ETF Knowledge

 

ETF Knowledge

The Liquidity Myths on ETFs

Perhaps the most common ETF misconception is that low daily trading volumes or small amounts of assets under management (AUM) indicate that an ETF is illiquid. The reality however is that ETFs function fundamentally different than individual stocks or closed-end funds.

Unlike individual stocks or closed-end funds, which usually have a fixed supply of shares in circulation on the secondary market, ETFs are open-ended investment vehicles. This means that ETFs are able to issue or withdraw shares on the secondary market according to investor supply and demand, otherwise known as creations and redemptions. This ability gives ETFs a unique liquidity profile in comparison with stocks and closed-end funds.

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Securities Landing

Securities lending is a long-held practice whereby ETFs make loans of stocks or bonds to seek an incremental increase in returns for fund shareholders. While not without risk, securities lending seeks to benefi t ETF shareholders.

To understand securities lending, let’s start with the basics of understanding how it works. First, a large fi nancial institution asks to borrow a stock or bond from an ETF. In order to borrow the stock or bond, the fi nancial institution will negotiate fi nancial terms with the lending agent of the ETF and provide collateral. The ETF keeps the collateral to secure repayment in case the borrower fails to return the loaned stock or bond. The value of the collateral is required to be at least equal to the market value of the loaned stock or bond and usually even more than the value. The fi nancial institution typically uses the stock or bond to hedge against market risks, facilitate a short sale, or to use as collateral in another transaction.

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To determine if the Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. This and other information can be found in the Fund’s prospectus which may be obtained by calling 855-383-4636 (ETF INFO) or visiting our website at www.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.

Investing involves risk, including potential loss of capital.

: Investments in sovereign and quasi-sovereign debt obligations involve special risks not present in corporate debt obligations. The issuer of the sovereign debt or the authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due, and the Fund may have limited recourse in the event of a default. Investments in commodities are subject to higher volatility than more traditional investments. The fund may invest in derivatives, which are often more volatile than other investments and may magnify the Fund’s gains or losses. The use of leverage by the fund managers may accelerate the velocity of potential losses. The Fund employs a ‘momentum’ style of investing that emphasizes investing in securities that have had higher recent price performance compared to other securities. This style of investing is subject to the risk that these securities may be more volatile than a broad cross section of securities or that the returns on securities that have previously exhibited price momentum are less than returns on other styles of investing or the overall stock market. Investments in smaller companies typically exhibit higher volatility. Diversification may not protect against market loss. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. The risk of investing in securities of ETFs, ETPs and investment companies typically reflect the risk of the types of instruments in which the underlying ETF, ETP or investment company invests. In addition, with such investments the Fund bears its proportionate share of fees and expenses of the underlying entity. As a result, the Fund’s operating expenses may be higher, and performance may be lower.

All Cambria ETFs are actively managed.

On June 1, 2020, SYLD’s and FYLD’s investment objective and investment strategy changed. FYLD and SYLD went from being passively managed to actively managed on that same date.

On July 1, 2020, GVAL’s and EYLD’s investment objective and investment strategy changed. GVAL and EYLD went from being passively managed to actively managed on that same date.