Money manager Cambiar Investors filed in September to convert the nearly $45 million Cambiar Aggressive Value Fund (CAMAX) mutual fund to an exchange-traded fund structure. The new fund has now -- as of Monday -- been listed on the New York Stock Exchange's NYSE Arca and begins its new life as an active ETF as the Cambiar Investors Aggressive Value ETF (CAMX) .
Cambiar Investors was formed in 2001 and as of January of this year, manages approximately $5.7 billion of client assets across mutual funds, separate accounts, and now, exchange-traded funds for individuals and institutions alike. On to the fund.
CAMX
CAMX is an actively managed fund, so there is no index methodology to review. Reading through the fund's prospectus was interesting, because it informed me that the CAMX will be carrying forward CAMAX's return history. It also mentioned that the returns presented have not been adjusted for the new fund fees (meaning they would have been higher) and of course, that any past performance is not indicative of future results. The ETF sports a 59-basis point expense ratio, meaning a shareholder with $1,000 invested over a calendar year would pay $5.90 in fees over that period.
One thing that did catch my eye was that while CAMAX and CAMX are the same strategy and have the same goal, CAMX "will invest in large capitalization domestic securities to a greater extent than the predecessor fund, CAMAX, and that CAMX will invest in the securities of foreign companies, derivative instruments and short sales to a lesser extent than the Predecessor Fund."
In terms of the strategy and security selection process, this reads the same in the prospectus as it does for the overall approach of the firm as outlined in Cambiar's Form ADV regulatory filing.
The Process
Companies entering the portfolio generally need to satisfy Cambiar's criteria on four levels: quality, valuation, value creation/catalyst, and risk-reward criteria.
Quality seems to be the key metric that drives the security selection decision as they break it down into criteria for management, margin consistency including moat-like language, strong return on invested capital (ROIC) discipline, strong balance sheet as demonstrated by comparatively low exposure to debt and/or equity markets, which ties into the last point which is a strong history of generating free cash flow (FCF).
Valuation plays into this process, as it does for almost every approach, the only difference here is that instead of the popular "growth at a reasonable price" (GARP), Cambiar reads more like "value at a reasonable price" (VARP?). Analysts use a number of metrics here, including price/earnings, price/book value, and FCF yield.
Cambiar, like many investors, also pays attention to how quickly they see their views on a company being adopted by the market by evaluating what they call value creation/catalyst for each potential position. This view includes tracking new product introductions, managerial changes, divestiture of an underperforming division, or simply better financial performance.
The final criterion in this process is the overall risk-reward profile of a company, which includes a company's upside potential based on the observable catalysts within a one-to-two year window.
While there is a robust security selection process, what I like about Cambiar's approach is that they also outline criteria they use for trimming or even removing names from the portfolio. A stock hitting its internal Cambiar price target as envisioned by the investment thesis is the desired outcome but portfolio managers will also close out a position if the stock pops for an unrecognized reason. Declines in price will prompt a reevaluation of the position but if management feels the underlying investment thesis is still intact then they are willing to ride out the storm and may even decide to add to the position at those lower prices.
Wrap it Up
While value strategies have not been in the spotlight so far this year, the prospects for value strategies through the back half of 2023 and potentially into 2024 are looking better as we get a clearer understanding of the economy and the Federal Reserve's reactions to it. As I mentioned earlier, I like both the security selection process and the framework for evaluating positions for size reduction or outright liquidation. While Cambiar is a new ETF issuer, it has been in the investment management space for over two decades, and with well over $5 billion in assets under management, CAMX should be taken seriously.
