Kathryn Cicoletti

Cambria Global Asset Allocation ETF (GAA) — Three Things To Consider When It Launches On Wednesday

Cambria Investment Management is launching a new fund on Wednesday. The fund is called Cambria Global Asset Allocation ETF (symbol GAA). Here are some highlights I read in the WSJ (when I wasnt reading Yahoo Finance of course):

1) GAA will invest in various ETFs (so its an ETF of ETFs, an exchange traded fund that invests in a bunch of different exchange traded funds)

2) GAA does not charge a management fee (hold up, dont get too excited about that)

3) You still have to pay the management fee (expense ratio) of the underlying funds GAA invests in of course. Average fee, according to WSJ, is 0.29%.

4) GAA will invest in three out out of four of Cambrias in-house actively managed ETFs.

Ok so what does this all mean. Yay or nay.

According to the WSJ, GAAs portfolio manager Meb Faber said the new fund will initially be a net loser until assets of GAA reach $60 — $100 million.

Fine. Thats normal. Funds have to foot the bill until they get client assets in the door to help pay for these costs.

Whats not normal? A few things caught my attention.

Three things to consider when reviewing Cambria Global Asset Allocation ETF:

1. GAA is planning to invest in about 30! ETFs.

Why does the fund need to invest in 30 ETFs?

Diversification helps reduce risk but for the love of god, 30 ETFs?

This chart from the WSJ below reminds us that diversification helps reduce risk up to a certain point, then its basically blah.

Meaning, when were over diversified, it doesnt necessarily hurt us. But it doesnt really help us either.

SRSLY Cambria, do you really need 30 ETFs in this fund?

2. Three of the ETFs GAA will be investing in are Cambria in-house actively managed ETFs. This will represent 9% of the GAA portfolio initially. Are you ok with that?

You can check out the four ETFs that Cambria manages here but for the purpose of this point, all you really need to know is:

A. all four of the Cambria ETFs have an expense ratio (management fee) of 0.59%

B. all four of the Cambria ETFs launched between May 2013 and November 2014.

C. three of the four Cambria ETFs have assets between $60 and $213 million (I couldnt find assets on the fourth one and I ran out of time. Moving today and the packers are kicking me out now).

>So the fees of Cambrias in-house funds (that will gain assets through GAA) are higher than the average fee of the underlying ETFs in GAA of 0.29%

>They all have very short track records (institutions rarely touch funds with less than a five-year track record)

>They have very few assets (not surprising, since these are new funds)

> AND the amount GAA invests in Cambria ETFs could grow over time, according to the WSJ. So you could basically just be buying a fund of Cambria ETF funds at some point unless they put a max % on that allocation.

(last point, I swear)

3. Cambrias ETFs are actively managed so thats how they justify the higher fee (0.59%). Actively managed funds are supposed to beat passively managed funds. Do they?

Other tickers are:

FYLD

GVAL

In conclusion (I promise), while GAA does not charge a management fee and everyone is all YAY about that, GAA seems to be a round-about way to get more assets in the higher fee in-house Cambria actively managed ETF funds. This is fine but lets stop kidding ourselves that this is a noble no-fee move by a fund manager. Theyre leading with a free product to gain assets in underlying new funds. Bye.