A new active ETF launched Tuesday and co-managed by The Ivy Portfolio author Mebane Faber will take a unique approach to generating yield for investors.
Cambria Shareholder Yield ETF (NYSEArca: SYLD) is an actively managed fund of U.S. stocks that rank high in paying cash dividends, buying back shares and paying down debt.
Cambria Investment Management says these three factors are collectively known as “shareholder yield.”
“Investors continue to search for income, but they should be wary of a narrow focus on dividends,” Faber said. “Historically, assessing stocks based on their collective shareholder yield is a strategy that has outperformed vanilla dividend investing.”
He said investors should look further than dividends when identifying companies with strong free cash flow characteristics.
Dividend-themed ETFs have been extremely popular with investors looking for yield in a low-rate environment for bonds. The largest ETFs in the category include Vanguard Dividend Appreciation ETF (NYSEArca: VIG), iShares Select Dividend ETF (NYSEArca: DVY) and SPDR S&P Dividend ETF (NYSEArca: SDY).
Cambria is incorporating other factors than just dividends in the new ETF, which employs a quantitative algorithm to select U.S. stocks with market caps greater than $200 million, as assessed by the shareholder yield qualifications. The fund expects to pay yearly dividends.
SYLD will charge an expense ratio of 0.59%.
Chris Hempstead at WallachBeth Capital said the fund is a next-generation dividend ETF.
“Anything that throws off yield will grab the attention of Wall Street,” he said.
Next page: ‘Shareholder yield’
“Cambria views equity securities as providing a high shareholder yield if they exhibit strong cash flows, as reflected by their payment of dividends to shareholders and their return of capital to shareholders in other forms, such as through net stock buybacks and net debt paydown,” according to the prospectus.
“Cambria believes that, while any one of these measures of a company’s cash flows, in isolation, is inadequate to determine the attractiveness of its equity securities, considered together these measures have the potential to result in the construction of a portfolio of companies with better cash flows, stronger growth potential and higher yield characteristics,” it adds. “Considering these measures together, which comprise shareholder yield, may result in a more attractive investment portfolio.”
Eric Richardson, Cambria’s Chief Executive Officer, will co-manage the new ETF along with Faber.
“While the high yield ETF space has become crowded, we hope SYLD will disrupt the market and open the eyes of investors to a more holistic approach to income investing,” Richardson said. “We expect to launch additional funds in the actively managed alternatives space in the coming months.”
SYLD is Cambria’s first in-house ETF, although Faber and Richardson are the portfolio managers for Cambria Global Tactical ETF (NYSEArca: GTAA), a fund in the AdvisorShares lineup.
“The portfolio is designed to produce absolute returns by following a systematic trend-following strategy that employs very wide diversification of holdings,” Morningstar says in a profile of GTAA.
Richardson and Faber also collaborated on The Ivy Portfolio, a book about using ETFs to mimic the investment strategies of the Harvard and Yale endowments.