The Cambria Foreign Shareholder Yield ETF (BATS:FYLD) is an appealing ETF investing in developed international markets, yielding 6%. I’m bullish on this $250 million fund from Cambria because of its attractive dividend yield, diversified portfolio, and inexpensive holdings.
What Is the FYLD ETF’s Strategy?
We recently wrote about the Cambria Shareholder Yield ETF (BATS:SYLD), which has posted an impressive performance in recent years and focuses on shareholder yield. FYLD is similarly focused on shareholder yield but invests in international, developed market equities instead of in U.S. equities like SYLD.
According to Cambria, FYLD “focuses on high-cash distribution companies internationally that are returning their cash to investors through three attributes – dividends, buybacks, and debt paydown – collectively known as shareholder yield.”
Shareholder yield is calculated by adding these three attributes (dividends, net share repurchases, and net debt reduction) and dividing them by a company’s market capitalization.
Investing in international stocks with high shareholder yields creates a portfolio with a valuation that is significantly lower than that of FYLD’s benchmark, the MSCI EAFE Index, which “represent(s) the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.”
As of the end of the most recent quarter, the price-to-earnings ratio for FYLD’s portfolio was just a paltry 7.6, versus a considerably higher price-to-earnings ratio of 13.8 for the MSCI EAFE Index as a whole. Investors should note that both of these valuations are cheaper than U.S. stocks. For instance, the S&P 500 (SPX) currently has a price-to-earnings multiple of 22.4.
FYLD’s holdings also trade at a slight discount to book value, whereas the MSCI EAFE Index trades for an average price-to-book ratio of 1.7.
Additionally, Cambria says another advantage of the fund is that focusing on stocks with favorable shareholder yields, as opposed to simply investing in stocks with high dividend yields, “may provide more attractive growth characteristics” and healthier balance sheets.
Investment Process
To arrive at this portfolio of international stocks with inexpensive valuations and high shareholder yields, FYLD uses a fairly exhaustive investment process.
The fund’s portfolio management team begins by looking through a universe of all foreign-developed market stocks with market caps of over $200 million. They then select the top 20% of these stocks with the highest shareholder yields and also evaluate these stocks based on traditional valuation metrics like price-to-earnings, price-to-book, and price-to-sales. They exclude certain stocks based on quality or leverage concerns.
Next, the portfolio management team selects the top 100 stocks from this list with the most attractive combination of shareholder yield and valuation.
This screening process begins again each quarter, and the fund is rebalanced on a quarterly basis.
FYLD’s Holdings
What type of portfolio does this investment process create for FYLD? The well-diversified fund owns 101 stocks, and its top 10 holdings comprise just a minuscule 15.0% of assets.
Below, you’ll find an overview of FYLD’s top 10 holdings created using TipRanks’ holdings tool.
The fund invests in all types of international stocks, with a noticeable bias toward sectors that typically feature cheaper valuations, including energy, basic materials, and financials.
U.S. investors will likely be familiar with some of the fund’s energy positions, such as its top holding, Canada’s Imperial Oil (NYSE:IMO), plus energy supermajors like the UK’s BP (NYSE:BP) and France’s TotalEnergies (NYSE:TTE), although TTE is not a top 10 holding. Miners are also well-represented through the likes of the Rio Tinto (NYSE:RIO) and Glencore (OTC:GLCNF).
As of the end of the most recent quarter, FYLD’s largest exposure was to financials, with a weighting of 23.9%, followed by energy (20.9%), industrials (18.0%), and materials (16.9%).
FYLD is also diversified across geographies, with Japan accounting for the fund’s largest exposure with a weighting of 22.7%. Some other markets it’s invested in include Canada (14.0%), the U.K. (11.2%), France (9.0%), Australia (7.2%), and Hong Kong (7.0%).
Significant Dividend Yield
FYLD stands out for its 6% dividend yield. This yield is more than four times higher than that of the S&P 500, which currently yields just 1.4%. It is also higher than that of popular international dividend ETFs like the Vanguard International High Dividend Yield ETF (NASDAQ:VYMI) and the Schwab International Dividend Equity ETF (NYSEARCA:SCHY), which yield 4.6% and
Read More: Seeking International Stocks and High Yield? Check Out This ETF