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January 22, 2015 at 10:46 AM
Investors have come to expect trendsetting low-fee funds from Vanguard, or if it’s free, then perhaps from Schwab, which offers commission-free ETF trading.
But the smaller-profile Cambria Investment Management, which runs five ETFs under the stewardship of investment maverick Mebane Faber, has beat the big boys to the punch: His new asset allocation fund sports the low, low price of 0.00% in management fees.
The Cambria Global Asset Allocation Fund (GAA), launched last month, has quickly topped $10 million in assets under management.
“It’s very disruptive,” Faber tells ThinkAdvisor in an interview, adding his expectation that Schwab or Vanguard will follow his lead.
Those mega-firms would seemingly have the capacity to offer a loss-leader fund, but how is Faber — who explicitly characterizes the zero fee as “permanent” (vs. the fund industry’s paradigmatic “temporary waiver”) — doing it?
While Faber says he is bearing the loss of operating the funds, he expects to reach profitability as the fund grows, since some of its underlying investments redound to Cambria’s bottom line.
That is to say, the fund, per its name, invests in a wide gamut of assets including domestic and foreign stocks, bonds, real estate, commodities and currencies, and it does so through holdings of other ETFs. Cambria’s other ETFs, which do charge fees, are counted among the fund’s 29 ETF holdings (though none are among the top 10 holdings, which are mostly Vanguard ETFs).
But the ETF’s total annual fund operating expense of 0.29% is on the low end of the cost spectrum, and there is a principled reason for that, apart from any marketing value the move confers.
Faber is an investment wonk who pores over data and blogs and conducts his own research, having written three previous books with a fourth to be published in the coming weeks.
That book, called “Global Asset Allocation,” investigated more than a dozen of the best known asset allocation models — including the 60-40 stock-bond allocation, the Harvard and Yale endowment models, risk parity, Rob Arnott’s fundamental indexing, and the so-called permanent portfolio.
