Mebane Faber’s Cambria Funds made waves in the exchange traded funds industry in December with the launch of the Cambria Global Asset Allocation ETF (NYSEArca: GAA), the first ETF to come to market free of an expense ratio.
No, GAA is not a purely free ride. Rather, investors pay total fund operating expenses of 0.29%, which works out to be the average expense ratio on the 29 ETFs held by the new Cambria fund. But 0.29% is still reasonable among ETFs and an outright bargain among actively managed funds, ETF or mutual, of which GAA is.[No Expense Ratio ETF Debuts]
GAA is comprised of other underlying ETFs and seeks to replicate a true global market portfolio, investing in a basket of U.S. and foreign equities, bonds, real estate, commodities, and currencies, according to the statement. The 29 ETFs held by GAA, which are mostly Vanguard and iShares funds, give investors exposure to over 20,000 individual securities, according to Cambria.
The ETF is perking up this year, trading just ahead of the S&P 500. Notable is GAA’s solid performance, which has been accrued with a top 10 lineup that largely steers clear of U.S. equities. On a cyclically-adjusted, or CAPE basis, one of Faber’s oft-cited valuation metrics, U.S. stocks are among the most expensive in the world.
In part, the rich valuations on U.S. stocks explain why GAA features just three U.S.-focused ETFs (GAA is an ETF of ETFs) among its top 10 holdings: The iShares MSCI USA Momentum Factor ETF (NYSEArca: MTUM), Vanguard Mid-Cap ETF (NYSEArca: VO) and the Vanguard Total Stock Market ETF (NYSEArca: VTI).
Controversial and downtrodden Brazilian and Russian stocks are among the least expensive in the world and GAA offers exposure to those discounted valuations via a 6.8% weight to theVanguard FTSE Emerging Markets ETF (NYSEArca: VWO). [EM ETFs Could Rebound in Q2]
For those wondering how Cambria makes money on GAA without a true expense ratio, the firm is able to defray some of the ETF’s costs by allocating a portion of its weight to other Cambria ETFs. Naysayers might call that self-serving, but the strategy is proving effective, not to mention the other Cambria ETFs held by GAA do not combine for an outsized percentage of the fund’s weight.
The Cambria Global Value ETF (NYSEArca: GVAL), Cambria Shareholder Yield ETF (NYSEArca: SYLD) and the Cambria Foreign Shareholder Yield ETF (NYSEArca: FYLD) combine for less than 8% of GAA’s weight, but good news is those ETFs are up an average of 4.4% this year.
GAA’s stake in GVAL helps the former extend the favorable valuation theme because the latter allocated a combined 26% of its weight to Brazilian, Russian and Greek stocks at the end of the fourth quarter. Based on CAPE, those are three of the most attractively markets in the world.
Cambria Global Asset Allocation ETF
