July 31, 2025 • 28 mins
Tax strategies rarely generate genuine excitement, but the 351 exchange is proving to be the exception that financial advisors, investors with concentrated positions, and forward-thinking asset managers can't stop talking about. This little-known provision allows investors to contribute appreciated securities to create new ETFs without triggering taxable events – essentially functioning as a "1031 exchange for stocks."
Matt Faber breaks down how this century-old tax code provision is finally hitting its stride at the perfect moment. With U.S. markets delivering 10-20x returns over the past 15 years, many investors find themselves trapped by potential tax consequences, unable to diversify away from concentrated positions that have grown to dominate their portfolios. The 351 exchange offers a compelling solution by allowing them to contribute these appreciated assets to seed a new ETF, receiving diversified exposure in return while deferring capital gains taxes.
Cambria has already completed two successful exchanges with growing participation, expecting their next fund to reach $300-500 million in assets. While the process requires coordination across financial advisors and custodians, the benefits are substantial – particularly for high-net-worth individuals, founders with concentrated stock positions, and investors needing strategic rebalancing after years of U.S. outperformance.
Beyond this tax innovation, Faber shares insights on dramatic market trends emerging in 2023. International value stocks have delivered returns of 30-35%, with some markets like Poland up approximately 60%, even as U.S. valuations approach record highs. The conversation also explores the potential recovery in cannabis stocks after eight brutal years of declines, positioning them as a contrarian opportunity with significant upside potential if regulatory progress materializes.
Whether you're seeking tax-efficient portfolio solutions, exploring international diversification, or hunting for asymmetric investment opportunities, this conversation offers valuable perspectives from one of the industry's most innovative thinkers. Subscribe to hear more insights on navigating today's complex investment landscape.
Energy Rocks: the trending Focus Candy now on sale! or Power up now with Energy Rocks Adult Focus Candy. energyrocks.store/LEAD25OFF.
Sign up to The Lead-Lag Report on Substack and get 30% off the annual subscription today by visiting http://theleadlag.report/leadlaglive.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
What makes Cambria maybe different from a 351
exchange basis compared toothers?
Speaker 2 (00:05):
Well, I think 2026, you'll see it really go
mainstream.
I wouldn't be surprised ifVanguard and BlackRock and
others launch variants of this.
I think the challenge for manyis a couple of things.
One is it's a lot of work.
So if you're doing it with 100,1,000, 10,000 accounts, you
(00:26):
know that's a lot of cats toherd.
Second is I think a lot ofpeople like any new technology
or adoption.
They want to see a couplepeople do it feel comfortable.
You know money is very sacredand so before you hand over
millions of dollars, they wantto make sure that it's
functioning and works.
You don't really need to be anearly adopter on this.
(00:47):
So now they've seen people dothis multiple times.
Speaker 1 (00:56):
My name is Michael Guy, a publisher of the Lead
Lagerport.
Joining me here is Matt Faber,cambria sponsored conversation.
Cambria is one of my clients,big fan of Med and all the work
that he and his team do and, ofcourse, the funds that he's got.
We're going to touch on 351exchanges because that's been
more and more out there and alot of it buys express interest.
But real quick, you and I werejust briefly talking about
(01:18):
cannabis.
It's been a brutal space for alot of people to invest in for a
lot of obvious reasons, arounddisjointed, uh, actions between
federal law and state.
Uh, but you do have a cannabisfund.
Uh, I do want you to talk aboutthat because, uh, aside from
the fact that that fund lookslike it may have bottomed, uh, I
(01:39):
myself think that cannabis isgoing to be a beneficiary of
deregulation.
And, for those that arefollowing me and know what I'm
doing, you all know that I'mvery focused on that for a
reason.
Speaker 2 (01:48):
It's our second smallest fund, not our smallest,
but you know we launched thisand you know it's been by far
the best performing cannabis ETF.
Now I quickly qualify that bysaying it's not a huge badge of
honor to be down 70% from thepeak when everything else is
(02:09):
down 95.
But if you know anything aboutcompounding returns, it does
make a big difference and that'sa pretty big hole.
Now the good news is part of me, for those who followed long
enough know that I'm a value andsort of contrarian guy, but on
the other side of the brain I'ma trend follower.
And so if you look at thecannabis opportunity and you go
(02:40):
back to a post we published whenthis first launched, it kind of
walks through the idea and theconcept, but it also walks
through how to think about it.
In the off chance, the industrygoes down 50, 80, 90 percent.
Think about it in the offchance, the industry goes down
50, 80, 90 and at the time whenwe launched the fund, cannabis
was was totally euphoric.
The sector, uh, everyone waskind of going nuts for these
companies and so we launched thefund and the reason it's it's
outperformed the others istwofold.
One it had a big cash stonkwhen it launched, which it no
(03:03):
longer does.
And the second is it's had apretty big exposure to cannabis
adjacent but more cash flowgenerating tobacco companies,
which had also not done greatfor a long time but have done
well the last few years.
There's no way to get exposureto tobacco companies in an ETF
currently, get exposure totobacco companies in an ETF
(03:26):
currently.
However, if you look at thecannabis sector subsector,
industry sub-industry, it'scurrently down one if you
include this year, one, two,three, four, five, six, seven,
eight years in a row and I thinkwhen we did an old study on the
French pharma data going back100 years, I think the record
for a industry years in a row islike six and it was like the
(03:51):
coal industry and I think thathappened twice.
So eight years in a row, 90drawdown.
The only companies left are likethe cockroaches, you know, the
ones that have survived excusethat have sustainable business
model or probably trading atlike an enterprise value to
EBITDA that private equity isinterested in.
