Exchange traded fund investors can consider how shareholder yield can help make their long-term investments shine.
In the recent webcast, Shareholder Yield: You’re Not Still Investing Based on Dividends Are You?!, Meb Faber, Co-Founder and CIO, Cambria Investment Management, underscored the risks in an overpriced equity market today as many investors chase high-flying stocks that can quickly come tumbling down. Consequently, valuations are elevated with the Sharpe CAPE ratio at its highest level since the dotcom-era boom.
Meanwhile, investors continue to plow into the equity markets. Stocks as a percentage of household financial assets are currently around 43.2%, or near historic highs, compared to the historical mean of 27.7%.
As an alternative way to add value to a diversified investment portfolio, Faber highlighted the benefits of a targeted shareholder yield strategy. Cambria offers a line of shareholder yield ETFs, including the Cambria Shareholder Yield ETF (NYSEArca: SYLD), Cambria Emerging Shareholder Yield ETF (EYLD), and Cambria Foreign Shareholder Yield ETF (FYLD), that may offer better value for investors.
The underlying indices consist of stocks with high cash distribution characteristics. They are comprised of the companies with the best combined rank of dividend payments and net stock buybacks, which are the key components of shareholder yield. The underlying indices also screen for value and quality factors, including low financial leverage.
Instead of solely focusing on dividend payments, the shareholder yield ETF strategies invest in stocks that couple strong dividend payments with share repurchases and debt paydown. The fund manager believes that this type of screening process may be a better way to identify stocks that possess strong cash flows and reward shareholders with higher yields.
Focusing on the search for value in today’s market environment, Faber highlighted the attractive valuations that these strategies offer. For example, the Cambria Shareholder Yield ETF has a 15.6 price-to-earnings (P/E), 1.7 price-to-book (P/B), and a 0.94% 30-day SEC yield. In comparison, the Morningstar Mid Cap Value Category shows a 20.1 P/E, 2.1 P/B, and a 0.95% 30-day SEC yield.
The Cambria Foreign Shareholder Yield ETF has a 13.5 P/E, 1.2 P/B, and a 3.32% 30-day SEC yield, compared to the Morningstar Foreign Small/Mid Value Category’s 14.3 P/E, 1.2 P/B, and 1.51% 30-day SEC yield.
Additionally, the Cambria Emerging Shareholder Yield ETF has a 9.7 P/E, 1.4 P/B, and a 3.84% 30-day SEC yield, compared to the Morningstar Diversified Emerging Markets Category’s 22.4 P/E, 2.9 P/B, and a 0.66% 30-day SEC yield.
Faber also pointed to the cheap and competitive pricing on these shareholder yield ETF strategies. SYLD and FYLD both have a 0.59% expense ratio, while EYLD comes with a 0.69% expense ratio. In comparison, the average costs for each of the separate categories are closer to 1.0%.
Financial advisors who are interested in learning more about shareholder yield strategies can watch the webcast here on demand.