PORTFOLIO SPOTLIGHT
Cambria’ s investing methodology is a multi-step process that begins when the managers screen a broad universe of emerging market stocks to find companies meeting certain liquidity and price requirements.
Avoiding Value Traps
Morningstar analyst Zachary Evens noted in a recent report that share buybacks are less common in emerging markets than developed markets, so when it focuses on developing countries, the Emerging Shareholder Yield ETF fund is more focused on the highest dividend payers. That bias helped the fund to a higher 12-month yield than most of the diversified emerging markets category.
“ While appealing for income-seekers, yield alone comes with risk because it can push the portfolio toward value traps,” Evens wrote.“ But the fund’ s final momentum screen does fairly well at excluding recently depressed names.”
Faber notes that U. S. corporations in general emphasize buybacks over dividends, but that’ s not true in foreign developed and emerging markets, where the split is probably closer to 50 / 50.“ Part of that is cultural and regional, but it’ s also changing,” he says.“ In certain countries such as Japan and U. K., but even China and others, it’ s changing regarding corporations becoming more thoughtful about how they think about capex and how they return cash to shareholders.”
Overall Impact
U. S. equities have long been the go-to place for investors, and that’ s made the market more expensive than those overseas. And every year when certain pundits pound the table on how cheap the valuations of emerging markets are when compared with U. S. names, investors seem to shrug and say,“ Whatever!”
But thanks to a falling U. S. dollar, overseas equity markets have finally delivered this year as both foreign developed and emerging markets have outpaced the S & P 500 by significant figures. That might be overlooked to some extent because U. S. equities so far have turned in a solid year. But the long-running U. S. dominance has led to an underrepresentation of emerging markets in the equity sleeve of many investor portfolios.
“ For a long time in the U. S. investors didn’ t want foreign or emerging,” Faber says.“ So a lot of advisors are like,‘ Don’ t talk to me about foreign or emerging.’”
But investors are starting to notice, and Faber says the Emerging Shareholder Yield ETF has seen inflows this year.“ I don’ t think it’ s something that’ ll be like animal spirits until you get a year or two in a row of either the S & P not being at alltime highs or foreign continuing to outperform. But it could happen.”
He says a common critique of emerging markets is that people don’ t trust the corporate accounting in them. Yet he notes that this is one of the better reasons to look at shareholder yield as a metric. Because why would a company seeking to deceive investors or manipulate earnings be returning their money to shareholders? Certainly not through dividends or buybacks.
“ On average, [ the shareholder yield concept ] is a good keep-management-honest thing that’ s particularly true in emerging markets more so than in the U. S.”
When dividend payments and buybacks are used in tandem under the shareholder yield umbrella, it might douse the grousing among equity income investors when they consider the overall impact on shareholder returns.
42 | FINANCIAL ADVISOR MAGAZINE | NOVEMBER 2025 WWW. FA-MAG. COM