What is EYLD? (Pros, Cons, and Strategies)

Navigating the landscape of emerging markets can be a daunting task for investors seeking growth beyond the U.S. borders. One viable vehicle for such exploration is the Cambria Emerging Shareholder Yield ETF, commonly known as EYLD. This ETF claims a unique niche by focusing on companies in emerging markets that exhibit strong shareholder yield characteristics. In this blog post, we'll dive deep into EYLD, unpack its benefits and drawbacks, and explore strategic ways to utilize this ETF in your investment portfolio.

What is EYLD?

EYLD stands for Cambria Emerging Shareholder Yield ETF. Managed by Cambria Investment Management, EYLD focuses on investing in emerging market companies that demonstrate high shareholder yield, which typically includes dividends and share buybacks.

Key Features of EYLD

• High Shareholder Yield: EYLD targets companies with strong shareholder yields, which are a combination of dividends, share buybacks, and debt reduction.
• Quantitative Selection Model: Unlike traditional dividend ETFs, EYLD employs a quantitative model to filter stocks for inclusion.
• Diversified Exposure: The ETF offers exposure to a broad array of sectors across multiple emerging market countries.

EYLD Composition

EYLD's portfolio is crafted by using a quantitative model that ranks firms based on various shareholder yield measures, such as dividend payments, share buybacks, and debt repayment levels. The ETF rebalances quarterly and typically holds around 100 stocks. The geographical distribution spans key emerging markets such as China, Brazil, South Africa, and India.

Pros of EYLD

High Potential for Growth

Emerging markets are known for their high growth potential. Companies in these markets typically benefit from expanding economies, rising consumer bases, and increasing governmental infrastructure investments.

Diversified Return Sources

By investing in EYLD, you benefit from not only dividend income but also share repurchases and debt reductions. This multi-faceted approach to shareholder return offers a better chance to capture value compared to ETFs solely focusing on dividends.

Cost-Effective

EYLD is relatively cost-effective with a moderate expense ratio of around 0.59%, which is competitive given its unique methodology and focus on emerging markets.

Automatic Rebalancing

EYLD rebalances its holdings quarterly. This frequent adjustment ensures that the ETF remains aligned with its investment strategy, removing underperforming assets and incorporating new opportunities as they arise.

Cons of EYLD

Higher Risk

Investing in emerging markets comes with higher risks, including political instability, currency fluctuations, and lesser regulatory frameworks. These risks can significantly impact the performance of the ETF.

Limited History

Being a relatively new ETF, EYLD doesn't have a long track record. It can be challenging to predict future performance based on limited historical data.

Lower Dividend Yield

While EYLD focuses on overall shareholder yield, the actual dividend yield might be lower compared to dedicated high-dividend yield ETFs. Investors seeking immediate income might find EYLD less attractive.

EYLD Investment Strategies

Investing in EYLD requires a well-thought-out strategy to maximize returns while managing risks effectively. Here are some strategies tailored for EYLD:

Long-Term Growth

Given the high growth potential of emerging markets, EYLD is suitable for long-term investment horizons. Holding this ETF over an extended period allows investors to benefit from compounding and the growth trajectories of emerging market economies.

Diversification Tool

EYLD can be an excellent diversification tool within a broader investment portfolio. By adding emerging market exposure that focuses on shareholder returns, investors can mitigate risks associated with over-concentration in developed markets.

Periodic Rebalancing

To optimize your EYLD investments, regular portfolio review and rebalancing are essential. This ensures that your exposure remains in line with your risk tolerance and investment objectives.

Dividend Reinvestment

To leverage the power of compounding, consider reinvesting dividends and other shareholder returns. Over time, this can significantly enhance your portfolio’s value and generate robust long-term returns.

Conclusion

EYLD offers a unique proposition for investors looking to capitalize on the growth prospects of emerging markets while benefiting from various forms of shareholder yield. While the ETF brings several advantages, including diversification and high growth potential, it also comes with higher risks and a limited performance history. By incorporating EYLD into a long-term, well-diversified investment strategy, you can potentially unlock substantial growth and enhance your portfolio's resilience.

Always remember to carefully evaluate your investment horizon, risk tolerance, and financial goals before diving into emerging market ETFs like EYLD.