(04:11):
All you really need, I think,at this point, is a little
positive movement on regulationfront and I think this
theoretically I don't usuallygive these sort of projections,
but this theoretically couldeasily be a industry where you
blink and it's up 50, 100, 150%and if you look at the actual so
(04:35):
I was talking earlier aboutvalue and trend I mean this has
been a long downtrend, goingback to 2021 and really 2019.
But if you look at kind of thelast year or two, perhaps April
will be the final bottom We'llsee, I don't know.
But it looks like things arestarting to perk up.
(04:57):
But we could do this again atthe end of the year and just be
going back down again.
But a lot of the companies thatare left are the revenue
generating reasonable companies.
It's definitely a non-consensuscontrarian opportunity.
Speaker 1 (05:15):
Yeah, and I mean, is it fair to kind of think of this
almost like even though it'sequity, obviously almost like an
out of the money call option,because to your point it could
be, it could be a multi bagger,right?
Speaker 2 (05:24):
Yeah.
Yeah, I mean it's kind of thingof the money call option,
because to your point it couldbe a multi-bagger right.
Yeah, I mean it's kind of thebest analogy.
I mean I have a decent chunk inthis.
I had kind of Martingaleposition, have increased my
position the more it's gone down.
But who knows, I like it when,like you see a sector where all
the funds are closing, you knowwhere there's just you see the.
It's like a sentiment indicator.
(05:45):
I feel like that was singlecountry and emerging markets the
past few years.
Speaker 1 (05:49):
There's not a whole lot left in the cannabis ETF
space, so TBD we'll see, andarguably the only strong,
survive in a brutal industrylike that.
So if you get any kind ofrelief there from a regulatory
perspective, yeah, those thingscould just skyrocket very
quickly.
Okay, so that was a quick aside.
I know the focus has been onthese 351 exchanges.
(06:13):
There's a big educational pushon your end and you know a lot
of other issues around this.
Let's get into it.
What is a 351 exchange and whyis it getting so much interest?
Speaker 2 (06:24):
We started talking about this about a year, year
and a half ago I think.
We did a chat with you on this.
It's hitting the mainstream,starting to.
Bloomberg did an article aboutit this week.
I'm actually going on Bloombergin about an hour and you know
this is an idea that's beenaround for a long time.
I mean it's been in the taxcode for like 100 years.
(06:44):
You know this is an idea that'sbeen around for a long time.
I mean it's been in the taxcode for like 100 years, but
really it's hitting its str.
Never heard of it and like 99%of people have never heard of
(07:05):
351 is that it's a way tocontribute property to a company
that had not be a taxable event.
And so, if you think of interms of ETFs, it's a way to
seed the launch of an ETF and itnot be a taxable event.
So, for example, you could seedthe launch of a new ETF with 10
(07:25):
, 20, 30 stocks ETFs on and onyou get the ETF in return.
So you contribute aconcentrated portfolio, get a
diversified portfolio back andit's a tax deferral.
It's not a wash, it's adeferral.
We like to try to describe itin layman's terms as somewhat
like a 1031, but for stocks.
So in the real estate world,you know, but exchange
(07:48):
properties, but rather forstocks.
So we've done two of thesealready.
We did one, our first ETF tax,last December.
We did endowment, in April,e&dw, and then next up is GEW,
which is a global equal weight,and then in December is a US
equal weight and they're kind ofgrowing in size.
(08:11):
So the last one was over ahundred million.
My expectation for this nextone is probably in the three to
500 million range and I thinkthat the one at the end of the
year could be up near a billion.
But the use cases are reallyinteresting, you know.
So the most obvious is peoplethat have highly appreciated
positions in US stocks whichhave gone, you know, 10 bagger
(08:32):
in the past 15 years.
Nasdaq is probably closer to 20bagger.
So some people have veryconcentrated US positions.
They know they're expensive andthey want to sell them but they
can't.
So this is an obvious solutionfor that.
Second is strategic rebalancing.
So if someone was 64 to US in2009, well, they're probably
(08:52):
90-10 today in a taxable account, and so it lets you get back to
kind of your target.
And another big one is directindexing.
So the financial advisors outthere that have been using
Parametric and others.
This is a great solution forthat because it lets you take
these frozen portfolios and movethem into an ETF, which can
then rebalance on a goingforward basis.
(09:14):
So it's a pretty cool process.
You know, it's gone fromsomething that nobody had heard
of and we were kind of, with ourpartners at ETF Architect, kind
of paving the way for makingthis process smoother and easier
, and in the coming monthsthere'll be some more innovation
coming up.
But you're starting to hear itin the flow of the mainstream
(09:38):
news and when people hear it,there's certain people that just
get it and say, oh my God, I've, uh, this dog stock that I've
had forever, that I just gothuge gains.
I can't sell ditto with etfs,um, so it's pretty cool solution
and we think, uh, we thinkwe're getting a lot of uh
receptivity to it.
Speaker 1 (09:54):
Uh, currently, was there something that happened
not too long ago that enabledthis?
I mean, it doesn't seem like itshould have been a new thing.
Yeah, so I think so.
Speaker 2 (10:05):
If you look at the ETF rule which, for the
historians and nerds out there,a long time ago, back when we
started, there was all thesedifferent ETF exemptions and
index ETFs theoretically had abetter tax treatment than active
, and on and on, about fiveyears ago, regulators said look,
we're going to equalize this,all the ETFs have the same tax
treatment, and so that allowedfor some other perfect
(10:28):
partnership with this type ofidea.
