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Choosing the Right Dividend ETF

Well, it happened — again. The 10-year Treasury fell all the way to 2.3% last week on a string of bad geopolitical news and mixed economic data. The last time yields were this low was June of last year, in the early stages of the “Taper Tantrum.”

Could yields continue to go lower? Sure, they could. But it doesn’t matter. If you are an income investor with more than a five year horizon, you should be looking outside of the bond market for your income needs given the pitifully low yields on offer. And one area that still looks attractive at today’s prices is the world of dividend ETFs.

Company dividends — unlike bond interest — generally rise over time, giving dividend stocks far better long-term inflation protection than bonds.

Not all dividend stocks are the same; some are slow-growth dinosaurs that are little better than bonds with respect to their sensitivity to rising interest rates. Others are high-growth dynamos that share their bounty with their investors by continually raising their dividend. And in the same way, not all dividend ETFs are the same. Some are concentrated in slower-growth companies and sectors, while others are a who’s who list of quality growth stocks.

I don’t like choosing between growth and income; I want both. And today, I’m going to share some of my favorite dividend ETFs that I expect to deliver the two.

High Dividend Yield

Any discussion of dividend ETFs should start with the granddaddy of them all, the iShares Select Dividend ETF (DVY). 

 DVY’s underlying index takes the universe of dividend-paying stocks with a positive dividend-per-share growth rate, a payout ratio of 60 percent or less, and at least a five year track record of dividend payment and then selects the 100 highest-yielding stocks.  The result is an ETF loaded with high-yielding, reliable dividend payers.

Not surprisingly, DVY is heavily weighted in utilities and defensive consumer staples, currently 34 percent and 16 percent of the portfolio, respectively.  The current dividend yield is 3.1%—significantly higher than what the 10-year Treasury pays.

As it is currently constructed, DVY is not likely to outperform the S&P 500 in a normal, rising market.  It should, however, hold up far better during a market rout—though this was not the case during the last bear market. DVY took a beating in 2008 because it had a high allocation to the financial sector at the time.

Dividend Growth

DVY is fine for current income.  But if it is growth you seek, try shares of the Vanguard Dividend Appreciation ETF (VIG)—a long-time favorite of mine.  At 2.0 percent, VIG’s yield is not significantly higher than the S&P 500.  But you don’t buy VIG for its dividend today; you buy it for its dividend tomorrow

VIG is based on the Dividend Achievers Select Index, which requires its constituents to have at least 10 consecutive years of rising dividends.  The rationale is easy enough to understand.  There is no signal more powerful than that of a rising dividend.  Company boards hate parting with their cash; it’s a natural human instinct to stockpile it—just in case.  A willingness to part with the cash is a signal that management sees a lot more of it coming.

Paying a dividend requires discipline, as it means less cash to waste on value-destroying empire building.  And a rising dividend also shows that management knows its place.  They work for you, the shareholder, and increasing your dividend every year is a way of showing that they have their priorities straight.

By definition, any stock currently in the portfolio continued to raise its dividend even during the crisis years of 2008 and 2009.  These are companies that can survive Armageddon because, frankly, they already have.

There are drawbacks to VIG’s 10-year screening criteria.  A more recent dividend-raising powerhouse like Apple (AAPL) lacks the history to be included in the Vanguard ETF. Also, as with any investment strategy that depends on historical data, there is no guarantee that a ten-year streak of raising dividends in the past will mean another good ten years of increased payouts going forward.

Still, if you’re looking for a portfolio high-quality stocks with a long history of rewarding shareholders, then VIG’s dividend growth methodology is a fine plan place to start.

VIG is not the only ETF to focus on dividend growth, of course.  PowerShares runs two competing products. The PowerShares Dividend Achievers ETF (PFM) is based on the same underlying index as VIG, though its fees are higher—0.55% vs. 0.10%.  It’s hard to justify losing almost half a percent a year in additional fees for what is substantially the same investment product.

