FYLD: Portfolio Of Dividend-Paying Growth And Value Stocks Delivering Results

~ by Snehasish Chaudhuri, MBA (Finance).

Cambria Foreign Shareholder Yield ETF (BATS:FYLD) is an ex-U.S. Mid-cap/Value exchange-traded fund with an AUM (assets under management) of $181 million. The fund has an expense ratio of 0.59 percent. The fund offers quarterly dividends and generates a high yield. In 2022, the year-end yield was more than six percent. Otherwise, during the past five years, the yield ranged between 4 to 6 percent. Annual average total return between 2016 and 2021 was 10.6 percent. The fund aims to invest mostly in undervalued stocks which is reflected by the portfolio’s weighted average P/E of 5.353. FYLD is trading at a marginal premium of 0.79 percent.

I expect Cambria Foreign Shareholder Yield ETF to generate strong returns over the long run. However, over the short run, it might suffer from various economic and geopolitical problems such as monetary tightening, uncertain global growth prospects, increasing unemployment, increasing socio-political disruption, climate risks, downfall in the real estate sector, China’s political and military tensions with Taiwan, etc.

FYLD Invests in Dividend-Paying Growth/Value Stocks of Mid & Large-Caps

Cambria Foreign Shareholder Yield ETF was launched in February 2003 by Cambria Investment Management, L.P. The fund invests in dividend-paying growth and value stocks across diversified sectors in public equity markets of the global ex-US region. The investment seeks income and capital appreciation. FYLD employs quantitative analysis to create its portfolio. FYLD benchmarks its performance against that of MSCI EAFE Index. FYLD invests in quality stocks, not necessarily in amazing companies. Investors seek to invest in amazing companies, forgetting that an amazing company may not mean a great stock, as it may be too expensive. There may be some unexciting company, probably has a stagnant or declining business, but the stock may be priced quite attractively with a potential of earning good returns.

FYLD Employed Dividend Investing Strategy in Order to Create Higher Values

Cambria Foreign Shareholder Yield ETF was launched more than 10 years back, and it has a very high stock turnover ratio of 63 percent. The major purpose of such an actively managed portfolio is creating a better and steady return for its investors. FYLD has not only been consistent with its yield, but also generated wealth through dividend investing. This strategy of buying stocks of companies that make regular cash payouts to shareholders either through dividends or through buy-backs, has a very long history in investing.

Apple Inc. (AAPL) can be a good example for dividend investing. It has a yield between 1 and 1.5 percent. But, it also distributes huge cash through buybacks. With their buybacks, their actual yield becomes pretty high, almost in double-digits. Another example could be Berkshire Hathaway Inc. (BRK.A, BRK.B). This investment management firm has strong free cash flow. When their share prices drop down heavily, they buy back their own shares, or they buy other stocks that are available at deep discounts. Berkshire Hathaway is essentially a shareholder yield company, too, even though they don’t pay any dividends at all, and a lot of dividend investors overlook this.

FYLD’s Portfolio is Boosted by Basic Materials, Energy and Financial Stocks

Cambria Foreign Shareholder Yield ETF invests 80 percent of its assets in eight countries – Japan, Canada, the United Kingdom, France, China, Australia, Germany and Italy. All these are G20 nations with extremely high (at least A+) sovereign bond ratings. So, FLYD’s portfolio has a significantly lower level of risk. Also, more than 78 percent of its assets are invested in stocks from core economic sectors such as financial, industrial, materials and energy sectors.

Major investments of Cambria Foreign Shareholder Yield ETF included some of the largest energy and basic material producers and suppliers such as ArcelorMittal S.A. (OTCPK:AMSYF), Mitsui & Co Ltd (OTCPK:MITSF), Imperial Oil Limited (IMO), SSAB AB (OTCPK:SSAAF), BP p.l.c. (BP), Stelco Holdings Inc. (OTCPK:STZHF), Rio Tinto Group (RIO), Fortescue Metals Group Limited (OTCQX:FSUMF), TotalEnergies SE (TTE) and MEG Energy Corp. (OTCPK:MEGEF). During the past six months, the majority of these stocks (except AMSYF, IMO and MEGEF) recorded double-digit price growth. This is very much expected since these companies are profiting from the ongoing military conflict between Russia and Ukraine.

FYLD’s Major Investments in Financial and Industrial Sectors Performed Well

Cambria Foreign Shareholder Yield ETF also made significant investments in the industrial sector. The list included Cargo Ground Transporter Mullen Group Ltd (OTCPK:MLLGF), chemicals and plastics manufacturer Inabata & Co Ltd; UK based global infrastructure firm Balfour Beatty plc (OTCPK:BAFBF), semiconductor manufacturer Hakuto Co Ltd, Marine Transporter Nippon Yusen Kabushiki Kaisha (OTCPK:NPNYY) and Dampskibsselskabet Norden A/S (OTCPK:DPBSF); automotive parts manufacturer Press Kogyo Co Ltd.; manufacturer and seller of watches – Citizen Watch Co Ltd (OTCPK:CHCLY); manufacturer of rubber and plastics, including transmission belts – Mitsuboshi Belting Ltd (OTCPK:MBGFF); and manufacturer of information and communications related materials – Nitto Kogyo Corporation.

FYLD’s major investments in the financial sector included French insurers – SCOR SE (OTCPK:SZCRF), Coface S.A. (OTCPK:CFACY) and AXA SA (OTCQX:AXAHF); UK based asset manager and custody banker – abrdn PLC (OTCPK:SLFPF); Japanese leasing and banking services firm – Iyogin Holdings Inc; and Canadian commercial and residential mortgage financier – Home Capital Group Inc. (OTCPK:HMCBF). All these stocks delivered double-digit price growth during the past six months. HMCBF grew by 77 percent, while other stocks registered a price growth between 10 and 40 percent. FYLD also was able to register a price growth of 15.4 percent during the same period, while its total return stood at 17.36 percent. The fund also outperformed the S&P 500 (SP500), which registered a total return of 10.93 percent.

Investment Thesis

Cambria Foreign Shareholder Yield ETF generated strong yield, and a good average annual total return over the long run. The fund also outperformed the returns of S&P 500 over the past six months. During this period most of its top investments in the industrial, financial, energy and materials sectors generated double-digit price growth. Interestingly, FYLD invested more than 78 percent of its assets in those four sectors. The fund also invests 80 percent of its assets in eight among the G20 countries, those having extremely high sovereign bond ratings. It is trading almost at par with its NAV of $24.84.

Cambria Foreign Shareholder Yield ETF practices dividend investing. Its portfolio of dividend-paying growth/value stocks are delivering Strong results. The fund aims to invest mostly in undervalued stocks, preferably with low P/E. FYLD has performed well over the long run and is also expected to carry out similar performances. FYLD’s strong growth potential in the long run is beyond any suspicion. However, in the short run, Cambria Foreign Shareholder Yield ETF may suffer from a range of factors such as high inflation, geopolitical crisis, covid-19 pandemic restrictions in a few countries, military conflict, etc. Despite that, Cambria Foreign Shareholder Yield ETF seems to be a great investment option for both income-seeking and growth-seeking investors.