And you've already seen themutual fund, etf conversions,
hedge funds, separate accounts,etf conversions.
But really this is saying it's.
You know, we're trying to do italmost as an open enrollment
where people could say, hey, I'mgoing to contribute to this
strategy and be able to get theETF back.
So it's kind of like a perfect,perfect what's the right word?
(10:50):
Perfect time when these forceskind of converge or crossover.
I mean, look, we may not havean IRS in five years who knows?
An IRS in five years, who knows?
But for now, taxes are one ofthe biggest inputs into a
traditional after return.
You know, returns you can eat.
I will mention a couple things.
(11:10):
One is that there are somerules so you can't just
contribute 10 million NVIDIA.
There's diversification rulesbecause the regulators don't
want people doing this for taxreasons only, and so the max
position that can go into one ofthese funds is 25%.
So if you got 10 million, youcould give us two and a half
(11:34):
NVIDIA and seven and a halfmillion something else.
Now the cool news is the ETFsare looked through.
So, spy you could give us allSPY, because it looks through
the underlying holdings, or acombination of both.
Most people tend to do aportfolio of 15, 20 stocks or a
combination of stocks and ETFsas a way to diversify.
(11:57):
And the cool part about thisnext fund you know it's it's you
would think, with over 10,000funds out there, that every idea
under the sun has been launched, and one of the most basic ones
is simply a global equal weighttop 500 companies.
There's a bunch in the US,that's over 100 billion of those
, and weirdly there's not aglobal one.
(12:17):
And so we said, particularly inthis point in time where we
think the US stock market isvery expensive, last thing we
would want to do is diversifyinto a market cap weight S&P
style index.
So we prefer the equal weightbecause it breaks that link.
And also, on, the nice part iswe give you two choices.
Now.
September is global, so thinkabout that being like half X US,
(12:41):
and then December is going tobe US only.
And the best part, guyad, isthese are only 25 basis points,
so screaming cheap for ourtraditional lineup.
But they're a little more betaS strategies, so I don't feel
like they're, you know, asconcentrated and weird as our
(13:02):
traditional offerings.
Speaker 1 (13:03):
And as an issuer, it's a great thing, right,
because, to your point, it seedsa strategy instantaneously.
There's been a lot of issuersobviously trying to get into
this.
You guys, I think, have beenthe most vocal and at the
forefront.
What makes Cambria maybedifferent from a 351 exchange
basis compared to others?
Speaker 2 (13:20):
Well, I think 2026, you'll see it really go
mainstream.
I wouldn't be surprised ifVanguard and BlackRock and
others launch variants of this.
I think the challenge for manyis a couple of things.
One is it's a lot of work.
So if you're doing it with 100,1,000, 10,000 accounts, you
(13:41):
know that's a lot of cats toherd.
Second is, I think a lot ofpeople like any new technology
or adoption.
They want to see a couplepeople do it feel comfortable.
You know money is very sacredand so before you hand over
millions of dollars, they wantto make sure that it's
functioning and works.
You don't really need to be anearly adopter on this.
(14:02):
So now they've seen people dothis multiple times.
But traditionally and I thinkthis will still be the case
going forward you're going tosee most asset managers just do
it with their own assets.
So Goldman or a fund or a hedgefund, they'll just pick up
their own assets and move themover.
What we're doing, which is openenrollment across financial
(14:22):
advisors, is harder, right,because you have to educate, you
have to coordinate.
There are different custodians.
Some, like Schwab, are super onboard.
They love it, they fullysupport it.
Others are a little morechallenging and problematic.
And then you have things likethe wire houses which have like
a million gates and draw bridgesthat make it hard for their
clients to access something likethis.
You have things like the wirehouses which have like a million
(14:43):
gates, uh and and um drawbridges that make it hard for
their clients to accesssomething like this Um.
So I think you'll see it evolvein the next year and you'll
start to hear it more and more.
You know, reminds me of talkingabout ETFs 20 years ago and
people say EFT, what's this Like?
Is this like an ATM?
Like what are you talking about?
Like they didn't really knowand now everyone knows when ETF
(15:03):
is.
I think 351 will be the samething, but still, you know,
every conversation I have, everyspeech I give, the number is
like 99%.
So if you're a listener,consider yourself one of the few
rare educated interestedparties.
And the best part is, as anadvisor is, it's a big um biz
(15:25):
dev too.
So there's a lot of individuals, founders, ceo but I haven't
talked to a single venturecapitalist that has heard of
this that have large,concentrated positions and they
can't do anything with them, butthey often won't establish a
relationship with a financialadvisor because say, look, I'm
not going to give you my 100million of Airbnb or Microsoft
(15:48):
or Berkshire or whatever,because you can't do anything
with it.
And now you can say oh well,actually we have a solution, and
it's also.
The traditional options arevery limited, traditional
exchange funds, a lot of thetraditional choices are very
expensive, complicated as well.
Speaker 1 (16:05):
As I have a 351 and cannabis.
Let's talk about some thoughtsfor the end of the year.
You're very loud about the factthat markets are overvalued
which of course I agree andinternational value is clearly
working at least has worked forthe first half of the year.
What are your thoughts on theway things could, on how things
could play out into your end?
Speaker 2 (16:27):
Well, you know our big.
We've been talking about acouple of things, the first two
or three things.
The first is you know there'sthese kind of co-centric
overlapping circles that all areopportunities, you know, the
first one being US market capversus not market cap, and that
(16:47):
one's kind of just chuggingalong.
I mean, look, small caps arestill sucking it up.
You've had a nice bounce butreally they haven't been able to
catch a break.
