The Cambria Global Momentum ETF (CBOE: GMOM) provides investors with a unique approach to harnessing momentum.
GMOM, which is four and a half years old, “intends to target investing in the top 33% of a target universe of approximately 100 ETFs based on measures of trailing momentum and trend. The portfolio begins with a universe of assets consisting of domestic and foreign stocks, bonds, real estate, commodities and currencies,” according to Cambria.
The fund uses an ETF of ETFs strategy, meaning its holdings are other exchange traded funds.
“This is an actively managed, rules-based strategy that invests exclusively in other exchange-traded funds,” said Morningstar in a recent note. “This structure reduces transaction costs compared with holding the underlying securities directly, as it reduces the number of trades required. It also promotes tax efficiency because the manager can leverage the ETF’s in-kind redemption feature to purge low-cost-basis securities from the portfolio, reducing the likelihood of capital gains distributions.”
GMOM’s selection universe consists of about 50 ETFs representing several asset classes, including bond, commodities, domestic equities and international stocks.
Currently, GMOM holds 17 other ETFs and seven of the fund’s top 10 holdings are fixed income funds while another is a commodities ETF.
“Each month, Cambria ranks ETFs within its selection universe on their relative performance to one another and targets the top third,” said Morningstar. “Unfortunately, Cambria doesn’t disclose how it measures relative performance. However, Mebane Faber, the firm’s founder, says that the metrics it uses focus on returns and do not make any risk adjustments. To mitigate turnover, ETFs already in the portfolio remain eligible as long as they rank in the top half of the group. Funds that pass this screen are equally weighted.”
GMOM’s top holdings currently include the iShares 7-10 Year Treasury Bond ETF (NASDAQ: IEF), iShares Residential Real Estate Capped ETF (NYSEArca: REZ) and the Invesco Emerging Markets Sovereign Debt Portfolio (NYSEArca: PCY).
“The composition of this portfolio can change significantly over time. For example, at the end of 2017, about 91% of its assets were invested in stocks, and it did not hold any bond ETFs. By the end of 2018, its stock allocation had fallen to 37%, as stock markets sank, and its bond allocation climbed to 48%,” according to Morningstar.
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