SYLD Investment Case
Free cash flow has long been emphasized by investors as a key predictor of a company’s strength. Companies that pay cash dividends, one indication of strong free cash flow, have historically outperformed the broader market. Focusing strictly on dividend payments, however, misses two key indicators of strong free cash flow: net share repurchases and net debt paydown. The manager believes that a focus on all three factors — dividend payments, net share repurchases and net debt paydown, a trio collectively known as shareholder yield — produces a portfolio of companies that offer strong free cash flow characteristics.
The Cambria Shareholder Yield ETF is an actively managed fund that employs the manager’s quantitative algorithm to select U.S. listed companies that show strong characteristics in returning free cash flow to their shareholders. Specifically, SYLD invests in 100 stocks with market caps greater than $200 million that rank among the highest in (a) paying cash dividends, (b) engaging in net share repurchases, and (c) paying down debt on their balance sheets.
Why Invest in SYLD
- A Focus on Dividends Alone Misses the Broader Picture - Rather than just focusing on dividend payments alone, SYLD invests in U.S. listed stocks that couple strong dividend payments with share repurchases and debt paydown. The manager believes that selecting companies that show strength in all three dimensions is a superior methodology for identifying stocks that possess strong cash flows and that have the potential to reward shareholders with higher yields.
- Share Repurchases have Outpaced Dividends - According to data compiled by Robert Shiller, in his book Irrational Exuberance (2009), over the past 70 years, companies have continued to pay a lower and lower percentage of their earnings in cash dividends. Due to tax treatment and regulatory changes in the 1980s, U.S. companies have shifted their payout mix to include more share buybacks, and according to research conducted by Jeremy Schwartz, in his February 2012 "Investment Insights" paper, seven out of the ten S&P 500 sectors in 2011 offered a higher yield resulting from share repurchases than resulting from cash dividend payments.
- Classic Value Investment Approach - A long-held pillar of investment success provides that investors should buy the stocks of companies that exhibit strong free cash flows and return that cash to investors in the form of dividend yield. The SYLD portfolio has the potential benefit of investing in classic value companies that are also buying back their stock and reducing their debt.
- Diversification - The fund offers a broad portfolio of US companies of different sizes, industries and sectors, providing investors with a diversified equity portfolio. The manager employs maximum sector percentage caps to ensure that the portfolio is not concentrated in any one sector.
- Pioneering Product - SYLD is the first ETF to focus on the three factors we define as constituting shareholder yield -- dividend payments, share buybacks, and debt paydown. The prospectus covering SYLD also lists future shareholder yield ETFs focusing on foreign developed countries (Cambria Foreign Shareholder Yield ETF: FYLD) and emerging markets (Cambria Emerging Shareholder Yield ETF: EYLD).
- Advantage of Active ETFs - Investors will receive the benefits and flexibility of the ETF vehicle, including the ability to be traded using limit and stop loss orders as well as on margin, intraday pricing, transparency of holdings, lower expense ratio, and a single-share investment minimum, all underlying Cambria's actively managed, risk-managed portfolio design.
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. Check the background of ALPS on FINRA's BrokerCheck.
The Cambria Sovereign Bond ETF was formerly known as The Cambria Sovereign High Yield Bond ETF.
SOVB, GMOM, TAIL, TRTY, TOKE, GAA and VAMO are actively managed using proprietary investment strategies and processes. There can be no guarantee that these strategies and processes will produce the intended results and no guarantee that the Fund will achieve its investment objective. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
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. Shares are bought and sold at market price (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.
There is no guarantee that the Fund will achieve its investment goal. Investing involves risk, including the possible loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from social, 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. Bonds and bond funds are subject to interest rate risk and will decline in value as interest rates rise.
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.
Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Buying and selling shares will result in brokerage commissions. Brokerage commissions will reduce returns.
There are special risks associated with margin investing. As with stocks, you may be called upon to deposit additional cash or securities if your account equity declines.