The PowerShares High Yield Equity Dividend Achievers ETF (PEY) offers a smaller, higher-yielding slice of the dividend achievers universe, taking only the 50 highest-yielding stocks from the dividend achievers screen.  Though also more expensive than VIG with an expense ratio of 0.55%, it pays a higher yield at 3.4%.

And finally, Standard & Poor’s has its own competing dividend growth strategy called the Dividend Aristocrats, which goes even further than the Dividend Achievers. The S&P 500 Dividend Aristocrats Index measures the performance of the companies within the S&P 500 that have increased their dividends every year for the last twenty five or more consecutive years.

The SPDR S&P Dividend ETF (SDY) is an ETF that builds a portfolio out of the 50 highest-yielding Aristocrats.

So, if I love the 10-year Achiever screen, I should really love the 25-year Aristocrat screen, right?

Well, in principal, yes.  Though in practice, I find it to be a little too restricting.  Limiting your pool of stocks to companies that have raised their dividend for 25 consecutive years leaves you with a portfolio of older, slower-growing stocks.

Don’t get me wrong; there are some real gems in SDY’s portfolio, including long-time favorites of mine National Retail Properties (NNN), Target Corp (TGT) and Procter & Gamble (PG).  But overall, in SDY, you are left with a defensive portfolio that I would expect to lag during a normal bull market.

Combing Dividend Investing With Guru Following Strategies

One brand new dividend ETF is the AdvisorShares Athena High Dividend ETF (DIVI), which I wrote about earlier this month when it launched.

DIVI is managed by Thomas Howard, a former academic turned money manager superstar and the author of Behavioral Portfolio Management. It is also very different from all other dividend ETFs I follow.  Virtually uniquely among dividend ETFs, DIVI includes equity REITs, mortgage REITs, master limited partnerships (MLPs), closed-end funds and business development companies (BDCs) in its investment universe, giving it a vastly different portfolio composition than its competitors.

Also uniquely among dividend ETF, DIVI employs a guru-following strategy that makes it similar in principle to Global X Top Guru Holdings Index ETF (GURU) and the AlphaClone Alternative Alpha ETF (ALFA), but with a more active management style. DIVI uses Howard’s behavioral research to identify the “high conviction” picks of active mutual fund managers, then selects high-dividend payers from the screen. DIVI then diversifies across sector, strategy and country to reduce risk.

DIVI is a little on the expensive side for a dividend ETF with a net expense ratio of 0.99%.  But given that DIVI is essentially an actively-managed mutual fund in an ETF wrapper, the expenses are not disproportionate.

Of course, no discussion of a dividend ETF is complete without a mention of the dividend yield.  DIVI has been trading for less than a month and thus has no historical dividend yield.  Based on the average yield of its top holdings, minus manager fees and expenses, I believe that it will generate in excess of 5% per year in dividends and perhaps more.

This article first appeared on InvestorPlace.

Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays. 

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Investing Like a Billionaire With the iBillionaire ETF

Investing like a billionaire is about to get a whole lot easier.  On August 1, the  Direxion iBillionaire Index ETF (IBLN) will begin trading.

The ETF — based on iBillionaire’s proprietary index — will run a portfolio of 30 of the large-cap S&P 500 stocks most favored by billionaire investors based on their most recent 13F filings with the SEC.

Since its inception in October of last year, the iBillionaire Index has enjoyed returns of 16% compared to 11.8% for the S&P 500. According to iBillionaire, a back-tested version of their index would have roughly doubled the returns of the S&P 500 over the past 8 years. And I should emphasize again that all 30 index constituents are members of the S&P 500. Think of the iBillionaire ETF as a an S&P 500 ETF that excludes the 470 companies least favored by hedge fund gurus.

While I don’t believe in mindlessly copying the trading moves of large, successful investors, I still consider guru-following strategies to be a fantastic source of trading ideas. While many hedge fund managers — and most mutual fund managers — underperform their respective benchmarks over time, their highest-conviction picks actually tend to outperform.

