0:03

Welcome to

0:07

the MedFavor Show, where the focus is on helping

0:09

you grow and preserve your wealth. Join us as

0:11

we discuss the craft of investing and uncover

0:14

new and profitable ideas, all to help you

0:16

grow wealthier and wiser better investing

0:18

starts here.

0:20

Met Faber is the cofounder and chief investment officer

0:22

at Cambria Investment Management. All opinions

0:24

expressed by podcast participants are solely their own

0:26

opinions and do not reflect the opinion of Cambria Investment

0:28

Management for its

0:28

affiliates. For more information, visit Cambria

0:31

dot com. Howdy

0:34

podcast listeners. We have a little bit of a

0:36

different show for you today. Over the past decade,

0:38

we've made an effort to educate our clients and

0:40

investors now over a hundred and twenty five thousand

0:43

strong by publishing research and

0:45

commentaries across the blog, academic

0:47

papers, books, speeches, and now on the more modern

0:49

world Twitter, YouTube, and this podcast. However,

0:52

we still get many great questions every day

0:54

about our funds, many of which are broadly similar.

0:56

So we wanted to try and use this platform to help

0:58

educate shareholders as much as possible.

1:01

Sometimes the spoken word provides a little

1:03

more context and narrative than just an academic

1:05

paper or fact sheet. And as always,

1:07

the most important thing in investing is finding an approach

1:09

that works for you. Which may or may not involve

1:11

any of our funds, which is totally fine.

1:13

We just want our shareholders to be as informed

1:15

as possible and what they're invested in.

1:18

So enough intro, please enjoy today's episode

1:20

in our series of fun profiles. Today,

1:24

I'm gonna be talking about one of my oldest in favorite

1:26

approaches to the market, which centers around something

1:28

called shareholder EYLD. As part

1:30

of this discussion, we'll talk about three

1:32

Camry funds, which we've engineered with this

1:35

shareholder EYLD approach as their centerpiece.

1:37

There's a lot to discuss, so let's jump

1:39

right in. So let me start with a

1:41

question. What's your approach to markets today?

1:44

We've just finished one of the worst years ever

1:46

for traditional portfolios of US stocks

1:48

and bonds. US stocks ended the year

1:50

down eighteen point one one percent

1:53

US ten year bonds were also down

1:55

sixteen point nine seven percent leading

1:57

to a traditional sixty-forty portfolio

1:59

being down seventeen point six five

2:02

percent. According to Global Financial Data,

2:04

twenty twenty two ranks as the third

2:06

worst yearly return for the sixty forty

2:08

portfolio in the past a hundred years.

2:11

Ouch. Everyone is all too aware

2:13

of this dreadful year. In fact, we EYLD our Twitter

2:15

followers and ask how many had positive

2:18

performance for their portfolio in twenty twenty

2:20

two and well over eighty percent said they

2:22

were down. So what now? The

2:24

good news for fixed income investors, the bond

2:26

yields have screamed higher. As of

2:28

February third, the ten year US bond

2:31

yields three point five six percent up

2:33

from one point seven eight percent at the start of

2:35

twenty twenty one. So you're looking at some

2:37

higher income, but the bad news, inflation

2:39

is still higher than bonds at six point

2:42

four five percent for the last month.

2:44

Stock valuations have come down and that's

2:46

usually what happens when the index goes down after

2:49

all it's the p and the p e,

2:51

but they're still higher than average. Regular

2:53

podcast listeners and readers on my blog know that one

2:55

of my favorite valuation measures is the

2:57

chiller PE ratio also called the Cape

3:00

ratio, which stands for the

3:02

ten year cyclically adjusted price to earnings

3:04

ratio. I'll put a link in the show notes, but

3:06

if we look at the S and P's current Cape rating at the

3:08

time of this recording on February third,

3:11

you'll see it's right around thirty, making one

3:13

of the higher readings in the past a hundred and fifty

3:15

years. Similar periods of overvaluation

3:17

were during depression, the dot com bubble,

3:19

at the turn of the millennium. Now it's not

3:21

as crazy as five at the end

3:24

of the nineteen nineties or even the and

3:26

forty, but still it's elevated.

