Cambria Fund Profile Series – Cambria Shareholder Yield ETFs (SYLD) (FYLD) (EYLD)
Host: Meb Faber is Co-Founder and Chief Investment Officer of Cambria Investment Management. Meb has authored numerous books, whitepapers and blog posts, and is the host of The Meb Faber Show podcast.
Date Recorded: 6/07/2021
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Summary: In today’s episode of the Cambria Fund Profile Series, Meb discusses Cambria’s shareholder yield ETFs, US focused Cambria Shareholder Yield ETF (SYLD), international developed market focused Cambria Foreign Shareholder Yield ETF (FYLD), and international emerging market focused Cambria Emerging Shareholder Yield ETF (EYLD).
Meb walks through details of what shareholder yield really is, from dividends to buybacks, to explain why it is a more comprehensive measure of yield than dividends alone.
He offers a passage from Warren Buffett’s 1984 letter to shareholders discussing the benefit of buybacks when companies are in good financial position and their shares are trading below intrinsic value. He then covers Cambria’s three funds in more detail, laying out some quantitative metrics of the funds relative to their respective Morningstar categories.
As the episode winds down, Meb walks through the portfolio construction process of the shareholder yield ETFs.
All this and more in this Cambria Fund Profile Series episode, featuring the Cambria Shareholder Yield ETF (SYLD), the Cambria Foreign Shareholder Yield ETF (FYLD), and the Cambria Emerging Shareholder Yield ETF (EYLD).
Links from the Episode:
- 0:34 – Intro
- 1:40 – Shareholder yield
- 2:45 – Market valuation & Shiller PE Ratio (CAPE Ratio)
- 5:20 – Shareholder yield defined
- 5:37 – Dividend yield
- 7:00 – Buybacks
- 7:43 – Warren Buffett’s note on buybacks in his 1984 letter to shareholders
- 8:40 – Whitepapers
- 10:30 – Cambria Shareholder Yield ETF (SYLD)
- 12:45 – Cambria Foreign Shareholder Yield ETF (FYLD)
- 13:40 – Cambria Emerging Shareholder Yield ETF (EYLD)
- 14:35 – Cambria’s shareholder yield portfolio construction process
- 15:30 – More information: cambriafunds.com, 310-683-5500
- 15:44 – Disclosure
Welcome Message: Welcome to The Meb Faber show where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new ideas, all to help you grow wealthier and wiser. Better investing starts here.
Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates.
Intro: Howdy friends, we have a little bit of a different show for you today. Over the past decade, we’ve made an effort to educate our clients and investors, now over 60,000 strong, by publishing research and commentaries across the blog, academic papers, books, speeches, and now in the more modern social world, Twitter, YouTube, and this podcast. However, we still get many great questions every day about our funds, many of which are broadly similar, so we wanted to try and use this platform to help educate shareholders as much as possible. Sometimes the spoken word provides a little more context and narrative than just an academic paper or factsheet. And as always, the most important thing in investing is finding an approach that works for you, which may or may not involve any of our funds, which is totally fine. We just want our shareholders to be as informed as possible in what they’re invested in. So enough intro, please enjoy today’s episode in our series of fund profiles.
Meb: Hey hey friends today we have a special episode in which I’m going to be talking about one of my oldest and favorite approaches to the market, which centers around something called shareholder yield. As part of this discussion, we’ll talk about three Cambria funds which we engineered with this shareholder-yield approach as their centerpiece. There’s a lot to discuss so let’s jump right in.
Let me start with a question – what’s your approach to the markets today?
On one hand, in its April 2021 FOMC statement, the Federal Reserve reiterated its stance of accommodative monetary policy. That translates to the expectation that interest rates will remain low for the foreseeable future. A challenge for anyone trying to navigate fixed income markets in search of income.
On the other hand, U.S. stocks have been pushing higher since their lows back in 2020, with valuations expanding to historically high levels along with them. A challenge for investors seeking reasonable valuations.
Regular podcast-listeners and readers of my blog know that one of my favorite valuation metrics is the Shiller PE ratio, also called the CAPE ratio, which stands for the ten-year, cyclically-adjusted price-to-earnings ratio.
