2023-11-27 16:55:25 ET
Summary
- Cambria Shareholder Yield ETF is an actively managed fund that focuses on shareholder yield and value metrics.
- The SYLD fund's portfolio consists of 100 stocks, with a significant allocation to energy, materials, and financials sectors.
- SYLD has outperformed value ETFs in both small and large caps over the past 10 years and in 2023, making it attractive for value investors.
SYLD strategy
Cambria Shareholder Yield ETF ( SYLD ) is an actively managed exchange-traded fund, or ETF, launched on 5/14/2013. It has a portfolio of 100 stocks, a trailing 12-month distribution yield of 2.50% and a total expense ratio of 0.59%. Dividends are paid quarterly.
As described in the prospectus by Cambria , the fund invests in U.S.-based publicly listed companies that provide high “shareholder yield,” defined as the returns realized by an investor from a company’s cash payments for dividends, buybacks and debt paydowns. The fund’s portfolio is managed by Meb Faber , co-founder of Cambria Investment Management and well-known in the investing world as an author of white papers and books. Among them, Shareholder Yield, A Better Approach to Dividend Investing , details fundamental and historical data on the shareholder yield concept.
The fund is actively managed, but not in a discretionary way: it follows a systematic, quantitative model, as described below.
Cambria selects the top 20% of stocks in the initial universe of U.S.-based, publicly listed companies based on their shareholder yield, as measured by dividend payments and net share buybacks. (...) Cambria’s quantitative algorithm then factors in the remaining stocks’ debt paydowns and applies a number of value metrics to create a composite, including metrics such as, but not limited to, price-to-book (P/B) ratio, price-to-sales (P/S) ratio, price-to-earnings (P/E) ratio, price-to-free cash-flow (P/FCF or P/CF) ratio, and enterprise multiple (EV/EBITDA). Cambria then selects the top 100 stocks for inclusion in the Fund’s portfolio that exhibit, in the aggregate, the best combination of shareholder yield characteristics and value metrics.
Therefore, SYLD also belongs to the value ETF category. The fund intends to follow an equal-weight methodology, nevertheless weights may vary with market conditions and opportunities. The portfolio turnover rate was 41% in the most recent fiscal year.
I ran a simulation on the Portfolio123 platform to evaluate the performance of a ranking system based on shareholder yield. I have used the following formula to define the shareholder yield factor:
(Dividend paid TTM + Equity Purchased TTM - Equity Issued TTM + Total Debt - Total Debt 12 months ago)/Market Capitalization
The simulation is run in the S&P 500 Index (SP500), by ranking stocks in 10 buckets from lower to higher shareholder yields. The next chart plots the annualized return of the 10 buckets, starting in January 1999 with an annual rebalancing in equal weight. The red bar on the left represents the performance of the equal-weight S&P 500 index, used as a benchmark.
This simulation shows an excess annualized return over 2.5% for the top decile (on the right) relative to the benchmark (on the left). It is significant enough to validate on 25 years of historical data the concept of shareholder yield as a valuable investing factor. However, like for all factors, the statistical bias vary with time. For the last 5 years, the excess return is below 1% for the same bucket (next chart).
SYLD portfolio
SYLD currently has about 51% of asset value in small cap companies, 34% in mid caps, and 15% in large caps. As the fund extends to all size segments, I will use the wide index Russell 3000 ( IWV ) as a benchmark.
The fund is much cheaper than IWV regarding valuation ratios, as reported in the next table.
SYLD | IWV | |
Price/Earnings | 7.6 | 19.57 |
Price/Book | 1.53 | 3.34 |
Price/Sales | 0.59 | 2.13 |
Price/Cash Flow | 4.83 | 13.87 |
Energy is the heaviest sector with 24.3% of assets. Then, come materials, financials and consumer discretionary, between 16% and 20% each. Other sectors weigh no more than 8% individually and 21% in aggregate. SYLD totally ignores real estate and utilities, and almost consumer staples. Compared to IWV, it massively overweights energy and materials, and it underweights mostly technology, healthcare and communication.
The current top 10 holdings, representing 16.1% of asset value, are listed below with fundamental ratios. The largest holding weighs 1.84%, so risks related to individual stocks are low.