Thomas Howard noted this in his book — Behavioral Portfolio Management — which I reviewed earlier this year. Howard draws the conclusion that most managers are surprisingly good stock pickers; they just happen to be terrible portfolio managers that destroy their own performance by watering down their portfolios will “filler” stocks. iBillionaire’s strategy bucks this trend by running a relatively concentrated portfolio of just 30 stocks.

I wrote about iBillionaire in February, comparing its methodology to two worthy competitors, the Global X Top Guru Holdings Index ETF (GURU) and the AlphaClone Alternative Alpha ETF (ALFA).

As I noted then, the “best” guru-following ETF is really a matter of your allocation goals. If you are looking for a large-cap, U.S.-focused substitute for the S&P 500, then IBLN is the clear choice, as its holdings are all S&P 500 holdings and it is long-only.

GURU also tends to have a large-cap bias (though smaller than IBLN), but it also holds its share of foreign stocks — including China’s Baidu (BIDU) and Argentina’s YPF (YPF) — and smaller up-and-comers like internet radio pioneer Pandora Media (P). Hypothetically, GURU could morph into a small-cap international value fund if those were the stocks that the investors it tracks were buying most heavily.

Not that there is anything wrong with that, of course. I’m actually a big fan of small-cap international value stocks. The point I’m making is simply that GURU does not benchmark particularly well to the S&P 500.

And finally, there is ALFA. Of the three strategies, ALFA currently has the smallest-cap bias; Morningstar classifies ALFA as a mid-cap growth fund. ALFA also has one unique characteristic that makes it very different from both GURU and IBLN — it has the ability to hedge by going short. The ETF will shift half of the portfolio into an inverse S&P 500 fund when the S&P ends a month below its 200-day moving average.

This hedging will come in handy next time we have a major bear market. But in a raging bull market it is, of course, a moot point.

Ultimately, the ETF that will work best for you will depend on your goals. As always, do your research, and your investments will reward you.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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India’s New Prime Minister: What You Need to Know

India—the world’s largest democratic country—is in the early stages of a parliamentary election that won’t be wrapped up until the last polls close on May 12 (votes will be counted by May 16).  India has the world’s largest population after China, and it is a young country with a growing voting-age population.  So every Indian election is, by definition, the biggest election in world history.  814 million Indians are eligible to vote this year.

Narendra-Modi

Narendra Modi

A coalition headed by the Bharatiya Janata Party (“BJP”) and its leader Narendra Modi is expected to win

For the uninitiated, India’s politics can be a little hard to follow.  India has a British-style parliamentary system in which the leader of the political party with the highest share of the vote in the lower house of parliament is appointed as prime minister by the president (the President of India is a mostly ceremonial role; the prime minister is the head of government).

India’s system is best explained by comparison. The UK has two major parties—the Conservatives and Labour—and a large third party, the Liberal Democrats. The current Conservative-LibDem government headed by David Cameron notwithstanding, coalition governments are rare in the UK; a single party typically has the majority it needs to govern.  But in India, coalitions have been the norm since the 1990s.  India’s current government is led by the Congress party, but it is a shifting  coalition that has consisted of no fewer than 9 parties and, at various points, more than 20.

Many of these parties are regional or are niche parties with a narrow focus.  This, unfortunately, has a way of paralyzing Indian governments by making them beholden to each minority party’s pet cause or special interest group.

What are the issues?

The issues driving this election are government corruption, a stalling economy, and high inflation.  Though led by Manmohan Singh—a technocratic figure with a solid track record of pro-growth economic reforms—India’s government has not been effective at promoting growth of late.  Last year it was an uninspiring 4.7%.  Modi’s BJP party is viewed as being more pro-business, and Modi himself has a reputation as an effective leader who is capable of cutting through bureaucracy.

What are the controversies?

The ruling Congress Party is accused of turning a blind eye to corruption among government officials.  The BJP—and Modi in particular—is accused of stirring up animosity between the majority Hindu and minority Muslim populations.  Modi has been accused of encouraging violence against Muslims, though these claims are disputed.

Who is likely to win?