3:28

So put historically high inflation rates

3:30

together with historically high valuations

3:33

and investors face a tough question. How

3:35

do you find an investment that offers potential income

3:38

and growth that's not burdened with nosebleed

3:40

valuation? And let's speak

3:42

candidly about the potential trade off

3:44

in an investor's portfolio. On one hand,

3:46

if you invest today, you run the risk of another

3:48

steep drop in the stock market, such as we've

3:50

seen many times before, But if you stay

3:52

on the sidelines, the market continues to grind

3:54

higher, your return is zero. Is

3:56

there an answer? Yes. We believe there's

3:59

an answer. One, I feel is a good one. Income and

4:01

growth through still possible even this market though

4:03

admittedly for some harder to find. They can

4:05

help to stop looking in the market as one unified

4:07

monolith that rises or falls in unison

4:09

and see it for what it is. Thousands of

4:11

individual stocks and businesses that offer

4:13

varying risk reward profiles. And

4:16

it's from this more granular perspective that

4:18

we can begin to look for stocks characterized by

4:20

traits, I believe will align with a powerful market

4:22

approach, shareholder yield. For

4:24

those unfamiliar, Shareholder yield strategies

4:27

intended to help investors get exposure to

4:29

quality value stocks that have returned

4:31

the most cash to shareholders via dividends

4:33

and buybacks relative to the rest of the

4:35

comparable stock universe. So let's

4:37

break this down a bit. Starting with dividend EYLD,

4:40

our shareholder yield ETFs, we have three, which

4:42

I'll discuss in more detail shortly. All

4:44

reported healthy dividend yields over the past

4:46

thirty days, even though our funds don't target

4:48

dividends in isolation, and our show

4:50

notes all to our white papers that will compare the

4:52

dividend yields of our respective shareholder yield

4:54

ETFs with their benchmarks. But dividend yield

4:56

is just the beginning. Remember, we've engineered

4:59

our shareholder yield ETFs to reflect total

5:01

cash distributions to investors from both

5:03

dividends and net buybacks.

5:05

Now when management rewards investors with buybacks,

5:08

we wouldn't clearly see that value transfer

5:10

reflected in the dividend yield. Therefore,

5:12

while our shareholder yield ETFs have higher

5:14

dividend yields currently, We shouldn't necessarily

5:16

expect our funds to be leading this category. But

5:18

from this added perspective, which includes buybacks,

5:21

we suddenly have a far more complete way

5:23

of looking at potential investments. So

5:25

a few quick words about buybacks for any listeners

5:28

who are less familiar with the benefit to investors.

5:30

Without getting into too much detail, Corporate

5:33

share buybacks can be an effective way for managers

5:35

to return profits to shareholders. Similar

5:37

to dividends, yet without triggering the taxable

5:39

event that occurs with dividends, That means

5:41

shareholders receiving value, but it's seller.

5:44

Generally, camouflage in the assets market

5:46

price rather than the obvious dividend payment

5:48

that appears in your brokerage account one day.

5:50

That doesn't mean the value isn't there. It's just

5:52

in a different form. And at the end of the day,

5:54

when you prefer the highest total return possible,

5:57

regardless of the source of that return, And

5:59

for all you Warren Buffett fans may recall his stance

6:01

on buybacks from his nineteen eighty four letter to Berkshire

6:03

Hathaway shareholders, which read, when companies

6:06

without standing businesses and comfortable financial

6:08

positions find their shares selling far below

6:10

intrinsic value in the marketplace. No

6:12

alternative action can benefit shareholders

6:15

as surely as repurchase and

6:17

a quote. The key phrase for buybacks

6:19

here is intrinsic value. If

6:21

you're an overconfident CEO buying back

6:23

overvalued shares, then you're destroying value.

