VEU Vanguard FTSE All World Ex US

 
After launching Cambria Foreign Shareholder Yield ETF (FYLD) towards the end of last year, Cambria is looking to continue its expansion, as it just released its third product focused on developed and emerging markets.
 
The newly launched fund by Cambria – Cambria Global Value ETF (GVAL) – comes at a time when both the developed and emerging markets are trying to find their footing following woes from China and Russia, as well as the wind-down of quantitative easing by the Fed. Below we have highlighted the fund in greater detail (read: 3 Global ETFs for A Diversified Portfolio in 2014).
 
GVAL in Focus
 
The newly launched passively managed ETF looks to track the performance of the Cambria Global Value Index. The index provides exposure to stocks with strong value characteristics from developed and emerging countries. As such, the fund provides an opportunity to invest in some of the cheapest markets in the world on long-term valuation metrics.
 
The index selects the desired countries to invest in from a group of 45 countries located in various developed and emerging markets.  The fund currently holds 99 stocks from the 11 most undervalued developed and emerging countries (read: Emerging Market ETFs: Any Bright Spots?).
 
Currently, Greece, Russia, Ireland, Hungary, Spain, Austria, Brazil, Czech Republic, Israel, Italy and Portugal are the countries included in the index. While Greece and Russia have 9% allocation each in the fund, Czech Republic and Hungary have a 4% allocation in the fund. All the other seven countries have 10% allocation each in the fund.
 
Sector-wise, Financials dominates the fund with 28% allocation, while Materials (15%) and Utilities (13%) occupy the next two spots. Also, the fund includes stocks from the entire range of market cap. While large caps rule the fund with more 50% of the assets, mid-caps form 34%, with the rest occupied by small caps.
 
The fund charges 69 basis points as fees.
 
 How could it fit in a portfolio?
 
The fund could be a good choice for value investors with a global market focus. A value investing strategy gives investors an exposure to stocks that are trading below their intrinsic values and are considered to be cheap relative to other stocks.
 
Value stocks usually have low price-to-earnings ratios, low price-to-book ratios and high dividend yields, as compared to their growth counterparts (read: Top Ranked Small Cap Value ETF in Focus: SLYV).
 
Moreover, the fund’s exposure to numerous emerging and developed market countries is expected to provide huge diversification benefits to investors.
 
However, investors should keep in mind that value investing has its own set of risks. 'Cheap' shares can get cheaper and cheaper in a downtrend market scenario, thereby exposing investors to negative returns. Moreover, returns provided by value stocks might be lower than the ones provided by growth companies.
 
Also, investors should note that the ETF will be subject to severe currency risk as it is exposed to assets denominated in a variety of currencies. The risk was clearly felt recently, when most of the emerging markets saw their currencies falter in the wake of winding down of the Fed’s stimulus package. As such, the product is most suitable to long-term investors, willing to bear any currency volatility in the short run (read: Can Rate Hikes Save these Emerging Market ETFs?).
 
Competitors
 
The newly launched product is likely to face competition from quite a number of funds prevalent in the global equities space. GVAL is costly compared to most of the well-known funds in this space, given the fact that the average expense ratio in this space is 52 basis points.
 
Vanguard FTSE All-World ex US Index Fund (VEU) dominates this space with assets worth $11.6 billion. The fund seeks to track the FTSE All-World ex US Index, giving investors exposure to a basket of 2,200 stocks in 46 countries, from both developed and emerging markets around the world. The fund charges 15 basis points as fees.
           
iShares MSCI ACWI Index Fund (ACWI), Vanguard Total World Stock ETF (VT), Vanguard Total International Stock ETF (VXUS) and iShares S&P Global 100 Index Fund (IOO) are some of the other funds focusing on the global equities space.
 
Though slightly expensive, the newly launched product is worthwhile for investors seeking to participate in the global recovery and looking to add diversification benefits to their portfolio.

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ISHRS-MSCI ACWI (ACWI): ETF Research Reports
 
CAMBRIA-FRN SHR (FYLD): ETF Research Reports
 
ISHARS-GLBL 100 (IOO): ETF Research Reports
 
VANGD-FTSE AWLD (VEU): ETF Research Reports
 
VANGD-TOT W STK (VT): ETF Research Reports
 
VANGD-TOT ISIF (VXUS): ETF Research Reports
 
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