Polls point to a Modi / BJP win, though a stronger-than-expected showing by the anti-corruption Aam Aadmi party could complicate the forming of a coalition.  Modi will most likely be the next prime minister of India, but his ability to govern effectively will depend on the size of his majority.

What does this mean to investors?

A strong majority for the BJP-led coalition would be welcomed by the financial markets.  The BJP—a center-right party roughly similar to America’s Republicans—is viewed as being friendlier to business and less tolerant of official red tape.

Does this mean that you should run out and buy shares of Indian stocks, such as the MSCI India Index Fund (INDA) or the MSCI India Index ETN (INP)?  In a vacuum, no.  But Indian stocks have been outperforming this year and, in the broad emerging-market bull market that I expect, Indian stocks are worthy of consideration as a part of a broad emerging-market portfolio.

 

 

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Stock Buyback ETFs: Which is the Best Shareholder Friendly Option?

Share buybacks.  If used correctly, there are a tax-efficient way to return cash to shareholders: a virtual dividend without the double taxation aspects that go along with a cash dividend.  And in this era of 3.8% ObamaCare “surtaxes” on investment income, a tax-free virtual dividend is all the more attractive.

Alas, share buybacks are often not used correctly.  Companies are not always the best market timers, having a tendency to buy their shares when prices are high and, in the worst cases, sell them when prices are low by issuing new stock.  For example, share repurchase in the United States hit a record in 2007 but then fell by more than 80% by 2009—when stocks were trading at generational lows, and management should have been buying with both fists.

Worse, large share buyback programs are often little more than cover for shareholder-diluting executive stock options and employee stock purchase plans.  In the worst cases, it is outright thievery.  The company will buy back its shares at market value and then effectively resell them to employees at a discount.

How bad is it?  As I wrote last year, the 500 largest U.S. companies repurchased about a quarter of their equity’s dollar value from 1998 to 2012, but the number of shares outstanding actually grew more than 7% over that same period.

Still, share buybacks can be an excellent source of shareholder value if bought at reasonable prices and if they truly reduce share count.  Today, we’re going to take a look at competing “buyback” ETFs that focus on shareholder friendliness.  While none can completely escape the issue of market timing, they can certainly address the most critical aspect: ensuring that share buybacks do indeed return capital to shareholders by reducing share count.

ETF Ticker Expense Ratio Total Assets Annual Turnover Cap Bias
PowerShares Buyback Achievers PKW 0.70% $2.9 billion 80% Large-Cap Blend
AdvisorShares TrimTabs Float Shrink TTFS 0.99% $116 million 57% Mid-Cap Blend
Cambria Shareholder Yield ETF SYLD 0.59% $201 million ~50% (estimate) Large-Cap Value

I’ll start with the oldest of the stock buyback ETFs, the PowerShares Buyback Achievers ETF (PKW).

PKW tracks the NASDAQ US Buyback Achievers Index, and its methodology is pretty. In order to make the cut, a company has to have effected a net reduction in shares outstanding of 5% or more in the trailing 12 months. The ETF and its index are reconstituted annually in January and rebalanced quarterly in January, April, July and October.  Also, to be considered, a stock must trade on the NYSE or NASDAQ and have average daily cash trading volume of $500,000.

5% is a pretty impressive hurdle.  But there is one aspect I don’t particularly like: it focuses only on the preceding year and makes no consideration for companies that consistently buy back their shares over time.

I’m also somewhat ambivalent about its weighting methodology.  The ETF is market-cap weighted (like the S&P 500), though the maximum weight of any single holding is capped at 5%. While not a “bad” weighting strategy, per se, I might have preferred to see the companies weighted by the size of their buyback rather than by market cap.  After all, the entire purpose of the ETF is to get exposure to companies aggressively buying back their own shares.

Still, all things considered, PKW is a solid investment option that has soundly beaten the S&P 500 since its creation in 2006.  Its underlying index trounced the S&P 500 with annualized returns of 9.8% vs. 6.1%.  Even after allowing for taxes, the ETF returned 7.2% annualized.  Not bad at all.