6:26

In such a case, an objection to including

6:28

buybacks would be valid. Buybacks would indeed

6:30

be a detriment to total return. But when

6:32

a wise CEO buys back shares at great

6:35

valuations that are below intrinsic value

6:37

to paraphrase Buffet's quote, no alternative

6:40

action benefits shareholders as surely

6:42

as repurchases. One other key point

6:44

about this, did you notice I said net buybacks

6:46

before? We don't want to include companies

6:48

that are buying back stock while also diluting

6:50

their share count for various reasons. So

6:52

we're sure to look at the end result and remove

6:54

those companies. Now when we combine

6:57

dividend yields with these net buyback

6:59

yields, we get a clear picture of a total return

7:01

to shareholders. Again, I'll point you to our white

7:03

papers on this, which we link to in the show notes,

7:05

so you can read all the details. But now

7:08

early in the podcast, we talked about lofty valuations.

7:11

One of the basic tenets of investing is that all

7:13

things being equal. The less you pay for an investment,

7:15

the better your future returns should be.

7:17

By that logic, the better the value at which

7:20

we can purchase quality assets, the better position

7:22

we should be for the potential of increased returns

7:24

going forward. Due to valuation factors

7:26

we'll discuss today, We believe SYLD

7:29

as well as sister ETFs and our YLD

7:31

suite are poised for strong performance

7:33

going forward. So how do shareholder

7:35

yield ETFs shape up on valuation compared

7:37

to their benchmark categories. Let's answer

7:39

that by looking at FYLD once again.

7:41

In our initial white paper that explored our shareholder

7:44

yield strategy, we compared to

7:46

its respective MorningStar category on

7:48

five valuation metrics. Price to earnings,

7:50

price to book value, price to sales, price to

7:52

cash flow, and price to free cash flow. We're

7:55

incredibly proud to report that as the end of December

7:57

twenty twenty two, shareholder yield,

8:00

offered a lower valuation level than its

8:02

MorningStar category in every single metric.

8:04

For price to earnings ratio, SLD's

8:06

multiple was six point one nine. The

8:08

category was more than double at twelve

8:10

point four one. For price to book, FYLD

8:13

was one point six nine compared to the category

8:15

one point nine eight. For price to sales,

8:18

BYLD's multiple was zero point five

8:20

one, as the category is more than double

8:22

at one point o eight. For price to cash

8:24

flow, SYLD was four point nine seven,

8:26

the category was nine point seven five,

8:28

Then finally, for price took free cash flow,

8:31

BYOD's multiples, eight point one five, and the

8:33

category's reading was twenty six point five

8:35

two. For us, this is a clear illustration

8:37

of the power of a shareholder yield approach in markets,

8:39

larger returns and lower valuations. Bottom

8:42

line, yes, this is a challenging market for income

8:44

investors, it doesn't have to be an impossible

8:46

market. We feel income, growth, and good

8:48

values are still out there. You just have to know

8:50

where to find them. So at this point, you're familiar

8:53

is one of our ETFs that feature the shareholder

8:55

yield approach. That's Cambria shareholder yield

8:57

ETF with the ticker SYLD, which we've referenced

8:59

a lot so far. But as mentioned earlier,

9:01

we have three unique funds offering shareholder

9:03

yield approach. The difference between the funds

9:05

lies in which global markets the FYLD is focused

9:08

on. SYLD focuses

9:10

exclusively on stocks in United States

9:12

for non US developed country markets,

9:15

we offer the Cambria foreign shareholder Yodlee

9:17

TF with assemble FYLD.

9:19

As of the end of December twenty twenty 2FYLD

9:22

offered a lower valuation level than its MorningStar

9:25

category again. For price to

9:27

earnings, the multiple is five FYLD

9:29

in the category seven point five. For

9:31

price to book, FYLD was zero

9:33

point eight eight compared to the category of zero

9:35

point nine one. For price of FYLD

9:38

was zero point five seven, while the category is zero

9:40

point five six. For price to cash flow,

9:42

FYLD is three point five eight, whereas

9:44

the category is five point five. For

9:47

price to free cash flow, FYD is

9:49

five point five and the category nineteen

9:51

point nine nine. As for emerging markets

9:53

around the globe, we offer the Cambria shareholder

9:56

YLDTF with the ticker symbol EYLD.

