GVAL ETF: A Contrarian's Playbook for Global Value in a Volatile Market

In a world where markets swing between euphoria and panic, the Cambria Global Value ETF (GVAL) stands out as a disciplined contrarian force. By systematically targeting undervalued markets and stocks across 45 countries, GVAL leverages smoothed earnings metrics like the Shiller CAPE ratio to exploit mispricings caused by short-term market overreactions. This strategy positions it as a compelling tool for investors seeking to navigate today's uncertain macro landscape while capitalizing on historical value premiums.

The Power of Smoothed Earnings: CAPE as a Contrarian Compass

At its core, GVAL's methodology is rooted in the Cyclically Adjusted Price-to-Earnings (CAPE) ratio, a long-term valuation metric popularized by economist Robert Shiller. Unlike traditional P/E ratios, CAPE averages a market's earnings over the past 10 years, smoothing out short-term economic fluctuations. This approach helps identify markets where prices have become detached from long-term fundamentals—a hallmark of overvaluation.

The U.S. market's CAPE of over 30—nearly double the global median—suggests it's among the most overvalued in history. Meanwhile, markets like Japan (CAPE ~20) and emerging economies such as Vietnam (CAPE ~10) appear far cheaper relative to their historical norms. GVAL's strategy is to overweight these undervalued regions, betting on mean reversion—the tendency of extreme valuations to correct over time.

Diversification Beyond Borders: A Global Value Hunt

GVAL's true edge lies in its global scope. By evaluating 45 countries—from developed markets like Germany to emerging powerhouses like India—the fund avoids the “home country bias” that plagues many investors. For example, U.S. investors typically hold 80% of their portfolios in domestic stocks, even though the U.S. represents just 50% of the global market. GVAL rebalances this imbalance, systematically allocating to the top 25% of countries with the lowest CAPE ratios.

Within these selected countries, GVAL employs a “bottoms-up” approach, picking the 10 most undervalued stocks from each nation's top 30 by market cap. This dual focus on country-level valuation and stock-specific discipline creates a portfolio that's both geographically and sectorally diversified. As of recent data, GVAL holds 107 stocks, with 61% of assets in its top 50 holdings, balancing focus with diversification.

The Case for Value: Historical Outperformance and Behavioral Wisdom

Value investing's track record is well-documented. Over the past century, value stocks have outperformed growth stocks by an average of 3–5% annually, according to research from Eugene Fama and Kenneth French. GVAL amplifies this advantage by layering on global diversification and active management (introduced in 2020).

This outperformance isn't accidental. By avoiding high-CAPE markets like the U.S.—which historically underperformed after CAPEs above 30—GVAL sidesteps potential drawdowns. Consider Japan's experience: its CAPE hit nearly 100 in the late 1980s, followed by decades of stagnant returns. GVAL's methodology would have steered investors away from such extremes.

Risks and Considerations

No strategy is without drawbacks. GVAL's global focus exposes investors to currency fluctuations, political risks, and lower liquidity in emerging markets. Smaller companies in the portfolio may also experience heightened volatility. Additionally, while CAPE is a robust metric, it isn't perfect—mean reversion can take years to materialize.

Investors must also accept that value strategies like GVAL may underperform during prolonged growth booms (e.g., the 1990s tech bubble). Patience is critical: value's edge emerges over 5–10 year horizons, aligning with CAPE's 10-year earnings window.

A Resilient Tool for Long-Term Wealth

In today's environment—marked by geopolitical tensions, inflation fears, and overvalued domestic markets—GVAL offers a compelling contrarian play. Its blend of valuation discipline, global diversification, and active management positions it to capitalize on mispricings while mitigating exposure to overhyped regions.

Investment Takeaway:
- Core Holding for Long-Term Portfolios: GVAL's focus on valuation and diversification makes it a natural complement to growth-oriented or domestic-heavy allocations.
- Consider Dollar-Cost Averaging: Given its sensitivity to global macro risks, investors may want to ease into the fund over time.
- Monitor CAPE Trends: Track the U.S. CAPE ratio () to gauge when domestic markets may again offer better value.

In a market rife with short-termism and herd behavior, GVAL stands as a testament to the wisdom of Benjamin Graham's “Mr. Market” analogy: buy when others panic, sell when they're euphoric. By systematically applying this philosophy across borders, GVAL turns volatility into an opportunity—one undervalued stock and market at a time.