I’ll put a link on our show-notes, but if we look at the S&P 500 Index’s current CAPE reading at the time of this recording, you’ll see it’s at one of the highest readings in the past 150 years. Similar periods of overvalution were during the Depression and the Dot-Com Bubble at the turn of the Millenia.
So, put historically-low interest rates together with historically-high valuations and investors face a tough question – how do you find an investment that offers potential for income and growth, that’s not burdened with nosebleed valuations?
And let’s just speak candidly about the potential tradeoff in an investor’s portfolio.
On one hand, if you invest today, you run the risk of a steep drop in the stock market, such as we saw in February and March of last year. But if you stay on the sidelines and the market continues to grind higher, your return is zero.
Is there an answer?
Although admittedly harder to find, we believe, income and growth are still possible, even in this market.
Now, before we get into the specifics of our shareholder yield strategy, let’s dig a bit deeper into today’s market environment, because I believe it points toward how a shareholder yield strategy can help investors.
It was in early June 2020 that Federal Reserve Chair Jerome Powell warned that the US faces a “long road” to recovery. The policy forecast released by Powell and the Fed showed target rates remaining pegged at 0% – 0.25% until the end of 2022. This creates a challenge for investors who need income.
Meanwhile, after a year that included a global pandemic, economic woes, a greater than 30% drop in the S&P 500 Index, the market has roared back, and taken the Shiller PE ratio of the S&P 500 Index to over 36 as of the end of April 2021, which makes it one of the most expensive markets in the last 150 years by this measure. Not quite as high as 1999 when it hit 45, but still expensive.
Low yields and high valuations leave investors in a terrible position. But what else is there to do? You may have heard of the TINA trade, which stands for “there is no alternative.” It suggests there’s no good investment alternative to the stock market today. And unfortunately, that’s how many investors feel right now.
Well, I believe it can help to stop looking at the market as one unified monolith that rises or falls in unison, and see it for what it is – thousands of individual stocks and businesses that offer varying risk/reward profiles. And it’s from this more granular perspective that we can begin to look for stocks characterized by traits that I believe align with a powerful market approach – shareholder yield.
For those unfamiliar, a shareholder yield strategy is intended to help investors get exposure to quality value stocks that have returned the most cash to shareholders via dividends and buybacks relative to the rest of the comparable stock universe.
So let’s break this down a bit.
Starting with dividend yields, our shareholder yield ETFs – which we have three, and I’ll discuss in more detail shortly – all reported 30-day SEC yields in line or even greater than that of their respective Morningstar categories, even though our funds don’t target dividends in isolation. In the show notes, I’ll link to our white papers that will compare the yields of our respective shareholder yield ETFs with their categories and benchmarks.
To illustrate here in the podcast, though, take our Cambria Shareholder Yield ETF with the ticker symbol SYLD.
It offered a 30-day SEC yield of 1.39% as of April 30th, 2021. The Morningstar Mid-Cap Value Category, offered a 30-day SEC yield of just 0.88%.
But dividend yield is just the beginning. Remember, we’ve engineered our shareholder yield ETFs to reflect total cash distributions to investors from both dividends and net buybacks.
Now, when management rewards investors with buybacks, we wouldn’t clearly see that value-transfer reflected in the dividend yield. Therefore, while our shareholder yield ETFs have similar or higher 30-day SEC yields relative to their Morningstar categories currently, we shouldn’t necessarily expect our funds to be leading this category.
But from this added perspective which includes buybacks, investors suddenly have a strategy that goes beyond dividends and can offer a far more complete way of looking at a potential investment.
So, a few quick words about buybacks for any listeners who are less familiar with their benefit to investors…
Without getting too much into detail, corporate share buybacks can be an effective way for managers to return profits to shareholders – similar to dividends – yet without triggering the taxable event that occurs with dividends. This means shareholders are receiving value, but it’s subtler – gently camouflaged in the asset’s market price, rather than the obvious dividend payment that appears in your brokerage account one day. But that doesn’t mean the value is not there, it’s just in a different form. And at the end of the day, wouldn’t you prefer the highest total return possible, regardless of the source of that return?
