New Meb Faber ETF An Industry Disrupter

December 10, 2014

ETF.com: If this single ETF is meant to fulfill an investor’s entire core portfolio allocation, are you essentially competing with robo advisors and ETF strategists who are out there trying to offer a similar portfolio comprising various ETFs for a fee?

Faber: I think GAA really sets out to compete with anyone charging a high fee for core buy-and-hold portfolio—people who are charging 1 to 2 percent. The average mutual fund at 1.25 percent is a good candidate here. Even the average ETF is around 0.6 percent.

A lot of robo advisors tend to charge a management fee of about 0.25 percent, plus acquired fund expenses, which puts them usually at around 0.5 percent in fees. We think GAA is a better offering than all of those with the added benefit of being more tax efficient. In the ETF structure, you don’t need to tax harvest in the same way you would have to in a separate account or a mutual fund because of the creation/redemption feature.

So, yes, to a degree, it competes with all of those, but most strongly with those charging high fees.

ETF.com: Does this ETF work as a core holding for everybody? Say you’re an investor approaching retirement, and you want to trim your exposure to equities. GAA allocates more than 40 percent to stocks and, while it rebalances quarterly, that allocation shouldn’t change much, right?

Faber: Investors can simply use this is a core—say, representing 50 percent, or 80 percent, or 100 percent—and then round it out with something else that makes them more comfortable.

Someone who wants less risk is going to buy muni bonds and government bonds, and a more aggressive investor could buy 60 or 80 percent of GAA, and put the rest into equity ETFs. Satellite allocations can be whatever they may be.

But if you want a global core portfolio, this is the cheapest, best option. And we can’t really say this, because the fund is not running yet, but we plan on doing short lending on the portfolio down the road, and returning the cash into the fund, so that costs would come down further and people could eventually be getting paid to own this fund. That would be a pretty cool outcome.

ETF.com: What else should investors know about GAA and Cambria? Are you going to be agitating the industry by charging zero management fees in the future?

Faber: The good news is that the only people we are going to upset are the people who are charging a lot in fees. A lot of people are going to be a lot happier because they can have a cheaper allocation.

We fully expect to do some more buy-and-hold allocation models in a similar style. My hope is that eventually Schwab and Vanguard are going to follow our lead and launch allocation funds that include ETFs that are the best offerings, not just their own proprietary funds—as most shops do.

This is a pretty simple story. It’s a good, cheap offering, and hopefully it will shake up the space.

 

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