One of the most eye-catching investing theme these days is yield strategy. This is especially true as the low interest rate environment in the developed world is driving many investors to dividend stocks for income. Also, the stock market upheaval in the wake of global growth issues and geopolitical risks is leading investors to seek safety in the yield strategy.
Probably, this is why, Cambria recently rolled out Cambria Emerging Shareholder Yield ETF (BATS:EYLD). Prior to this, the issuer had launched two products on this theme, namely, Cambria Shareholder Yield ETF (NYSEARCA:SYLD) and Cambria Foreign Shareholder Yield ETF (NYSEARCA:FYLD).
EYLD in Focus
The fund looks to track the price and yield performance of the Cambria Emerging Shareholder Yield Index. The index consists of about 100 companies that have strong characteristics for returning free cash flow to shareholders, both in the form of dividend payments and net stock repurchases. Stocks that paid down debt on balance sheets and attained low financial leverage also got into the fund.
The product looks to charge investors 69 basis points a year in fees for exposure. With 95 stocks in total in its portfolio, the fund has the highest weight (about 6.937%) in cash holdings, while no stock accounts for more than 1.147% of the basket.
As of July 14, 2016, South Korea and China are the top two countries with about 21% and 20% weight. Taiwan (16%) and South Africa (12%) also get double-digit exposure each. Technology (20%), Financials (18%), Energy (17%) and Consumer Discretionary (15%) are the top four sectors in which the fund is invested in.
How Does it Fit in a Portfolio?
As per Cambria research, free cash flow is the key determinant of a company's financial well being. While dividend is the most popular and important factor for the shareholders' value enhancement, it fails to embrace the other key aspects like debt reduction and share buyback. Thus, nothing could be better than tapping the three quality factors together to gain exposure to a strong company.
So, this fund could be a solid pick for investors seeking broad exposure to emerging markets with a focus on yield. In any case, emerging market securities are in great shape this year. But since the emerging market (EM) category is usually guilty of heightened volatility, a look at the complete spectrum of higher shareholder yield may prove beneficial for investors eyeing EM investing.
First, the emerging market ETF space is jam-packed. In terms of products out there in the emerging market yield space, the newly launched fund may face competition from the likes of WisdomTree Emerging Markets High Dividend Fund (NYSEARCA:DEM), iShares Emerging Markets Dividend ETF (NYSEARCA:DVYE), SPDR S&P Emerging Markets Dividend ETF (NYSEARCA:EDIV) and SuperDividend Emerging Markets ETF (NYSEARCA:SDEM), each of which yield in the range of 3−6%.
So, the new fund probably needs to offer investors a sizable current income to garner considerable assets. Investors should also note that there are buyback-based ETFs as well including PowerShares Buyback Achievers (NYSEARCA:PKW) and Wilshire Buyback ETF (NYSEARCA:TTFS), operating almost on the shareholder value maximization strategy. Another fund TrimTabs International Free-Cash-Flow ETF (NYSEARCA:FCFI) also runs on a similar concept.