And so value in the US kind ofa similar circle but what we
have seen is an absolute faceripper in foreign and emerging
market stocks, in particular thedeep value.
(17:08):
So our fund, gval, which ownslike super deep value stocks
around the world, I mean I thinkthat suckers up like 30, 35%
this year, and so you've startedto see this shift, to see this
(17:30):
shift very strong move in valueex-US, and whether that will
continue the rest of the yearwe'll see.
You know, part of the way ourworld works is you certainly
have people, sentiment and flowsplay a very real role and I
haven't seen any pickup insentiment.
When I talk to advisors andinvestors who are getting hot
and bothered about foreign oremerging, it's kind of like
(17:50):
they're still wary, you knowthey say, okay, yeah, but this
is only six months.
But as the quarters and the youknow the annual reports start
to hit, then people startlooking at some of these returns
.
I mean, I think Poland's uplike 60 this year.
(18:18):
You may start to see a shift inbehavior and people start
looking at some of these returns.
I mean, I think Poland's uplike you know.
You get a couple quarters, acouple years shift and all of a
sudden you know you could see areal big change in behavior.
I still don't, and then thatone's, I think, though kind of
well known.
I still don't get the fixedincome space and why there isn't
(18:43):
much greater yields across therisky bond spectrum.
If you look at a lot of thingslike junk and high yield
corporate bonds, you're gettingpretty slim pickings currently.
But who knows, you know,usually that comes when a crisis
comes along.
Those things tend to blow out,but we haven't seen that in
quite some time.
Speaker 1 (18:59):
Yeah, and history obviously much more than
currency movements, right, Imean whether the dollar rebounds
or not.
I mean the local equities arepretty strong there.
That's an early trend, right?
I mean, how long do you thinkthat if this is the cycle?
Finally, for international, Imean any historical evidence
around how long these thingstypically last.
Speaker 2 (19:21):
Most investors are woefully unprepared for that
question, and the answer for anyasset class strategy it can be
decades.
You know, it's maybe just notjust week, month, quarter, but
years, decades, but who knows?
And you're seeing kind of azigzag opportunity set that I
think could be a shift that,when you look back on it, looks
(19:41):
pretty obvious.
But at the same time, the US iscranking.
I mean, we're millimeters fromtaking out the 21 valuation
highs on the CAPE ratio, whichwas like 38 and a half, I think.
I mean really the final bosswas 99 at about 44.
And so there's no question theUS is expensive.
(20:03):
And it's not like the US isdoing poorly, it's just
everything else is is flying,and not just foreign stocks,
gold, bitcoin, silver, on and on, and so it's an environment
where, um, it may be less aboutthe us has to do poorly or crash
or anything else, or be in abear market, and rather just
(20:23):
like people just turn theirattention to the shiner object.
Uh, and there's a lot of those.
So our momentum funds, you knowthey don't always agree with
our value ideas, but theycurrently do, and so our
momentum funds are very heavythan what I just mentioned
foreign equities, gold, bitcoinand so the setup uh is is one
(20:44):
that seems like it has.
Uh could have some legs, butwe'll see.
Speaker 1 (20:48):
Next time we do a video in a few months, we'll
we'll check in and see what'ssee what's transpired anything
that you think, um, we shouldhit on in terms of the way
people are viewing the rest ofthe year.
I mean, let's talk about usmarkets, obviously overvalued,
but over, I can say, overvaluedfor a long time, as we know,
there must be pockets ofinexpensive parts of the US
(21:09):
marketplace, though Everybody'son vacation man.
Speaker 2 (21:11):
Everybody's fat and happy.
Markets are up.
If they're listening to this,shame on you.
You should be out at the beach.
Maybe you're listening at thebeach, so then that's cool.
But you know it's mid late July.
Markets are doing great.
Everything this is about as goodas it gets.
We always tell people say, justappreciate the good times when
(21:31):
you can.
You know like this is, this is,this is good, uh, low
unemployment, economies,cranking markets at all time
highs never feels that way.
It always feels likeeverything's uh, uh, rough,
volatile, uncertain, um, butit's good times so.
But you know, that's that'skind of when you prepare for the
harder times, right, and so,thinking about that, that it may
(21:54):
not always be rosy days.
And so we have a new book comingout.
I don't know when, maybe you'rein, but I'm like 95% done with
it.
It's called Time Billionairesand it's kind of a history of
global stock markets back to1600.
And if we know anything aboutmarkets is that you know the
geopolitical and economic newsevery year is just terrible and
(22:17):
there's always something to seekout about.
And yet you've had thatrelentless march up of equities
over a very long period, and soownership has been well rewarded
over time, and so you know wheneverybody gets back from
vacation, who knows what we'llall be excited about.
Tariffs may be replaced withsomething else, but you know
(22:39):
we'll follow the trends Maybeyour content is everywhere.
Speaker 1 (22:42):
You and I have talked about this before.
A lot of people know your namebut may not necessarily be
familiar with Cambria, which isyour firm.
Just talk about Cambria itselffor a bit, and because it's more
than just sort of a brainchild,this is your life.
Speaker 2 (22:56):
I think you know we're going on.
We're going to be 20 years old,I think, at some point in the
next, not too distant future.
So we're getting up there andyou know, fast forward.
We got 18 funds soon to be 19and 20 this year and we're right
around three billion and gotabout same amount of people's
funds, but located here inManhattan Beach, and if you're
(23:19):
ever in the neighborhood, comesay hi.
But we put out a lot of content.
I think our podcast is onepisode 666 not sure what that's
that means for the guest, butum, we, uh.
We've been putting out a lot ofideas over the years and you
can find the white papers andeverything else.
