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

With the rising interest in global equities and diversified income strategies, the FYLD (Cambria Foreign Shareholder Yield ETF) has become a compelling option for investors looking to maximize yields outside the U.S. In this blog post, we will explore what FYLD is, its key features, pros and cons, and some effective investment strategies.

What is FYLD?

FYLD stands for Cambria Foreign Shareholder Yield ETF, an exchange-traded fund that targets companies outside the United States known for high shareholder yields, including dividends and buybacks.

The ETF is designed to track the Cambria Foreign Shareholder Yield Index, which provides exposure to a diversified portfolio of companies with strong shareholder yield characteristics.

Key Features of FYLD

• Targeting Shareholder Yield: Prioritizes companies that consistently return wealth to shareholders via dividends, buybacks, and debt paydowns.
• Global Exposure: Focused on international equities, providing exposure to both developed and emerging markets.
• Quantitative Screening: Utilizes a proprietary algorithm to screen companies based on valuation, yield, and financial strength.

The selection process focuses on companies that not only pay dividends but also have robust financial metrics and attractive valuations, aiming to deliver an optimal blend of income and capital appreciation.

FYLD Composition

FYLD includes a wide array of global companies from diverse sectors such as finance, industrials, and consumer goods, excluding U.S.-based firms. It invests in companies with higher shareholder yields, ensuring a diverse international portfolio.

Pros of FYLD

Diversification

FYLD provides an excellent way to gain exposure to international markets. Portfolio diversification across different countries and sectors can potentially reduce the risks associated with domestic-centric investments.

Attractive Yield

With an emphasis on shareholder yield, FYLD offers a higher yield compared to traditional dividend ETFs, thanks to its inclusion of dividends, share buybacks, and debt repayments. Investors aiming for higher returns will find FYLD's yield attractive.

Lower Volatility

Investing in well-established companies across various global markets can often lead to lower volatility, as market movements in one country can offset those in another. FYLD's diversified approach can provide more stable returns over time.

Competitive Expense Ratio

FYLD offers a competitive expense ratio, making it affordable for long-term investors looking for international diversification with an attractive yield.

Cons of FYLD

Currency Risk

Since FYLD focuses on non-U.S. equities, investors are exposed to currency fluctuation risks, which can impact the returns when converting foreign earnings back to the U.S. dollar.

Geopolitical Risks

Investing globally comes with geopolitical risks. Changes in foreign policies, trade relations, and regional conflicts can significantly affect the performance of international stocks within the ETF.

Market Specific Risks

Each international market has its own risks, including economic instability, regulatory changes, and different market dynamics. These region-specific risks could impact FYLD's performance.

FYLD Investment Strategies

FYLD's structure and aim to deliver high shareholder yield make it suitable for various investment strategies. Here are a couple of strategies to optimize the benefits of FYLD:

Long-Term Investment Strategy

FYLD is suitable for investors looking to hold onto their investments for at least 5-10 years. The long-term potential of high shareholder yield and continuous reinvestment can result in significant compound growth over time.

Creating a Balanced Portfolio

Investors can use FYLD to balance their portfolios by adding international exposure. Complementing domestic ETFs with international holdings can spread risk and improve overall return potential. For example, combining FYLD with a U.S.-focused ETF can create a more diversified and less volatile portfolio.

Income Generation

FYLD is ideal for income-focused investors who look beyond mere dividends. By targeting overall shareholder return (dividends, buybacks, debt paydowns), investors can achieve a higher and more reliable income stream.

Reinvesting Dividends for Compound Growth

Consistently reinvesting dividends from FYLD can amplify returns through the power of compounding. By automatically reinvesting the earnings, investors can accumulate more shares over time, leading to exponential growth.

Final Thoughts

FYLD stands out as a significant option for investors aiming to diversify globally while benefiting from high shareholder yields. Its blend of income and international diversification, coupled with a competitive expense ratio, makes it a valuable addition to a long-term portfolio. However, investors should be mindful of currency risk, geopolitical tensions, and market-specific challenges. By carefully considering these factors and utilizing the strategies outlined above, FYLD can be a robust tool to achieve financial goals.

Disclaimer: This post is for informational purposes only and should not be considered financial advice. Always consult with a financial advisor before making investment decisions.