And of all of you Warren Buffett fans may recall his stance on buybacks from his 1984 letter to Berkshire Hathaway shareholders, which read:
“When companies with outstanding businesses and comfortable financial positions find their shares selling far below intrinsic value in the marketplace, no alternative action can benefit shareholders as surely as repurchases.” End of the quote.
The key phrase for buybacks here is “intrinsic value.” If you are an overconfident CEO buying back overvalued shares, then you’re destroying value. In such a case, an objection to including buybacks would be valid. Buybacks would indeed be a detriment to total return.
But when a wise CEO buys back shares at great valuations that are below intrinsic value, to paraphrase Buffett’s quote, “no alternative action benefits shareholders as surely as repurchases.”
Now, when we combine dividend yields with buyback yields, we get a clearer picture of total return to shareholders.
Again, I’ll point you toward our white papers on this which we link to this in the shownotes mebfaber.com/podcast so you can read all the details. But to illustrate the power of combining yields, let’s turn our attention back to the Cambria Shareholder Yield ETF, SYLD.
Since inception through the end of April 2021, SYLD has returned 215.22% on a cumulative basis. In comparison, the Morningstar Mid Cap Value Category returned just 117.93% over the same period.
We believe that’s a powerful illustration of the benefit of combining both yields.
Now, earlier in the podcast, we talked about lofty valuations.
One of the basic tenets of investing is that, all else being equal, the less you pay for an investment, the better your future returns should be. By that logic, the better the value at which we can purchase quality assets, the better positioned we should be for the potential of increased returns going forward. From February 19 2020 to March 23 2020, the S&P 500 endured the quickest fall from all-time-highs to bear market…ever. In just 23 trading days, the index fell 33%. Ouch. Our suite of shareholder yield ETFs weren’t immune to the market selloff, of course. Over the same period, SYLD fell 44%, our foreign version, FYLD 40%, and EYLD, our emerging markets fell 36%. Of course, since those late-March 2020 lows until the end of April 2021, on a cumulative basis, the funds were up 189%, 106%, and 105%, respectively, while the S&P 500 index was up 90%. Even better, each of the funds in the YLD suite trade at attractive valuations currently.
So where do our shareholder yield ETFs shape up on the valuation compared to their benchmark categories?
Let’s answer that by first looking at SYLD once again.
In our initial white paper that explored our shareholder yield strategy, we compared SYLD to its respective Morningstar category on five valuation metrics: price to earnings, price to book value, price to sales, price to cash flow, and price to free cash flow.
We’re incredibly proud to report that, as of the end of April 2021, SYLD offered a lower valuation than its Morningstar category in every single metric.
For Price-to-Earnings, SYLD’s multiple was 13.99. The category was 20.41.
For Price-to-book, SYLD was 1.72 compared to the category of 2.26.
For Price-to-sales, SYLD’s multiple was 0.98 whereas the category was 1.48.
For Price-to-Cash Flow, SYLD was 7.78. And the category was 10.93.
For Price-to-Free Cash Flow, SYLD’s multiple was 10.85 while the category’s reading was 23.89.
SYLD also offered a higher 30-day SEC yield of 1.39% compared to the category’s yield of 0.88%.
Finally, remember, Since inception through the end of April 2021, SYLD returned 215.22% on a cumulative basis. In comparison, the Morningstar Mid Cap Value Category returned just 117.93% over the same period.
Standardized performance as of the end of March 2021 will be covered toward the end of the podcast.
For us, this is a clear illustration of the power of a shareholder-yield approach to the markets – larger returns, lower valuations, and a higher yield.
Bottom line, yes, this is a challenging market for income investors, but it doesn’t have to be an impossible market. We feel income, growth, and good values are still out there. You just have to know where to find them.
So, at this point, you’re familiar with one of our three ETFs that features this shareholder yield approach. That’s the Cambria Shareholder Yield ETF, with the ticker SYLD which we’ve referenced a lot so far.
But as mentioned earlier, we have three unique ETFs offering a shareholder-yield approach. The difference between the funds lies in which global markets the funds are focused on.
SYLD focuses exclusively on stocks in the United States.
For non-U.S, developed country markets, we offer the Cambria Foreign Shareholder Yield ETF, with the ticker symbol FYLD.