Um, most of it's free.
Cambriafundscom is the homepage for the work, and then meb
(23:41):
faber blog and Twitter andeverywhere else.
Speaker 1 (23:45):
I got to ask you just this is more, maybe, for me
than for anybody else but whatkeeps you motivated to keep
doing the content you're doing?
I mean, you're just a machinewith this.
Speaker 2 (23:54):
Doesn't always, man.
You know, sometimes I don'thave anything to say.
I'm doing Bloomberg after thisand I was kind of joking with
producers like what do you wantto talk about?
I was like I don't know.
I'm, I'm uh, it's summertime,I'm feeling a little, uh,
demotivated.
But no, I don't know, it varies.
We had some fun the last couplemonths.
Take, I took an ai class and uh,so built a custom gpt on uh.
(24:18):
If you guys go search mytwitter, you can find it, but
there's uh, we trained it up onall my blogs and white papers
and books and podcasts, and soyou can ask it questions and,
and God, to be honest, it's likeit's pretty good.
It's like 80% there.
It's actually a little morecasual than I feel, like I talk,
um, it's a little more kind ofjokey hokey, but maybe that's
(24:41):
because it's picking stuff upfrom Twitter and YouTube.
I'm not sure.
Um, the style's a little uh.
But if you ask it questions likehey, what do you think about my
asset allocation?
Like it's, it's honestly likeit's pretty, it'd be hard to
distinguish.
So that's been fun and so we'vebeen feeding it some ideas for
articles and uh prompts and uh,various uh, but maybe I I don't
(25:05):
know, pretty soon I'm going tobe able to just hang at the
beach and let it wear in thebackground and not have to do
any sort of hustling.
But speaking from oneentrepreneur to another, I know
you know how it is, but it'shard to switch off the brain
sometimes.
But I'm going to Vancouver andup to Salt Spring Island this
next week, so if you're localthere, come say hi, let me know.
Speaker 1 (25:28):
Dude Meb AI just sounds great, like it's just it
kind of rolls off the tonguevery nicely, I just got that
domain.
Speaker 2 (25:33):
Oh, I don't know if I got Meb AI.
I got Meb's favorite.
Speaker 1 (25:37):
You better get Meb AI real quick yeah.
You guys can have it all good,appreciate your time if they get
ready for watching again.
Folks edited podcast on believelike live and a lot of big
things coming on my end you willall soon hear about, so learn
more about the three of the onesthat med just mentioned and
I'll see you all next episode.
Thank you, man, bye.
What makes Cambria maybe different from a 351
exchange basis compared toothers?
Speaker 2 (00:05):
Well, I think 2026, you'll see it really go
mainstream.
I wouldn't be surprised ifVanguard and BlackRock and
others launch variants of this.
I think the challenge for manyis a couple of things.
One is it's a lot of work.
So if you're doing it with 100,1,000, 10,000 accounts, you
(00:26):
know that's a lot of cats toherd.
Second is I think a lot ofpeople like any new technology
or adoption.
They want to see a couplepeople do it feel comfortable.
You know money is very sacredand so before you hand over
millions of dollars, they wantto make sure that it's
functioning and works.
You don't really need to be anearly adopter on this.
(00:47):
So now they've seen people dothis multiple times.
Speaker 1 (00:56):
My name is Michael Guy, a publisher of the Lead
Lagerport.
Joining me here is Matt Faber,cambria sponsored conversation.
Cambria is one of my clients,big fan of Med and all the work
that he and his team do and, ofcourse, the funds that he's got.
We're going to touch on 351exchanges because that's been
more and more out there and alot of it buys express interest.
But real quick, you and I werejust briefly talking about
(01:18):
cannabis.
It's been a brutal space for alot of people to invest in for a
lot of obvious reasons, arounddisjointed, uh, actions between
federal law and state.
Uh, but you do have a cannabisfund.
Uh, I do want you to talk aboutthat because, uh, aside from
the fact that that fund lookslike it may have bottomed, uh, I
(01:39):
myself think that cannabis isgoing to be a beneficiary of
deregulation.
And, for those that arefollowing me and know what I'm
doing, you all know that I'mvery focused on that for a
reason.
Speaker 2 (01:48):
It's our second smallest fund, not our smallest,
but you know we launched thisand you know it's been by far
the best performing cannabis ETF.
Now I quickly qualify that bysaying it's not a huge badge of
honor to be down 70% from thepeak when everything else is
(02:09):
down 95.
But if you know anything aboutcompounding returns, it does
make a big difference and that'sa pretty big hole.
Now the good news is part of me, for those who followed long
enough know that I'm a value andsort of contrarian guy, but on
the other side of the brain I'ma trend follower.
And so if you look at thecannabis opportunity and you go
(02:40):
back to a post we published whenthis first launched, it kind of
walks through the idea and theconcept, but it also walks
through how to think about it.
In the off chance, the industrygoes down 50, 80, 90 percent.
Think about it in the offchance, the industry goes down
50, 80, 90 and at the time whenwe launched the fund, cannabis
was was totally euphoric.
The sector, uh, everyone waskind of going nuts for these
companies and so we launched thefund and the reason it's it's
outperformed the others istwofold.
One it had a big cash stonkwhen it launched, which it no
(03:03):
longer does.
And the second is it's had apretty big exposure to cannabis
adjacent but more cash flowgenerating tobacco companies,
which had also not done greatfor a long time but have done
well the last few years.
There's no way to get exposureto tobacco companies in an ETF
currently, get exposure totobacco companies in an ETF
(03:26):
currently.
