The Cambria Shareholder Yield ETF (NYSEArca: SYLD), co-managed by Cambria’s Mebane Faber and Eric Richardson, includes dividends and buybacks as part of its stock selection process, but it is accurate to say the actively managed SYLD is neither a dedicated dividend fund nor an explicit buyback ETF.
SYLD, which debuted in May 2013, also features the kicker of mandating that constituent companies must also be reducing their debt burdens, meaning a company’s cash position figures prominently in what stocks find their way onto SYLD’s roster. [Shareholder Yield ETF has Plenty of Uses]
SYLD “aims to avoid companies that dispose of too much of their free cash flow—cash after operating expenses—through dividends. It also stays away from companies that simply buy back stock to keep up with a dizzying pace of share grants, and companies that add debt simply to pay dividends due to ‘trapped’ foreign cash,” reports Ari Weinberg for the Wall Street Journal.
The methodology has worked for SYLD. The ETF is up 20.4% since coming to market, a performance that trumps the dividend-focused Vanguard Dividend Appreciation ETF (NYSEArca: VIG) by 530 basis points.
By emphasizing the cash component and an equal-weight methodology, which can reduce volatility, SYLD is not saddled with large exposure to prolific share repurchasers that are either using those buybacks to manage earnings expectations, funding those buybacks with new debt or merely using buybacks as a way of dealing with employee stock awards. [IBM Isn’t a Big Deal in Buyback ETFs]
After all, there is also no denying that companies are usually quite poor at timing at their share repurchases. For example, share buybacks soared last year, but dwindled during the financial crisis. Interestingly, of the companies behind the 20 largest second-quarter buybacks in dollar terms, only four – Apple (NasdaqGS: AAPL), General Dynamics (NYSE: GD), Home Depot (NYSE: HD) and 3M (NYSE: MMM) – are SYLD holdings.