At the sector level, the fund is heaviest in financials, at 20%, followed by n consumer discretionary at 17% and technology at 15%. The sector allocation doesn't look much different than the SPDR S&P 500 ( SPY). The individual holdings look nothing like SPY, however. The 100 stocks are targeted to have equal weighting but the fund has a decidedly small cap orientation. The minimum market cap for inclusion is $200 million and 44% of the holdings have market caps below $5 billion. Companies are chosen through a proprietary algorithm that rates companies in paying dividends, buying back stocks and paying off debt. The fund's literature makes it very clear that just focusing on dividends is inferior to SYLD's approach of looking at all three metrics. Indeed to the extent it is not a dividend oriented fund, SYLD will only pay one dividend per year.
Like the AdvisorShares Cambria Global Tactical ETF ( GTAA), the firm's other ETF, there is plenty of research behind SYLD's methodology. SYLD's is built upon work done by Robert Shiller and, to a lesser extent, Jeremy Schwartz. They each conducted their own research to conclude that the above-mentioned free-cash-flow metrics provide superior returns. But again, SYLD should not be expected to have a high yield. Investors should buy the fund because they believe its strategy will provide superior returns going forward.
Again buying the fund is to believe in its methodology over the long term, not its performance during a six-month correction in the stock market. At the time of publication, Nusbaum had no positions in securities mentioned. Follow @randomroger This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.