One day I was doing some ETF screens, seeing what ETFs were having a good year in this market. I came across VAMO, Cambria Value and Momentum ETF, it caught my eye. I was particularly intrigued because it hasn’t performed all that great compared to the market since it’s inception. However, for the last two years VAMO has killed it!
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VAMO ETF Strategy
According to Cambria, multiple strategies are used for the ETF. It screens stocks for value using the CAPE Shiller Ratio. It also uses momentum (absolute and relative) as a screener as well. Cambria states that the value screen is done looking at the data from a 5 to 10 year period, while the momentum screen is done for less than a years worth of data. In addition, the ETF can use derivatives; things like futures. Up to 20% of the ETF can use dollar or non-dollar money market accounts.
To prevent too much concentration and increase diversification, there is a maximum of 25% allowed for any one sector.
This isn’t a passive, follow-an-index kind of approach to investing. It’s more of a quantitative strategy. Despite being an active fund, the expense Ratio is a reasonable 0.59%. This isn’t bad at all, especially when you consider some of my Consumer Staple ETFs I mentioned in a previous blog had 0.63% expense ratios for a hands-off approach.
Performance of VAMO
Data is retrieved using portfolio visualizer on 12/24/22. These percentages are given as the CAGR (Compound Annual Growth Rate) assuming dividends were re-invested.
|6 year||2 year (2021-12/24/222)||1 year (2022)|
So, on a longer term basis, VAMO hasn’t been a good place to park your equity money. It’s SERIOUSLY underperformed the last six years. However, look at the numbers of the last two years. A whopping 20.66% CAGR. That is some HUGE returns for an active fund.
VAMO Current Holdings
Understand that this ETF changes more than a passive ETF, so these are the holdings as of today, not what they have been in the past. Turnover for this ETF is 70%. This sort of thing should be taken into consideration if one is placing the ETF into a taxable account.
VAMO has 105 holdings. Energy makes up the largest portion, followed by finance and non-energy minerals. As of today, 16% of the ETF is in cash-type holdings (I don’t know if that is typical). Here are a few of the top holdings in no particular order:
- Ramaco Resources
- Loewes Corporation
- Matador Resources
- Commercial Metals Company
- Steel Dynamics
- Westlake Corporations
- Resolute Forest Products
As you can see, there are a lot of Energy & Industrial type names here. One surprising position is Dillards department store. There are also defensives like the healthcare stock Cigna (Which I own myself!).
Energy has had a great run the last two years, so this has a lot to do with the out performance here.
24% of the ETF holdings are Large-cap, 35% are mid-cap, 23% are small-cap, and 3% are micro-cap. I think this is quite interesting as well. Many ETFs only go after large-cap stocks, VAMO even holds a few micro-cap stocks. This provides more diversification as far as market-caps go. Of course, this does possibly increase the risk as well.
Other data for VAMO
VAMO has a dividend Yield of 1.12%, nothing huge; however, you are at least getting a little something.
P/E ratio of 5.52. Given the value screen on the ETF, you expect the P/E to be lower. Price to Book is below 2 as well.
Beta of 0.33. In other words, this ETF hasn’t been very volatile this years in comparison to the market.
2022 has been a bear market, a down year. What you could be seeing is a case of the “active management always underperforms the market” being false. In the case of a bull market where sentiment is great, passive investing seems to be the best approach. However, quantitative strategies that move you in and out of positions based on sentiment could do better in a bear market. At least on the short-term.
What is interesting is if you screen for Momentum ETF’s, you’ll see that most of those didn’t have a great year. So, the outperformance here isn’t due to one factor like Momentum. Value fared better than growth this year; however, it still doesn’t explain the nice returns of this ETF. There is more to it.
I do not own this ETF as of today; however, I have considered buying it. Essentially, part of my reservation is it has outperformed for two years, am I late to the party? I’m anxious to see how it performs going forward and MAY throw a little bit of money at it just for fun.
As always, never take anything you see on the internet (including this blog!) as financial advice. Why? Your portfolio is unique to your own circumstances, you have your own risk profile. A stock or ETF does not act alone, it acts in the context of everything else in your investment portfolio. Seek professional advice that can cater your needs to designing your portfolio to you.
Wishing you the best on your financial journeys!