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

Looking for a diversified investment option that spans the globe? The Cambria Global Value ETF, or GVAL, might be just what you need. This ETF aims to offer exposure to equity markets worldwide, focusing on undervalued stocks. Today, we'll delve into what GVAL is, its benefits and drawbacks, and various strategies for investors.

What is GVAL?

GVAL stands for the Cambria Global Value ETF. It seeks to provide long-term capital appreciation by investing in a diversified portfolio across various global equity markets. Unlike many other global ETFs that track broader indexes, GVAL uses value investing principles to identify undervalued stocks.

Key Features of GVAL

• Global Exposure: The fund invests in developed and emerging markets, offering comprehensive global exposure.
• Value Investing Focus: GVAL focuses on finding undervalued stocks relative to their historical valuations.
• Quantitative Methodology: The ETF employs a quantitative approach to screen for stocks with low valuations across multiple financial metrics.

GVAL aims to identify countries that offer good value compared to their historical averages, target the least expensive stocks within those regions, and commit to a disciplined rebalancing strategy.

GVAL Composition

GVAL is composed of over 100 stocks from several countries, focusing particularly on those with smaller market capitalizations. The regions and countries represented often include the United Kingdom, Japan, and various emerging economies. The portfolio is constructed to tilt towards sectors that are undervalued.

Pros of GVAL

Broad Global Diversification

GVAL offers exposure to multiple countries and sectors, spreading the risk across various global markets. This provides investors with a more balanced portfolio, potentially reducing the impact of country-specific economic downturns.

Value Investing Philosophy

GVAL's strategy of targeting undervalued stocks can potentially offer higher returns, as these investments often outperform the market over the long term. The focus on undervalued securities provides an opportunity for capital appreciation as the market recognizes their true value.

Quantitative Approach

The ETF uses a rigorous, quantitative methodology to select investments, aiming to reduce biases and improve the accuracy of stock selection. This approach can result in more disciplined and consistent investment decisions compared to subjective human judgments.

Cons of GVAL

High Volatility

Due to its focus on undervalued stocks and smaller companies, GVAL can experience higher volatility compared to broader market ETFs. This makes it potentially unsuitable for risk-averse investors.

Higher Expense Ratio

GVAL's expense ratio is relatively higher compared to some other broad market ETFs. The higher fee can eat into net returns, especially over long-term investments.

Limited Exposure to Mega-Cap Stocks

GVAL tends to have limited exposure to large, mega-cap stocks that often provide stability to a portfolio. The focus on smaller, undervalued stocks can introduce greater risk and less predictability.

GVAL Investment Strategies

GVAL is ideal for investors who are looking for a diversified, long-term investment strategy that leverages value investing principles. Here are some ways to incorporate GVAL into your investment portfolio:

Long-term Investment Strategy

Given its focus on undervalued stocks and smaller companies, GVAL is best suited for long-term investments. Over longer periods, undervaluation tends to correct itself, offering potential for significant capital appreciation.

Diversification Play

GVAL can be an effective way to add global diversification to your portfolio. If your current investments are predominantly U.S.-centric, adding GVAL can provide exposure to international markets and help balance your overall risk.

Complementary Strategy

GVAL can complement other funds in your portfolio, such as those focused on growth or income. By adding an element of value strategy, you can create a more balanced portfolio that stands to benefit from different market cycles.

Rebalancing Strategy

Regularly rebalancing your portfolio by topping up or trimming your GVAL holdings can help manage risk and maintain an optimal asset allocation. This disciplined approach can enhance long-term returns by systematically taking profits and reinvesting them in undervalued areas.

Conclusion

GVAL offers a unique opportunity for investors looking to diversify globally while employing a value investing strategy. While it comes with its share of risks, the potential rewards make it an attractive option for long-term, disciplined investors. By understanding its pros and cons, and employing appropriate strategies, you can make the most of what GVAL has to offer and potentially enhance your investment returns.