Next up is the AdvisorShares TrimTabs Float Shrink ETF (TTFS), a relatively new entrant that began trading in late 2011.

The TrimTabs ETF is based on the same principle as the PowerShares ETF—that reducing share count is ultimately good for shareholders—but the ETFs’ methodology are very different.

TrimTabs uses the Russell 3000 index as its starting point, and equally weights a portfolio of 100 stocks that meet its criteria:

  1. Outstanding shares must have decreased over the past 120 days.
  2. Buybacks should be financed via strong free cash flows, not debt issuance.

The second point is a key differentiator for quality and prevents the index from being bogged down with companies that are simply swapping equity for debt.

Also, unlike the  PowerShares ETF, which is rebalanced and reconstituted mechanically, the TrimTabs ETF is actively managed, rebalancing as new information becomes available rather than by a set calendar schedule. Whether this is good or bad depends on your faith in active managers.

One aspect in which TTFS and PKW are similar is that they place, in my view, undue significance on buybacks in the immediate past rather than considering a long track record of shareholder friendliness.

Finally, we come to the most recent addition, the Cambria Shareholder Yield ETF (SYLD).

SYLD invests in 100 stocks with market caps greater than $200 million that rank among the highest in shareholder yield, which is calculated as a combination of cash dividends, share repurchases, and paying down debt.

The Cambria option is an interesting hybrid ETF.  Share buybacks are one of only three criteria it considers when ranking stocks for shareholder friendliness.  It has the most open mandate of the lot, as it has the ability to invest in foreign securities as well as American.  SYLD, like TTFS, also blurs the lines between active and passive management.  In both cases, stock selection is mostly formulaic, though the manager maintains a good deal of discretion.  In the case of SYLD, the manager chooses what he considers to be the top 100 stocks based on shareholder yield, as well as the portfolio weights.  In order to avoid “value traps,” or cheap stocks that continue to get cheaper, the manager will generally weight until a potential stock is in an uptrend before buying.

Buyback ETFs

So, which of these stock buyback ETFs is the “best” option for shareholder friendliness?  Truth be told, are all solid options.  Both PKW and TTFS has handedly beaten the S&P 500 over their respective lives (see chart)  SYLD has beaten the S&P 500 as well, though its trading history only goes back to May of last year.  Though past performance is, of course, no guarantee of future returns, I consider it reasonable that all will continue to outperform over time.

Interestingly, SYLD has the lowest expense ratio of the three—0.59% vs. 0.99% for TTFS and 0.70% for PKW, respectively—and this despite the fact that SYLD is the most actively managed of the lot.  SYLD doesn’t have a long enough trading history for portfolio turnover, but management estimates that portfolio turnover will be “about 50%” per year.  This is about in line with TTFS and considerably lower than PKW.  Lower fees and portfolio turnover are certainly points in SYLD’s favor.

TTFS has a smaller average cap weighting than SYLD or PKW; Morningstar classifies TTFS as a “mid-cap” ETF rather than large-cap.  This is a selling point if you’re specifically looking to avoid a large-cap bias.  But given the relatively high turnover of all three ETFs, that may not always be true. (All else equal, PKW should have the largest average market cap due to its market-cap weighting.)

My personal preference would be to utilize SYLD for its broader shareholder methodology rather than TTFS and PKW’s more limited focus on share repurchases.  But an investor could also choose to invest in separate dividend-focused ETFs, such as the Vanguard Dividend Appreciation ETF (VIG), to complement their investment in TTFS and PKW.

Finally, I’m going to offer one piece of advice that managers would probably prefer I leave out.  If you prefer to buy individual stocks rather than ETFs or funds, you can piggyback on the research of all three funds by going to their websites and viewing their complete portfolio holdings.  Something I have done in the past is compare the holdings of my favorite ETFs for overlap.  If a stock is held by two or more of these ETFs—or perhaps by VIG as well—that might be a stock you single out for further research.

Disclosures: Long SYLD and VIG

Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays. 

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Review: Meb Faber’s Global Value

How does an investment manager reconcile all of the various prognostications he hears on a daily basis?

