The exchange-traded fund world is full of articles touting the advantages of mega-firms such as Vanguard, BlackRock, Inc. (NYSE:BLK) and State Street Corp (NYSE:STT). These companies have set the bar high for delivering exceptionally transparent, diversified, low-cost liquid vehicles to every American investor.
Nevertheless, many ETF shareholders have yet to identify with the broad array of smaller firms that are pushing the envelope with their innovative funds. These companies often go unnoticed because their smaller regional size is dwarfed by the industry titans.
I’m talking about issuers such as Alpha Architect, Davis, Elkhorn, O’Shares, Realty Shares and the focus of today’s article: Cambria Investment Management.
One thing each of these firms has in common is that they seek out sound investment strategies backed by evidence-based research or a proven index methodology. Their funds may also offer closer identification with investors who are looking for sound tactical exposure or differentiation in the form of a reliable ETF wrapper.
Without further preamble, here is my take on one of the smaller firms that is doing it right.
Introducing Cambria Funds
Cambria was co-founded by Mebane Faber and Eric Richardson, who develop and manage the individual ETF strategies produced by the firm. The company has nine ETFs currently available for trading, and a host of others that are currently in registration. According to data from ETF.com, Cambria has $417 million in total assets spread among its suite of funds.
The flagship strategy is the Cambria ETF Trust (NYSEARCA:SYLD), which I have mentioned before. SYLD is classified as an actively-managed ETF that owns a basket of 100 U.S. stocks, all of which share the following characteristics: they are paying cash dividends, repurchasing shares or paying down debt on their balance sheets. These stocks are actively trying to return profits to shareholders in the form of sound financial management (e.g., shareholder yield), rather than focusing only on a single factor like high-yield payouts or share buybacks.
SYLD is on the cusp of celebrating its fourth anniversary and has delivered sound results to-date. The return since inception is similar to that of a broad-market benchmark such as the SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
In my opinion, this ETF has a great deal of potential as a long-term equity strategy, with the potential for outperformance over varying market cycles. It’s also worth noting that SYLD has an international brother in the Cambria Foreign Shareholder Yield ETF (BATS:FYLD).
As you can imagine, the strategy is roughly the same, except that the focus is on developed markets outside the United States. Both funds charge an annual expense ratio of 0.59%.
What You May Not Know About Cambria ETFs
One of the core tenets of the Cambria family is a focus not just on a home country bias, but also diversifying around the globe. One example of that thesis is the Cambria Global Asset Allocation ETF (BATS:GAA). This “fund of funds” style ETF owns a basket of other underlying ETFs spread across domestic and international stocks, bonds, real estate and commodities. Think of it as owning the entire global public investment market in a single vehicle.
It’s also the first ETF that does not charge a management fee or expense ratio. The only ongoing costs are the underlying expenses of the ETFs that GAA owns, which are around 0.25%. That’s rock bottom pricing for a solid and extremely diverse mix of assets.
In a similar structure, the Cambria Global Momentum ETF (NYSEARCA:GMOM) seeks to own a basket of underlying assets in stocks, bonds, commodities or currencies that show top measures of momentum. This actively-managed fund shifts its holdings to target the top one-third of a universe of 50 potential ETFs to try and capture the funds demonstrating the strongest trends in the current environment. The strategy is based on research conducted by Mebane Faber demonstrating that quantitative analysis of momentum and trend can lead to outperformance.
Lastly, I will note the popular Cambria Global Value ETF (NYSEARCA:GVAL), which is an index-based approach to screening for over 120 stocks — both foreign and domestic — that show intrinsic value characteristics. This global equity portfolio dives deep into several developed and emerging market nations, all of which have potentially underperformed in the past and may be ripe for a deeper appreciation based on their fundamental qualities.
Bottom Line on Cambria Funds
It’s difficult to highlight the benefits of every single ETF in the Cambria fund family in such a short forum. However, I urge investors who believe in evidence-based investment management with an emphasis on global strategies to investigate the company’s offerings.
Cambria continues to raise the bar based on its wide body of research, and even originates investment ideas from leading social or emerging investment trends. The greatest evidence of this may be a fledgling ETF (currently in SEC registration) that is based on medical marijuana stocks.
As the ETF world becomes more congested, investors should look to smaller companies like Cambria that are differentiating themselves from the herd. Depending on the strategy, these types of funds can augment traditional core index exposure or allow for greater diversification across a wide range of assets.
David Fabian is Managing Partner and Chief Operations Officer of FMD Capital Management. To get more investor insights from FMD Capital, visit their blog.