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This ETF Has Yield and Superior Returns in Sight

Thu, 3 Apr 2014

Investors looking for a portfolio of companies committed to returning cash to shareholders should consider this actively managed fund.


Video Transcript

The Morningstar Minute is our quick take on investments, the market, economic indicators, and more. Join us every day for fresh insights from our analyst team.

Ben Johnson: While PowerShares Buyback Achievers and Cambria Shareholder Yield ETF are very similar in terms of their overarching ethos--they are both generally looking to provide exposure to stocks whose management teams are actively returning cash to shareholders--their execution and the end result of their distinct processes are fundamentally distinct.

Now, while PKW tracks an index, SYLD is actively managed by comanagers Meb Faber and Eric Richardson. Meb and Eric set out to go fishing in a pond of about 3,000 U.S. stocks. That first cut that they make is done primarily on the basis of market capitalization. They are looking at stocks with only market capitalizations of greater than $200 million, and they apply a liquidity screen, as well.

The portfolio funnels down from there. They look to make additional cuts on the basis of total yield, which they define as a combination of both dividend yield and share-buyback yield in excess of 4%.

When all is said and done, SYLD will hold a portfolio of about 100 U.S. stocks. And when you look at the end product, where this portfolio plots on the Morningstar Style Box, it tends to fall in the mid-cap value section of the style box, whereas PKW tends to plot somewhat higher and to the right toward the large-cap blend section of the U.S.-equity universe.

That smaller and more value-type bias within the portfolio could potentially yield superior returns over a long time horizon. It is also important to note that SYLD's all-in fee of 59 basis points is a full 12 basis points lower than that levied by PKW.

All-in, we think that SYLD is an interesting option for people looking for a portfolio of companies that are committed to returning cash to shareholders.

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