Simple—ignore them.

—Meb Faber, Global Value

If you’ve never heard of Cambria Investment Management’s Meb Faber, then you have some serious catching up to do.  I consider Faber one of the most innovative strategists in the business today, and I found his research on shareholder yield to be compelling enough to make the Cambria Shareholder Yield ETF (SYLD) a core, long-term holding in multiple ETF portfolios I manage.  (For readers unfamiliar with the term, “shareholder yield” is a holistic measure of shareholder friendliness that includes dividends paid, shares repurchased, and debt repaid.)

Faber’s latest book, Global Value: How to Spot Bubbles, Avoid Market Crashes, and Earn Big Returns in the Stock Market, provides the research underpinnings for Cambria’s latest ETF offering, the Cambria Global Value ETF (GVAL).

Faber is a “quant” who ignores the news of the day and instead focuses on the raw numbers.  At its core, Global Value is a roadmap for implementing the value investing concepts originally espoused by Benjamin Graham and David Dodd in their 1934 classic Security Analysis in a systematic, quantitative manner.

Specifically, Faber uses the cyclically-adjusted price/earnings ratio (“CAPE”), a metric popularized by Yale economist Robert Shiller, as a valuation tool to rank countries.  In Faber’s model, an investor buys the stocks of the cheapest countries as ranked by the CAPE.

The CAPE divides the current market price by the average of annual earnings across the economic cycle, with 10 years being the most popular time interval.

Why?  Because using a single year’s earnings can massively skew the results based on where you are in the economic cycle.  As an example, a collapse in earnings in 2008-2009 would have made the S&P 500 look expensive had you used a simple P/E calculation with 2008 earnings numbers, even though the market had lost half of its value during the crisis.

Faber notes that the U.S. market is expensive today and priced to deliver lackluster returns in the decade ahead.  This is consistent with the forecasts made by, among others, GMO’s Jeremy Grantham.  But Faber—also like Grantham—makes it clear that we are not technically in a bubble.  “Overpriced” does not mean “bubble.”  The former implies disappointing returns; the latter implies the potential for a devastating crash.  And some of the market’s overpricing is a natural product of the low-inflation / low-interest-rate environment today.

But while the American equity markets are looking pricey these days, there are plenty of values to be found overseas for investors with strong stomachs.  Among the countries Faber notes as being cheap—and which, not coincidentally, are current holdings of GVAL—are problem countries Russia, Greece, and Spain.

Do Faber’s methods work?  Indeed, it appears they do.  Variations of Faber’s CAPE strategy returned between 15.9% and 17.6% per year, compounded annually, from 1980 to 2013.The MSCI EAFA Index—the standard benchmark for international investing—returned only 9.6%.  (These numbers exclude taxes, trading costs, and management fees.)

Importantly, Faber’s valuation models are intended, in his words, to be long-term strategic guides, not short-term timing tools.  And had you implemented the strategy espoused in Global Value in 2013, you would have been out of the U.S. market—and would have missed the 33% total returns for the year.  Of course, you would have been invested Greece (GREK), Ireland (EIRL) and Argentina (ARGT), which saw returns of 24.9%, 45.6% and 15.0%, respectively.  That’s not too shabby.

I’ll leave you with a quick summary of Faber’s advice to improve your risk-adjusted portfolio returns:

  1. At a minimum, allocate your portfolio globally reflecting the global market cap weightings. In the U.S., that means allocating 50% of your portfolio abroad.
  2. To avoid market cap concentration risk, consider allocating along the weightings of global GDP. This would mean closer to 60-80% in foreign stocks.
  3. Similarly, ponder a value approach to your equity allocation.  Consider over-weighting the cheapest countries and avoiding the most expensive ones.  Currently, this would mean a low, or zero, allocation to U.S. stocks.

I recommend you pick up a copy of Faber’s Global Value.  And for that matter, I would recommend his Shareholder Yield and Ivy Portfolio as well.  All are excellent additions to any investor’s library.

Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays. 

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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