As of the end of April 2021, FYLD offered a lower valuation level than its Morningstar category, in nearly every single metric.
Price-to-Earnings, the multiple was 13.46 for FYLD. And the category 14.89.
For Price-to-book, FYLD was 1.21 compared to the category of 1.28.
Price-to-sales, FYLD was 0.98 while the category’s 0.80.
For Price-to-Cash Flow, FYLD’s multiple was 6.7. Whereas the category was 6.74.
For Price-to-Free Cash Flow, FYLD was 12.3 and the category 8.74.
So FYLD traded at a lower valuation on most of these metrics, and offered a much higher 30-day SEC yield, 3.52% vs. the category average of 1.38%.
As for emerging markets around the globe, we offer the Cambria Emerging Shareholder Yield ETF, with the ticker symbol EYLD.
As the end of April 2021, EYLD offered a lower valuation level than its Morningstar category, in every single metric.
Price-to-Earnings, it was 10.52 while the category’s 21.64.
For Price-to-book, EYLD multiple was 1.39 compared to the category of 2.90
Price-to-sales, EYLD multiple was 0.64 while the category was 2.67.
Price-to-Cash Flow, EYLD’s multiple was 6.49 while the category was 13.47.
For Price-to-Free Cash Flow, EYLD’s multiple was 12.88 vs. the category of 31.64.
EYLD carried its lower valuation and offered a higher 30-day SEC yield of 4.44% compared to the category yield of 0.67%.
We believe this illustrates how shareholder-yield is powerful even across borders.
Now, shifting gears a bit, for any listeners who are curious about the construction of this type of fund, in short, we begin with a broad universe of stocks of a suitable market capitalizations that also pass liquidity and price requirements. Next, we select the stocks in the top 20% of that universe by yields, across dividends and net buybacks. We then apply a valuation ensemble across a number of factors. Some are the ones we discussed previously. We referenced five of them earlier in this podcast.
We further shrink the universe by isolating the top shareholder yield stocks registering high debt retirement with low financial leverage, those are both quality metrics. We also seek to avoid value traps by doing a final sort based on momentum indicators.
It can be an exhausting process, but we believe it’s worth it.
As we wrap up, yes, this is a challenging market. But you don’t have to sacrifice income, or growth, or a reasonable valuation. You just have to know where to look to find those traits.
For more information, you can visit CambriaFunds.com or reach out to us at 310.683.5500.
Thanks for listening, and good investing.
Disclosure: Here is some required standardized performance for your reference.
As of March 31, 2021, over the past year, SYLD’s net asset value, and its market price returned 141.30% and 143.94% respectively, while the S&P 500 Index returned 56.35%. Over the 3 year period, SYLD’s net asset value and its market price returned 19.36% and 19.78% respectively, while the S&P 500 Index returned 16.78%. Over the 5 year period, SYLD’s net asset value and it’s market price returned 17.95% and 18.20% respectively, while the S&P 500 Index returned 16.29%. Over the 10 year period, the S&P 500 Index returned 13.91%. Since the fund’s inception on May 14 2013, SYLD’s net asset value and its market price returned 15% and 15.15% respectively, while the S&P 500 Index returned 14.21%.
As of March 31, 2021, over the past year, FYLD’s net asset value, and its market price returned 70.17% and 72.26% respectively, while the MSCI EAFE Index returned 45.15%. Over the 3 year period, FYLD’s net asset value and its market price returned 6.14% and 5.95% respectively, while the MSCI EAFE Index returned 6.54%. Over the 5 year period, FYLD’s net asset value and it’s market price returned 9.84% and 10.10% respectively, while the MSCI EAFE Index returned 9.37%. Over the 10 year period, the MSCI EAFE Index returned 6.02%. Since the fund’s inception on December 3, 2013, FYLD’s net asset value and its market price returned 4.98% and 5.05% respectively, while the MSCI EAFE Index returned 5.48%.
