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Cambria Shareholder Yield ETF

Mebane Faber (Cambria) has launched an interesting ETF today : ->The Cambria Shareholder Yield ETF is an actively managed fund that employs the manager's quantitative algorithm to select U.S.

Gross Income Ratio, a better quality ratio

The following article appeared in the 1 April 2013 issue of the Systematic Value Investor newsletter.Sign up hereto receive two investment ideas based on the best long term investment strategies we have tested.Back to the article.Do you think that the quality of a business makes any difference in terms of returns compared to only buying undervalued companies?It doesn't, but we may have found a quality ratio that helps.As you know, our experience testing quality ratios in our book Quantitative Value Investing In Europe: What Works for Achieving Alpha has been mixed.It doesn't workReturn on invested capital and return on assets as single factors weren't good predictors of future returns.Even though high-quality companies did do better than junk companies using both ratios, the results were not linear, and choosing only high-quality companies would not have helped you to outperform the market consistently.

New KPI : Value Factor One - Backtest

The problem with single-factor valuation ratios is that they move “in and out of favor” and can significantly underperform the overall market over any given 10-year period despite their long-term outperformance.The solution ?A valuation factor that uses a few valuation measures overcomes this problem by giving you a list of undervalued companies based on a few valuation measures and thus more consistent returns.The use of a “value composite” to measure undervaluation rather than using the single valuation ratio of, for example, price-to-sales or book to market.O’Shaughnessy found that stocks selected based on the value composite outperformed stocks scoring highest on any single value factor 82% of the time in all 10-year rolling periods between 1964 and 2009.