9:59

As of the end of December, EYLD offered

10:01

a lower valuation level than its MorningStar

10:03

category, again, in every single metric.

10:05

For price to earnings ratio, The multiple

10:08

was five point eight four, whereas the category

10:10

was more than double at twelve point two.

10:12

For price to book, multiple is one

10:14

point zero seven compared to the category one

10:16

point one. Price to sales, EYLD

10:19

was zero point six, whereas the category is one

10:21

point five four. Price to cash flow,

10:23

ULD's multiple was four point four six for

10:25

category eight point eight eight. And for

10:27

price to free cash flow, UILD's multiple

10:30

is eleven dot one eight versus category fifteen

10:32

dot five five. We believe this illustrates

10:34

how shareholder to yield is a powerful market approach

10:37

for investors even across borders. Now

10:39

shifting gears a bit for any listeners

10:41

we're curious about the construction of this type of fund.

10:43

In short, we begin with a broad universe

10:45

of stocks of a suitable market capitalization that

10:48

also passed liquidity and price requirements. Next,

10:50

we select the stocks in the top twenty percent of

10:52

that universe by yields across dividends, net

10:55

buybacks. We apply some valuation

10:57

ensemble across a number of factors Some

10:59

of the ones we discussed previously, we

11:01

reference five of them earlier in this podcast,

11:03

for example. We further strengthen

11:05

universe by isolating shareholder yield stocks

11:07

registering higher debt retirement with

11:10

low financial leverage, those are both quality

11:12

metrics. We also seek to avoid value

11:14

trap by doing a final sort based on momentum

11:17

indicators. It can be an exhausting process,

11:19

but we believe it's worth it as result speak

11:21

for themselves. As we wrap

11:23

up, yes, this is a challenging market, but

11:25

you don't have to sacrifice income or growth

11:27

or reasonable valuation. You just have to know

11:30

where to look to find those traits. We believe

11:32

you can find them in our suite of shareholder yield

11:34

ETFs. For more information, you can visit

11:36

cambriafunds dot com reach out to us

11:38

at 3106835500.

11:42

Thanks and good investing.

11:44

Podcast listeners will post show notes

11:46

to today's conversation at webfavor dot

11:49

com forward slash podcast. If

11:51

you love the show, if you hated to shoot us feedback

11:53

at the mebabershow dot com, we love

11:55

to read the

11:55

reviews. Please. Review us on iTunes

11:58

and subscribe to show anywhere good

12:00

podcasts are found. Thanks for listening

12:02

friends and good

12:02

investing. See

12:08

the links in the show notes for two papers referenced

12:10

earlier. First one, think incoming growth

12:12

don't exist in this market? Think again. Second

12:14

paper, think income and growth don't exist around the

12:16

globe. Think again. Disclosure. To

12:19

determine this fund is an appropriate investment for you,

12:21

carefully consider investment objectives, risk factors,

12:23

charges, and expense before investing. This

12:25

another information can be found in the funds prospectus,

12:27

which may be obtained by calling 8553834636.

12:30

Also known as ETF info or by

12:33

visiting our website at cambriafunds dot com. Read

12:35

the perspectives carefully before investing or sending money.