As of March 31, 2021, over the past year, EYLD’s net asset value, and its market price returned 75.55% and 76.33% respectively, while the MSCI Emerging Markets Index returned 58.92%. Over the 3 year period, EYLD’s net asset value and its market price returned 6.67%, while the MSCI Emerging Markets Index returned 6.87%. Over the 5 year period, the MSCI Emerging Markets Index returned 3.24%. Over the 10 year period, the MSCI Emerging Markets Index returned 3.63%. Since the fund’s inception on July 14 2016, EYLD’s net asset value and its market price returned 13.66% and 13.89% respectively, while the MSCI Emerging Markets Index returned 12.42%.
Short term performance may not be indicative of long term performance. Actual results may vary. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. The closing market price is the Mid-Point between the Bid and Ask price as of the close of exchange. Since the Fund’s Shares typically do not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in Shares, the NAV of the Fund is used to calculate total market returns.
Shares are bought and sold at market price (or closing price) not net asset value (NAV) are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined), and do not represent the return you would receive if you traded at other times. Buying and selling shares will result in brokerage commissions. Brokerage commissions will reduce returns.
To determine if this Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risk factors, charges and expense before investing. This and other information can be found in the Fund’s prospectus which may be obtained by calling 855-383-4636, also known as (ETF INFO) or visiting our website at cambriafunds.com. Read the prospectus carefully before investing or sending money.
The Cambria ETFs are distributed by ALPS Distributors Inc., 1290 Broadway, Suite 1000, Denver, CO 80203, which is not affiliated with Cambria Investment Management, LP, the Investment Adviser for the Fund.
A Few Definitions:
Shiller CAPE ratio: The cyclically adjusted price/earnings ratio is the price of a security of an index divided by the average inflation-adjusted earnings over the past 10-years.
The S&P 500 Index: An index of 500 U.S. stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 Index is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
Nasdaq Composite: A broad-based market index that includes over 3000 of the equities listed on the Nasdaq stock exchange
Shareholder Yield: Generally defined as an equity security’s total yield from the combination of dividend yield and buyback yield.
Dividend: A payment from a corporation to a shareholder.
Buyback: The process of a corporation buying back shares of its stock.
Price/earnings ratio (P/E Ratio) is the ratio of a company’s stock to the company’s per share earnings.
Price/book ratio is the ratio of a company’s stock price to the company’s book value.
Price/sales ratio is the ratio of a company’s stock price to the company’s revenue.
Price/cash flow ratio is the ratio of a company’s stock price to the company’s per share cash flow.
Price/free cash flow ratio is the ratio of a company’s stock price to the company’s per share free cash flow.
Enterprise Value/EBITDA is the ratio of a company’s enterprise value (A measure of a company’s total value) to the company’s earnings before interest, taxes, depreciation and amortization.
30-Day SEC Yield: A standard yield calculation developed by the U.S. SEC that is based on the most recent 30-day period.
ETFs are subject to commission costs each time a “buy” or “sell” is executed. Depending on the amount of trading activity, the low costs of ETFs may be outweighed by commissions and related trading costs.
Diversification may not protect you against market loss.
There is no guarantee that the Fund will achieve its investment goal. Investing involves risk, including the possible loss of principal.
The Cambria Shareholder Yield ETF is actively managed.
The Cambria Foreign Shareholder Yield ETF is actively managed.
The Cambria Emerging Shareholder Yield ETF is actively managed.
On June 1, 2020 the Cambria Shareholder Yield ETF and the Cambria Foreign Shareholder Yield ETF changed its investment objective and investment strategy. The funds also changed from being passively managed to actively managed on that date.
On July 1, 2020 the Cambria Emerging Shareholder Yield ETF changed its investment objective and investment strategy. The fund also changed from being passively managed to actively managed on that date.
There is no guarantee that the Fund will achieve its investment goal. Investing involves risk, including the possible loss of principal. High yielding stocks are often speculative, high risk investments. The underlying holdings of the fund may be levered, which will expose the holdings to higher volatility and may accelerate the impact of any losses. These companies can be paying out more than they can support and may reduce their dividends or stop paying dividends at any time, which could have a material adverse effect on the stock price of these companies and the Fund performance. International investing may involve risk of capital from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Investments in small companies typically exhibit higher volatility. Narrowly focused funds typically exhibit higher volatility.
2021 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, timely or complete. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.