ETF Watch: Cambria Plans ‘Core Equity’ Fund

March 16, 2017

A new filing from Cambria provides details on its plans for a multistrategy actively managed equity fund. The stated objective of the Cambria Core Equity ETF is to seek “capital appreciation and capital preservation with a low correlation to the broader U.S. equity market,” and the prospectus notes that it will use a combination of strategies to do so.

The fund’s primary focus will be on high-quality U.S. equities that offer current dividends. The equities will generally have demonstrated an ability to grow earnings, and a willingness to increase dividends over time, suggesting they are good prospects for long-term total returns. The prospectus notes that the stocks meeting these criteria tend to be large-caps, and that the fund will seek to diversify its holdings in terms of sectors and geographies.

‘Less Risk Exposure’

The ETF will also sell calls on index options to dampen its volatility and generate a steady cash flow; it can buy put options to protect against downside risk as well. The options strategies will cause the fund to sacrifice some upside, but when combined with the equity holdings, the prospectus suggests the ETF will offer much of the stock market’s returns with less risk exposure than is typical of other equity investments.

The fund will rely on proprietary models to identify trading opportunities, but the prospectus emphasizes that the fund managers have discretion over any trading decisions.

Late in 2016, Amplify rolled out an actively managed ETF that is similarly focused on dividends and options strategies. The Amplify YieldShares CWP Dividend & Option Income ETF (DIVO) draws its components from the dividend-paying stocks of the S&P 500 and pairs that equity investment with a tactical call writing strategy. Like the proposed Cambria fund, DIVO sacrifices some upside potential in order to provide more downside protection.

Contact Heather Bell at [email protected].

 

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