12:37

The Cambria ETFs distributed by Alps Distributors

12:39

Inc. Twelve ninety Broadway, suite one thousand,

12:41

Denver, Colorado 80203,

12:44

which is not affiliated with Cambria Investment Management

12:46

LP, the investment advisor for the fund. Shares

12:48

are bond sold at market price or closing price, not net

12:50

asset value, NAV, and are not individually

12:52

redeemed from the fund. Market price returns are

12:54

based on the midpoint of bid ask spread four PM

12:56

eastern time when NAV is normally determined and

12:58

do not represent the return you would receive if you

13:00

trade it at any other times. Buying and selling shares

13:02

will result in brokerage commissions. Brokerage commissions

13:04

will reduce returns. A few definitions,

13:07

cyclically adjusted PE ratio,

13:09

shiller cap ratio. The cyclically adjusted

13:11

price to earnings ratio is the price of a security

13:13

of equity index divided by the average inflation

13:15

adjusted earnings over the past ten years, the S

13:17

and P five hundred index, an index of five hundred

13:20

US stocks chosen for market size, liquidity, and

13:22

industry grouping among other factors. The S

13:24

and P five hundred is designed to be leading indicator

13:26

of US equities and is not meant to reflect the risk

13:28

return characteristics of the LargeCap Universe. NASDAQ

13:30

Composite. A broad market index that includes over

13:32

three thousand of the equities listed on the NASDAQ stock

13:34

exchange. Shareholder yield, generally defined

13:36

as an equity securities total yield from combination of

13:39

dividend yield and buyback yield. Dividend,

13:41

a payment from a corporation to a shareholder, buyback,

13:44

the process of a corporation buying back shares of

13:46

its stock, price the earnings ratio

13:48

or PE ratio, the ratio of a

13:50

company's stock price to the company's per share

13:52

earnings. Price to book ratio is the ratio of

13:54

a company's stock price to the company's book value.

13:56

Price to sales ratio is the ratio of a company's

13:58

stock price to the company's revenue. Price to cash

14:00

flow is ratio of company's stock price to company's

14:02

per share cash flow. Price to free cash flow ratio

14:04

is the ratio of a company's stock price to the company's

14:07

per share free cash flow. Enterprise value

14:09

to EBITDA is the ratio of company's enterprise

14:11

value, a measure of company's total value. To

14:13

the company's earnings before interest, taxes, depreciation,

14:15

and amortization, thirty day SEC

14:17

EYLD. A standard yield calculation developed by

14:19

the SEC that's based on the most recent thirty day period.

14:22

ETFs are subject to commission costs each time a

14:24

buy or SYLD is executed. Depending on the

14:26

amount of trading activity, the low cost of ETFs may

14:28

be outweighed by commissions and related trading costs. Diversification

14:31

may not protect you against market loss. There

14:33

is no guarantee that the fund will achieve its investment

14:35

goal. Investing involves risk, including the possible

14:37

loss of principle. The Cambria shareholder yield is

14:39

actively managed. The Cambria foreign shareholder

14:41

yield is actively managed. The Cambria emerging shareholder

14:44

yield is actively managed. On June first two

14:46

thousand and twenty, the Cambria shareholder yield and

14:48

Cambria foreign shareholder yield changed its investment objective

14:50

and investment strategy. The fund also changed

14:52

from being passively managed to actively managed on

14:54

that date. On June first two thousand

14:56

and twenty, the emerging shareholder yield changed its

14:58

investment objective and investment strategy. The

15:00

fund also changed for being passively managed to actively

15:03

managed on that date. There is no guarantee that the fund

15:05

will achieve its investment goal. Investing involves

15:07

risk, including the possible loss of principle. High yielding

15:09

stocks are often speculative high risk investments.

15:11

The underlying holdings of the fund may be levered, which will

15:13

expose the holdings higher volatility and may accelerate the

15:15

impact of any losses. These companies can be

15:17

paying out more than they can support and may reduce their

15:19

dividends or stop paying dividends at any time. Which could

15:21

have a material adverse effect on the stock price of these

15:24

companies and the fund performance. International investing

15:26

may involve risk of capital from unfavorable fluctuations

15:28

in currency values, from differences in generally accepted

15:31

accounting principles or from the economic

15:33

or political instability in other nations. Emerging

15:35

markets involve heightened related to the same factors as

15:37

well as increased volatility and lower trading volume.

15:40

Investing in small companies typically exhibit higher

15:42

volatility. Nearly focused funds typically

15:44

exhibit higher volatility. Twenty twenty Morningstar,

15:46

all rights reserved. The information contained herein,

15:49

one is proprietary to Morningstar, and or its content

15:51

providers. Two, may not be copied or distributed,

15:54

and three. Is not warranted to be accurate, timely,

15:56

or complete. Neither Morningstar nor its content

15:58

providers are responsible for any damages or losses

16:00

arising from any use of this

16:01

information. Past performance is no guarantee of

16:03

future results.