Ticker | Name | Weight | EPS growth %TTM | P/E TTM | P/E fwd | Yield% |
Toll Brothers, Inc. | 1.84% | 64.56 | 6.14 | 7.15 | 0.98 | |
Alpha Metallurgical Resources, Inc. | 1.82% | -37.10 | 5.55 | 6.28 | 0.73 | |
PulteGroup, Inc. | 1.78% | 24.87 | 7.16 | 7.59 | 0.91 | |
CONSOL Energy, Inc. | 1.75% | 80.74 | 5.22 | 5.31 | 4.22 | |
Dillard's, Inc. | 1.67% | -8.65 | 7.54 | 8.76 | 6.02 | |
Reliance Steel & Aluminum Co. | 1.52% | -22.20 | 11.27 | 12.32 | 1.49 | |
CVR Energy, Inc. | 1.48% | 133.72 | 4.06 | 5.42 | 14.09 | |
Penske Automotive Group, Inc. | 1.45% | -7.91 | 9.16 | 9.36 | 2.05 | |
AutoNation, Inc. | 1.40% | -4.49 | 5.79 | 5.91 | 0 | |
Louisiana-Pacific Corp. | 1.40% | -89.01 | 39.87 | 20.64 | 1.56 |
Historical performance
Since 6/1/2013, SYLD has lagged IWV by about 7% in total return (see next table). The difference in annualized return is insignificant (23 bps), but it shows a significantly higher risk in drawdown and volatility, and consequently a lower risk-adjusted performance (Sharpe ratio).
Total Return | Annual.Return | Drawdown | Sharpe ratio | Volatility | |
SYLD | 209.97% | 11.40% | -45.36% | 0.54 | 21.30% |
IWV | 216.83% | 11.63% | -35.22% | 0.69 | 15.30% |
In previous articles, I have shown how three factors may help cut the risk in a dividend portfolio: Return on Assets , Piotroski F-score , and Altman Z-score .
The next table compares SYLD since 6/1/2013 with a subset of the S&P 500: stocks with above-average dividend yield and ROA, good Altman Z-score and Piotroski F-score, and a sustainable payout ratio. It is rebalanced annually to make it comparable with a passive index.
Total Return | Annual.Return | Drawdown | Sharpe ratio | Volatility | |
SYLD | 209.97% | 11.40% | -45.36% | 0.54 | 21.30% |
Dividend quality subset | 200.58% | 11.07% | -37.60% | 0.66 | 15.86% |
Past performance is not a guarantee of future returns. Data Source: Portfolio123.
SYLD has outperformed this dividend quality benchmark by a thin margin, which is a good point. However, it lags regarding Sharpe ratio due to high volatility. My core portfolio holds 14 stocks selected in this subset (more info at the end of this post).
The annual sum of distributions is almost unchanged from 2014 ($1.36 per share) to 2022 ($1.30). Moreover, distributions have been quite irregular, as reported on the chart below. SYLD is definitely not suitable for dividend growth investors (and it is not its objective).
Shareholder yield vs. Value style
By its quantitative model description and its valuation ratios, SYLD is more in the value style than in the dividend style. Small caps are heavier in the portfolio now, but the prospectus reports a tilt to large companies; the size segmentation may change over time. Therefore, I will compare its 10-year return to value ETFs in both large and small companies:
SYLD has beaten both value funds by a wide margin, most of the outperformance occurring in Q3 2020 and Q1 2021. It is also ahead in 2023 to date:
Quality
I have scanned holdings with my preferred quality metrics, considering that risky stocks are companies with at least 2 red flags among: bad Piotroski score, negative ROA, unsustainable payout ratio, bad or dubious Altman Z-score, excluding financials and real estate where these metrics are less relevant. With these assumptions, 13 holdings are risky and they weigh 11.1% of asset value, which is acceptable.
Based on my calculation of aggregate metrics reported in the next table, Cambria Shareholder Yield ETF is superior to the Russell 3000 index regarding portfolio quality. The return on assets is particularly good.
SYLD | IWV | |
Altman Z-score | 3.3 | 3.07 |
Piotroski F-score | 5.61 | 5.1 |
ROA % TTM | 9.43 | 3.79 |
Takeaway
Cambria Shareholder Yield ETF ( SYLD ) is an actively managed ETF with a quantitative model combining shareholder yield and value. Its top sectors are energy, materials and financials. Compared to the wide index Russell 3000, SYLD is attractive regarding both value and quality metrics. Historical return since inception is average, in a period where the value investing style has widely underperformed. SYLD has outperformed value ETFs in small and large caps for 10 years and in 2023, which, combined with value and quality characteristics, makes it quite attractive for value investors. However, keep in mind price may be volatile.
For further details see:
SYLD: Attractive Valuation And Quality