New Meb Faber ETF An Industry Disrupter

December 10, 2014

The latest from Cambria is a fund of funds so cheap its management fee is zero.

Cambria’s latest ETF, the Cambria Global Asset Allocation ETF (GAA), is a fund of funds that offers in a single wrapper a global portfolio of stocks, bonds, commodities and real estate that is designed to, alone, represent your entire core asset allocation.

What’s more, the fund comes without a management fee. Investors who buy GAA will only pay the acquired funds fee of 0.29 percent a year to cover the costs of the 29 ETFs that make up the fund. The passively managed GAA allocates about 43 percent to equities and 50 percent to fixed income, invests predominantly in low-cost Vanguard ETFs as well as Cambria’s three other offerings.

Meb Faber, the brain behind GAA and founder of Cambria, says charging zero management fees is a smart idea that should help reshape—or at least rattle—the way registered investment advisors, ETF strategists, brokers and robo advisors go about charging for a core buy-and-hold portfolio. GAA seems like a bit of departure from Cambria’s other funds in that it’s a buy-and hold strategy. How should investors look at it, or use it?

Meb Faber: Most of our funds have been under the smart beta tactical umbrella. The last fund we launched, the Cambria Global Momentum ETF (GMOM), for instance, was meant to be a more aggressive version of GTAA, but with a much lower fee.

This fund, GAA, is meant to be a true global market core portfolio. It’s a buy-and-hold allocation that’s meant to reflect the global market portfolio of stocks, real estate and commodities. It owns 29 ETFs that pass through more than 20,000 securities around the world. The goal is to offer this at the lowest cost possible.

To individual investors, this fund is meant as a one-stop shop for core global allocation. For RIAs or brokers, it’s a way to outsource a global market portfolio for a super-low cost. And to endowments and pension funds, it becomes the global benchmark—something they can compare themselves to. The biggest feature of GAA is perhaps that it comes without a management fee?

Faber: We are not charging a management fee on this product; that’s right. And acquired fund expenses total only 0.29 percent. It’s a very-low-cost fund. You must be taking a loss on this fund. Why are you doing that?

Faber: For a couple of reasons, but first, let me say that the fund will break even perhaps at $100 million because of the underlying ETFs we own that are in the fund. Even though they only represent 10 percent of GAA, we will eventually make money.

But the reason we can do this is that, 1) we are profitable. Our company is profitable, and is very lean; 2) we can do it because we don’t really offer buy-and-hold strategies, so we don’t have entrenched costs. The people who are offering these types of strategies, such as RIAs and brokers like Fidelity and Schwab, are already charging sometimes 1 or 2 percent in management fees. Those costs are already entrenched. We can offer it for free.

To be honest, in the worst-case scenario where this fund raises zero dollars—which, by the way, has never happened before—the most it costs me is about $100,000 a year. Even if it didn’t raise any money, and I could just offer it to my friends and family, I would still do it because it doesn’t cost that much money relative to the overall business.

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