However, if you look at thecannabis sector subsector,
industry sub-industry, it'scurrently down one if you
include this year, one, two,three, four, five, six, seven,
eight years in a row and I thinkwhen we did an old study on the
French pharma data going back100 years, I think the record
for a industry years in a row islike six and it was like the
(03:51):
coal industry and I think thathappened twice.
So eight years in a row, 90drawdown.
The only companies left are likethe cockroaches, you know, the
ones that have survived excusethat have sustainable business
model or probably trading atlike an enterprise value to
EBITDA that private equity isinterested in.
(04:11):
All you really need, I think,at this point, is a little
positive movement on regulationfront and I think this
theoretically I don't usuallygive these sort of projections,
but this theoretically couldeasily be a industry where you
blink and it's up 50, 100, 150%and if you look at the actual so
(04:35):
I was talking earlier aboutvalue and trend I mean this has
been a long downtrend, goingback to 2021 and really 2019.
But if you look at kind of thelast year or two, perhaps April
will be the final bottom We'llsee, I don't know.
But it looks like things arestarting to perk up.
(04:57):
But we could do this again atthe end of the year and just be
going back down again.
But a lot of the companies thatare left are the revenue
generating reasonable companies.
It's definitely a non-consensuscontrarian opportunity.
Speaker 1 (05:15):
Yeah, and I mean, is it fair to kind of think of this
almost like even though it'sequity, obviously almost like an
out of the money call option,because to your point it could
be, it could be a multi bagger,right?
Speaker 2 (05:24):
Yeah.
Yeah, I mean it's kind of thingof the money call option,
because to your point it couldbe a multi-bagger right.
Yeah, I mean it's kind of thebest analogy.
I mean I have a decent chunk inthis.
I had kind of Martingaleposition, have increased my
position the more it's gone down.
But who knows, I like it when,like you see a sector where all
the funds are closing, you knowwhere there's just you see the.
It's like a sentiment indicator.
(05:45):
I feel like that was singlecountry and emerging markets the
past few years.
Speaker 1 (05:49):
There's not a whole lot left in the cannabis ETF
space, so TBD we'll see, andarguably the only strong,
survive in a brutal industrylike that.
So if you get any kind ofrelief there from a regulatory
perspective, yeah, those thingscould just skyrocket very
quickly.
Okay, so that was a quick aside.
I know the focus has been onthese 351 exchanges.
(06:13):
There's a big educational pushon your end and you know a lot
of other issues around this.
Let's get into it.
What is a 351 exchange and whyis it getting so much interest?
Speaker 2 (06:24):
We started talking about this about a year, year
and a half ago I think.
We did a chat with you on this.
It's hitting the mainstream,starting to.
Bloomberg did an article aboutit this week.
I'm actually going on Bloombergin about an hour and you know
this is an idea that's beenaround for a long time.
I mean it's been in the taxcode for like 100 years.
(06:44):
You know this is an idea that'sbeen around for a long time.
I mean it's been in the taxcode for like 100 years, but
really it's hitting its str.
Never heard of it and like 99%of people have never heard of
(07:05):
351 is that it's a way tocontribute property to a company
that had not be a taxable event.
And so, if you think of interms of ETFs, it's a way to
seed the launch of an ETF and itnot be a taxable event.
So, for example, you could seedthe launch of a new ETF with 10
(07:25):
, 20, 30 stocks ETFs on and onyou get the ETF in return.
So you contribute aconcentrated portfolio, get a
diversified portfolio back andit's a tax deferral.
It's not a wash, it's adeferral.
We like to try to describe itin layman's terms as somewhat
like a 1031, but for stocks.
So in the real estate world,you know, but exchange
(07:48):
properties, but rather forstocks.
So we've done two of thesealready.
We did one, our first ETF tax,last December.
We did endowment, in April,e&dw, and then next up is GEW,
which is a global equal weight,and then in December is a US
equal weight and they're kind ofgrowing in size.
(08:11):
So the last one was over ahundred million.
My expectation for this nextone is probably in the three to
500 million range and I thinkthat the one at the end of the
year could be up near a billion.
But the use cases are reallyinteresting, you know.
So the most obvious is peoplethat have highly appreciated
positions in US stocks whichhave gone, you know, 10 bagger
(08:32):
in the past 15 years.
Nasdaq is probably closer to 20bagger.
So some people have veryconcentrated US positions.
They know they're expensive andthey want to sell them but they
can't.
So this is an obvious solutionfor that.
Second is strategic rebalancing.
So if someone was 64 to US in2009, well, they're probably
(08:52):
90-10 today in a taxable account, and so it lets you get back to
kind of your target.
And another big one is directindexing.
So the financial advisors outthere that have been using
Parametric and others.
This is a great solution forthat because it lets you take
these frozen portfolios and movethem into an ETF, which can
then rebalance on a goingforward basis.
(09:14):
So it's a pretty cool process.
You know, it's gone fromsomething that nobody had heard
of and we were kind of, with ourpartners at ETF Architect, kind
of paving the way for makingthis process smoother and easier
, and in the coming monthsthere'll be some more innovation
coming up.
But you're starting to hear itin the flow of the mainstream
(09:38):
news and when people hear it,there's certain people that just
get it and say, oh my God, I've, uh, this dog stock that I've
had forever, that I just gothuge gains.
I can't sell ditto with etfs,um, so it's pretty cool solution
and we think, uh, we thinkwe're getting a lot of uh
receptivity to it.
Speaker 1 (09:54):
Uh, currently, was there something that happened
not too long ago that enabledthis?
I mean, it doesn't seem like itshould have been a new thing.
