Faber talks Strategies, Value in Emerging Markets and More

Mebane Faber, co-founder and CIO of Cambria Investments and Cambria Funds talks with Tom Keene and Barry Ritholtz about quantitative stock selection strategies and investment trends in today’s market. According to Faber, so far in 2016 the market is seeing a rebound in some of the assets that exhibit the most value around the world. In addition, dividend paying stocks, which have performed very well over the past few years as investors seek income, look relatively expensive on an historical basis, says Faber. Typically, they trade at a 20% discount to the market but right now they are trading at a premium, which is why Faber advocates a holistic dividend approach (called Shareholder Yield – he wrote a book on the strategy) that looks for stocks with low valuations, high free cash flows, dividends and buy backs, as a way to avoid overpriced dividend paying stocks.

When asked where the values are in the global markets, Faber notes that US stocks look slightly overvalued, based on the overall market’s P/E, but there are a handful of countries (spots in Europe, and particularly in some emerging markets like Brazil and Russia) where the P/Es are under 10. He references a PIMCO/Research Affiliates study that shows, historically, when country P/Es fall below 10, the stock markets of these countries have gone on to produce, on average, a 17% annualized return over the next five years. He advises not trading in and out of these areas and taking at least a one year time horizon, if not longer, when investing in these beaten regions and countries around the world.

Faber also talks about asset allocation and a study he conducted on the top asset allocators over the last 40 years. His findings show that all of the very best allocation strategies had a diverse mix of assets, including global stocks, fixed income and real assets, but one of the keys in their long term success was paying very low fees. Faber also discusses commodity investments, his 0% fee ETF and things such as the proliferation of various ETFs.