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 go-to investment.
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 exposure.
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 Stability).
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 portfolio.
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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