Yeah, so I think so.
Speaker 2 (10:05):
If you look at the ETF rule which, for the
historians and nerds out there,a long time ago, back when we
started, there was all thesedifferent ETF exemptions and
index ETFs theoretically had abetter tax treatment than active
, and on and on, about fiveyears ago, regulators said look,
we're going to equalize this,all the ETFs have the same tax
treatment, and so that allowedfor some other perfect
(10:28):
partnership with this type ofidea.
And you've already seen themutual fund, etf conversions,
hedge funds, separate accounts,etf conversions.
But really this is saying it's.
You know, we're trying to do italmost as an open enrollment
where people could say, hey, I'mgoing to contribute to this
strategy and be able to get theETF back.
So it's kind of like a perfect,perfect what's the right word?
(10:50):
Perfect time when these forceskind of converge or crossover.
I mean, look, we may not havean IRS in five years who knows?
An IRS in five years, who knows?
But for now, taxes are one ofthe biggest inputs into a
traditional after return.
You know, returns you can eat.
I will mention a couple things.
(11:10):
One is that there are somerules so you can't just
contribute 10 million NVIDIA.
There's diversification rulesbecause the regulators don't
want people doing this for taxreasons only, and so the max
position that can go into one ofthese funds is 25%.
So if you got 10 million, youcould give us two and a half
(11:34):
NVIDIA and seven and a halfmillion something else.
Now the cool news is the ETFsare looked through.
So, spy you could give us allSPY, because it looks through
the underlying holdings, or acombination of both.
Most people tend to do aportfolio of 15, 20 stocks or a
combination of stocks and ETFsas a way to diversify.
(11:57):
And the cool part about thisnext fund you know it's it's you
would think, with over 10,000funds out there, that every idea
under the sun has been launched, and one of the most basic ones
is simply a global equal weighttop 500 companies.
There's a bunch in the US,that's over 100 billion of those
, and weirdly there's not aglobal one.
(12:17):
And so we said, particularly inthis point in time where we
think the US stock market isvery expensive, last thing we
would want to do is diversifyinto a market cap weight S&P
style index.
So we prefer the equal weightbecause it breaks that link.
And also, on, the nice part iswe give you two choices.
Now.
September is global, so thinkabout that being like half X US,
(12:41):
and then December is going tobe US only.
And the best part, guyad, isthese are only 25 basis points,
so screaming cheap for ourtraditional lineup.
But they're a little more betaS strategies, so I don't feel
like they're, you know, asconcentrated and weird as our
(13:02):
traditional offerings.
Speaker 1 (13:03):
And as an issuer, it's a great thing, right,
because, to your point, it seedsa strategy instantaneously.
There's been a lot of issuersobviously trying to get into
this.
You guys, I think, have beenthe most vocal and at the
forefront.
What makes Cambria maybedifferent from a 351 exchange
basis compared to others?
Speaker 2 (13:20):
Well, I think 2026, you'll see it really go
mainstream.
I wouldn't be surprised ifVanguard and BlackRock and
others launch variants of this.
I think the challenge for manyis a couple of things.
One is it's a lot of work.
So if you're doing it with 100,1,000, 10,000 accounts, you
(13:41):
know that's a lot of cats toherd.
Second is, I think a lot ofpeople like any new technology
or adoption.
They want to see a couplepeople do it feel comfortable.
You know money is very sacredand so before you hand over
millions of dollars, they wantto make sure that it's
functioning and works.
You don't really need to be anearly adopter on this.
(14:02):
So now they've seen people dothis multiple times.
But traditionally and I thinkthis will still be the case
going forward you're going tosee most asset managers just do
it with their own assets.
So Goldman or a fund or a hedgefund, they'll just pick up
their own assets and move themover.
What we're doing, which is openenrollment across financial
(14:22):
advisors, is harder, right,because you have to educate, you
have to coordinate.
There are different custodians.
Some, like Schwab, are super onboard.
They love it, they fullysupport it.
Others are a little morechallenging and problematic.
And then you have things likethe wire houses which have like
a million gates and draw bridgesthat make it hard for their
clients to access something likethis.
You have things like the wirehouses which have like a million
(14:43):
gates, uh and and um drawbridges that make it hard for
their clients to accesssomething like this Um.
So I think you'll see it evolvein the next year and you'll
start to hear it more and more.
You know, reminds me of talkingabout ETFs 20 years ago and
people say EFT, what's this Like?
Is this like an ATM?
Like what are you talking about?
Like they didn't really knowand now everyone knows when ETF
(15:03):
is.
I think 351 will be the samething, but still, you know,
every conversation I have, everyspeech I give, the number is
like 99%.
So if you're a listener,consider yourself one of the few
rare educated interestedparties.
And the best part is, as anadvisor is, it's a big um biz
(15:25):
dev too.
So there's a lot of individuals, founders, ceo but I haven't
talked to a single venturecapitalist that has heard of
this that have large,concentrated positions and they
can't do anything with them, butthey often won't establish a
relationship with a financialadvisor because say, look, I'm
not going to give you my 100million of Airbnb or Microsoft
(15:48):
or Berkshire or whatever,because you can't do anything
with it.
And now you can say oh well,actually we have a solution, and
it's also.
The traditional options arevery limited, traditional
exchange funds, a lot of thetraditional choices are very
expensive, complicated as well.
Speaker 1 (16:05):
As I have a 351 and cannabis.
Let's talk about some thoughtsfor the end of the year.
You're very loud about the factthat markets are overvalued
which of course I agree andinternational value is clearly
working at least has worked forthe first half of the year.
