETF). In the longer run, cheaper funds can drastically outperform their more expensive cousins.

For investors worried about high expenses charged by issuers, Cambria has recently come up with an ETF that charges 0% management fees on a permanent basis. The newly launched fund – Cambria Global Asset Allocation ETF – trades under the ticker GAA and is the first of its kind to be launched in the U.S. (read: 3 Excellent ETFs for a Low Cost Diversified Portfolio).

GAA in Focus

The passively managed fund seeks to provide capital appreciation as well as income by using a quantitative approach to provide exposure to a diversified portfolio of global assets. For this purpose, the fund holds a basket of ETFs from some of the popular issuers like Vanguard, BlackRock, State Street and WisdomTree.

Currently, the fund holds 29 ETFs that reflect various assets across the globe including U.S. and foreign equities, bonds, real estate, commodities and currencies. The fund allocates half of its assets to fixed income securities, followed by 43% allocation to equities, while commodities take the balance (read: PowerShares Rolls Out a New Diversified Commodity ETF (PDBC)).

Vanguard Total Bond Market ETF (BND) occupies the top spot with 8% exposure, followed by United States Commodities Index (USCI) and Vanguard Emerging Market ETF (VWO) with 6.7% exposure each. The fund charges 29 basis points as expense fees, which is basically a flow-through fee from these issuers.

How Does It Fit in a Portfolio?

The fund is a good choice for investors seeking exposure to the global markets under a single umbrella. It is not just the global markets; the fund also provides exposure to a diversified portfolio of global assets.

Unlike most of the ETFs which follow a market capitalization weighted strategy, the new fund uses strategies that focus on value and momentum factors. These strategies have historically outperformed market cap weighted indexes, as noted by Cambria.

Moreover, the fund’s use of quantitative strategy ensures that a proper entry and exit method is maintained so as to keep the portfolio close to its target weights every year.

ETF Competition

The newly launched fund is expected to face competition from some of the existing global multi-asset ETFs in the space, including the following:

Morningstar Multi-Asset Income Index Fund (IYLD) with an asset base of $226.8 million is one such product. The fund consists of a comprehensive set of iShares ETFs that collectively target equity, fixed income and alternative income sources. The fund charges 60 basis points a year as fees (read: New Active Multi-Asset ETF to Ride Out Current Turmoil).

SPDR SSgAMulti-Asset Real Return ETF (RLY) is another ETF in this space. The actively managed fund is a basket of 13 funds seeking to track the performance of a market index, exchange traded commodity and exchange traded notes.

International equities make up for 36.1% of assets, while domestic equity accounts for 30.6% share, commodities 22.1% and domestic fixed income 8.5%. The fund manages an asset base of $138.9 million and charges 70 bps as fees.

Apart from the above mentioned funds, International Multi-Asset Diversified Income Index Fund (YDIV) and some of the recently launched multi-asset ETFs from Absolute Shares such as WBIA, WBIB, WBIC and WBID might pose as competitors (read: Absolute Shares Trust Debuts with 10 Active Multi-Asset ETFs).

Nonetheless, if the newly launched ETF is indeed successful in luring investors by marketing its zero management fee policy, it might have great days ahead. Moreover, the fund’s use of quantitative strategy also makes it different from some of the other ETFs in the space. However, over the longer term, the fund’s performance will be the ultimate deciding factor of success in this competitive corner of the ETF world.

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