Power Laws and Public Markets with Meb Faber, Founder & CIO of Cambria Investment Management
May 31, 2024
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Meb Faber, the Founder & CIO of Cambria Investment Management, discusses Cambria's journey to $2 billion in AUM, target audience for ETFs, Trinity portfolios, shareholder yield strategies, and ETF differentiation. They delve into global exposure, power law insights, content creation, efficient investing strategies, and investment opportunities like EYLD and T-YLD fund.
Cambria differentiated itself in the crowded ETF market by offering unique strategies backed by research, personal investment, and market demand.
Trinity portfolios by Cambria include global assets and real assets for diversified market exposure with value and momentum tilts.
Mean reversion dynamics are crucial in asset allocations for long-term wealth creation, emphasizing global diversification and real assets in portfolios.
Combining trend following with a buy and hold approach can create a diversified portfolio with lower volatility and potentially higher returns.
Deep dives
Evolution of Cambria Investment Management
Cambria Investment Management's CEO, Mep Faber, reflects on the journey of Cambria to managing over 2 billion in assets under management (AUM). Starting from the excitement and challenges of the tech bubble era, Mep traces his path from biotech to quantitative measures in investment. Despite setbacks and a crowded ETF market, Cambria differentiated itself by offering unique strategies.
Criteria for Launching ETFs
Cambria employs four key criteria for launching ETFs: launching new or superior funds, grounding concepts in academic or practitioner research, investing personal assets, and gauging market demand. Mep emphasizes the importance of offering unique or improved strategies compared to existing products, underpinned by research, personal investment, and market relevance.
Asset Allocation and Portfolio Construction
Cambria's Trinity portfolios diversify beyond US stocks and bonds to include global assets and real assets like REITs and commodities. Emphasizing a global market portfolio with value and momentum tilts, these portfolios cater to various market conditions, aiming to mitigate risk and capture opportunities. Mep discusses concentration levels and the power law distribution in stock selection.
Mean Reversion and Valuation Analysis
Mep delves into mean reversion dynamics, highlighting the importance of diversified asset allocations over different timelines. He discusses valuation spreads, historical PE ratios, and market bubbles across different periods, advocating for a balanced and global approach to investing. Addressing the current state of emerging markets, particularly China, Mep explores the potential opportunities amid valuation disparities.
Challenges and Decisions in Portfolio Management
Mep shares insights into position sizing, portfolio optimization, and handling stock performance outcomes in an investor's journey. He examines the need for mean reversion for successful strategies, the power law distribution in stock returns, and the importance of global diversification and real assets in portfolios for long-term wealth creation.
Trend Following Strategy and Benefits
Trend following is discussed as a strategy that can add significant value to a traditional buy and hold portfolio. This strategy involves investing in assets that are trending upwards by going long on markets showing positive trends while avoiding those with downward trends. Despite its benefits, trend following can be challenging due to its low success rate and the tendency for underperformance during certain market conditions. However, combining trend following with a buy and hold approach can create a diversified portfolio with lower volatility and potentially higher returns.
Building a Robust Investment Portfolio
Creating a robust investment portfolio is highlighted as crucial for long-term success, whether for individuals or institutions. The importance of diversification across various asset classes and strategies is emphasized, with a focus on having a rules-based, quantitative approach to investment decisions. The podcast suggests that institutions and individuals would benefit from a globally diversified, buy and hold portfolio, with the ability to add value, momentum, and trend strategies to enhance returns. This approach aims to avoid the common pitfalls of concentrated or complex investment structures, promoting a long-term view towards portfolio construction and management.
My guest on this show today is Meb Faber, the CEO at Cambria Investment Management. Cambria manages a number of ETFs that in total have over $2 billion in AUM. Meb is also the host of an excellent podcast where he interviews people from all different corners of the investment world. I have been a listener of the podcast for years but recently realized that I knew a lot more about Meb the podcast host than I did about Cambria. Accordingly, I was interested to chat with Meb about:
Cambria’s journey to get to over $2 billion in AUM;
Who the target audience is for the various ETFs;
The Trinity portfolios that Cambria offers its clients;
What is so interesting about “shareholder yield” strategies; and
How Cambria differentiates itself in a the now crowded ETF space
All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of SNN or its affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.
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