By Ron Rowland:
The Cambria Shareholder Yield ETF (SYLD - News), launched May 14, is an actively managed ETF employing a quantitative algorithm to select companies with strong emphasis on returning free cash flow to their shareholders. In addition to cash dividends, net share repurchases and reducing debt are the two other major factors considered.
Specifically, SYLD invests in 100 stocks with market caps greater than $200 million that rank among the highest in (a) paying cash dividends, (b) engaging in net share repurchases, and (c) paying down debt on their balance sheets. The manager believes that a focus on all three factors – a trio collectively known as shareholder yield – produces a portfolio of companies that offer strong free cash flow characteristics.
The SYLD Investment Case asserts the following: focusing on dividends alone misses the broader picture, share repurchases have historically outpaced dividends, free cash flow is a classic value investment approach, diversification is ensured through maximum sector percentage caps, SYLD is the first ETF to focus on shareholder yield, and actively managed ETFs have advantages. Additional background on the investment philosophy is contained the book “Shareholder Yield: A Better Approach to Yield Investing” by Mebane Faber.
SYLD intends to focus on large cap domestic securities while allowing for stocks as small as $200 million in market capitalization and foreign issuers with U.S. listed ADRs to be included. Current capitalization allocations are 56% large cap, 34% mid cap, and 10% small cap.
Cambria, the fund’s manager, appears to take an equal weight approach when allocating the ETF’s 100 holdings. The largest positions as a result of recent market action include Boston Scientific (:BSX), Usana Health Sciences (:USNA), Nu Skin Asia Pacific (:NUS), Mastec (:MTZ), and Harte-Hanks (:HHS). Sector breakdown currently comes in at Financials 20%, Consumer Discretionary 17%, Technology 15%, Industrials 13%, and Consumer Staples 13%.
The new ETF has an expense ratio of 0.59%, and additional background information is contained in the press release (pdf). Cambria becomes a new ETF sponsor with the launch of SYLD. However, the investment firm is not new to the ETF world. Cambria, and portfolio managers Mebane Faber and Eric Richardson, are the team behind the AdvisorShares Cambria Global Tactical ETF (:GTAA) [GTAA: ETF Version Of The Ivy Portfolio].
Analysis/Opinion: Contrary to what its name might suggest, the Cambria Shareholder Yield ETF is neither a dividend nor an income fund. According to the SYLD home page, its stated objective is “absolute return” with dividends being paid only once per year. This unusual twist is confirmed by the fact sheet (pdf). Presumably, this will force investors to focus on the total return aspect of the fund instead of current dividend yield, which the fund’s advisor believes misses the broader picture.
Additionally, the “absolute return” designation might also fail to meet expectations. I could not find any description of how the fund’s risk-management techniques and investment approach would fit any common definition of absolute return. SYLD appears to be a fully invested, long-only, investment methodology. It is hard to see how it will meet its absolute return objective. The prospectus (pdf) contains an additional objective though, one that emphasizes income and capital appreciation.
The expense ratio of 0.59% is lower than the average actively managed equity ETF and significantly below the 1.41% of Cambria’s other fund offering, the AdvisorShares Cambria Global Tactical ETF ((:GTAA)). By going it alone and removing the fund-of-fund expenses associated with GTAA, Cambria is able to cut shareholder expenses by more than half.
The fund literature provides no clues as to what SYLD’s shareholders should expect in the way of dividend yield or total shareholder yield.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.