Log In

Enter your username and password below

New ETF Brings You the Cheapest Stock Markets in the World

One of the big revelations for financial market strategists and pundits in 2014 has been the outperformance of value stocks.

This really shouldn’t be a surprise, though, as value tends to outperform growth over the long term.

For example, the Russell 1000 Value Index has returned an annualized 9.7% over the past decade, compared to the Russell 1000 Growth Index’s 8.4% annual total return.

But the rotation into value isn’t the only development we should be watching – foreign stocks have started to outperform the U.S. market, too.

In the short span of time since my test last month, the SPDR S&P 500 ETF Trust (SPY) has declined 2.8%, while the Vanguard FTSE All-World ex-US ETF (VEU) is only down 0.8%.

So when you consider that value stocks outperform over the long term…

And when you also consider that foreign stocks look like they’ve started to shine after generally underperforming their U.S. counterparts for the last few years…

Then isn’t global value the place to be?

If so, how would we even go about selecting and investing in global value stocks?

Global + Value = Opportunity

As it turns out, an exciting new offering – the Cambria Global Value ETF (GVAL) – can help us in our quest for value.

This exchange-traded fund was just launched in March 2014, and its methodology is based on the work done by Benjamin Graham and David Dodd. These men authored the investment classic Security Analysis, and are considered by many to be the fathers of value investing and security analysis.

Graham and Dodd’s method of comparing stocks using earnings that have been smoothed over the long term was popularized by Robert Shiller and his version of the cyclically adjusted price-to-earnings ratio (CAPE).

The Cambria Global Value ETF uses a similar approach developed by its managers, Mebane Faber and Eric Richardson.

It selects the most attractively valued stock markets from a universe of 45 developed and emerging market countries. Historically, stock market returns are higher when starting valuations are lower, which makes sense.

The fund then invests in companies within these markets that are estimated to be trading at discounts to their intrinsic values.

Essentially, GVAL invests in classic value companies within the cheapest markets in the world based on long-term valuation metrics.

The fund does this for an annual fee of 0.69%, which is reasonable for an international ETF that gives us exposure to markets that are hard for us to invest in directly.

International Diversification

The fund currently has an allocation to the following countries: Brazil, Ireland, Spain, Portugal, Italy, Israel, Austria, Russia, Greece and the Czech Republic.

The Czech Republic is a nice inclusion, because it’s not easy to gain exposure to this emerging market, and it happens to be one of the highest-yielding countries in the world. The market-cap-weighted average dividend yield in this developing European nation is a sky-high 5.2%.

Indeed, value and high dividend yields tend to go hand in hand. Now, GVAL has yet to pay a dividend, but according to Bloomberg data, the fund’s holdings have an average dividend yield of 3.4%, which is very solid.

With global value stocks poised to dramatically outperform in the long run, investors should seriously consider the Cambria Global Value ETF as a core portfolio holding. Out-of-favor stocks are often the best relative values, and this Cambria fund systematically selects these unloved gems.

I think this new fund is going to be very successful.

Safe (and high-yield) investing,

Alan Gula, CFA