What are your thoughts on theway things could, on how things
could play out into your end?
Speaker 2 (16:27):
Well, you know our big.
We've been talking about acouple of things, the first two
or three things.
The first is you know there'sthese kind of co-centric
overlapping circles that all areopportunities, you know, the
first one being US market capversus not market cap, and that
(16:47):
one's kind of just chuggingalong.
I mean, look, small caps arestill sucking it up.
You've had a nice bounce butreally they haven't been able to
catch a break.
And so value in the US kind ofa similar circle but what we
have seen is an absolute faceripper in foreign and emerging
market stocks, in particular thedeep value.
(17:08):
So our fund, gval, which ownslike super deep value stocks
around the world, I mean I thinkthat suckers up like 30, 35%
this year, and so you've startedto see this shift, to see this
(17:30):
shift very strong move in valueex-US, and whether that will
continue the rest of the yearwe'll see.
You know, part of the way ourworld works is you certainly
have people, sentiment and flowsplay a very real role and I
haven't seen any pickup insentiment.
When I talk to advisors andinvestors who are getting hot
and bothered about foreign oremerging, it's kind of like
(17:50):
they're still wary, you knowthey say, okay, yeah, but this
is only six months.
But as the quarters and the youknow the annual reports start
to hit, then people startlooking at some of these returns
.
I mean, I think Poland's uplike 60 this year.
(18:18):
You may start to see a shift inbehavior and people start
looking at some of these returns.
I mean, I think Poland's uplike you know.
You get a couple quarters, acouple years shift and all of a
sudden you know you could see areal big change in behavior.
I still don't, and then thatone's, I think, though kind of
well known.
I still don't get the fixedincome space and why there isn't
(18:43):
much greater yields across therisky bond spectrum.
If you look at a lot of thingslike junk and high yield
corporate bonds, you're gettingpretty slim pickings currently.
But who knows, you know,usually that comes when a crisis
comes along.
Those things tend to blow out,but we haven't seen that in
quite some time.
Speaker 1 (18:59):
Yeah, and history obviously much more than
currency movements, right, Imean whether the dollar rebounds
or not.
I mean the local equities arepretty strong there.
That's an early trend, right?
I mean, how long do you thinkthat if this is the cycle?
Finally, for international, Imean any historical evidence
around how long these thingstypically last.
Speaker 2 (19:21):
Most investors are woefully unprepared for that
question, and the answer for anyasset class strategy it can be
decades.
You know, it's maybe just notjust week, month, quarter, but
years, decades, but who knows?
And you're seeing kind of azigzag opportunity set that I
think could be a shift that,when you look back on it, looks
(19:41):
pretty obvious.
But at the same time, the US iscranking.
I mean, we're millimeters fromtaking out the 21 valuation
highs on the CAPE ratio, whichwas like 38 and a half, I think.
I mean really the final bosswas 99 at about 44.
And so there's no question theUS is expensive.
(20:03):
And it's not like the US isdoing poorly, it's just
everything else is is flying,and not just foreign stocks,
gold, bitcoin, silver, on and on, and so it's an environment
where, um, it may be less aboutthe us has to do poorly or crash
or anything else, or be in abear market, and rather just
(20:23):
like people just turn theirattention to the shiner object.
Uh, and there's a lot of those.
So our momentum funds, you knowthey don't always agree with
our value ideas, but theycurrently do, and so our
momentum funds are very heavythan what I just mentioned
foreign equities, gold, bitcoinand so the setup uh is is one
(20:44):
that seems like it has.
Uh could have some legs, butwe'll see.
Speaker 1 (20:48):
Next time we do a video in a few months, we'll
we'll check in and see what'ssee what's transpired anything
that you think, um, we shouldhit on in terms of the way
people are viewing the rest ofthe year.
I mean, let's talk about usmarkets, obviously overvalued,
but over, I can say, overvaluedfor a long time, as we know,
there must be pockets ofinexpensive parts of the US
(21:09):
marketplace, though Everybody'son vacation man.
Speaker 2 (21:11):
Everybody's fat and happy.
Markets are up.
If they're listening to this,shame on you.
You should be out at the beach.
Maybe you're listening at thebeach, so then that's cool.
But you know it's mid late July.
Markets are doing great.
Everything this is about as goodas it gets.
We always tell people say, justappreciate the good times when
(21:31):
you can.
You know like this is, this is,this is good, uh, low
unemployment, economies,cranking markets at all time
highs never feels that way.
It always feels likeeverything's uh, uh, rough,
volatile, uncertain, um, butit's good times so.
But you know, that's that'skind of when you prepare for the
harder times, right, and so,thinking about that, that it may
(21:54):
not always be rosy days.
And so we have a new book comingout.
I don't know when, maybe you'rein, but I'm like 95% done with
it.
It's called Time Billionairesand it's kind of a history of
global stock markets back to1600.
And if we know anything aboutmarkets is that you know the
geopolitical and economic newsevery year is just terrible and
(22:17):
there's always something to seekout about.
And yet you've had thatrelentless march up of equities
over a very long period, and soownership has been well rewarded
over time, and so you know wheneverybody gets back from
vacation, who knows what we'llall be excited about.
Tariffs may be replaced withsomething else, but you know
(22:39):
we'll follow the trends Maybeyour content is everywhere.
Speaker 1 (22:42):
You and I have talked about this before.
A lot of people know your namebut may not necessarily be
familiar with Cambria, which isyour firm.
Just talk about Cambria itselffor a bit, and because it's more
than just sort of a brainchild,this is your life.
Speaker 2 (22:56):
I think you know we're going on.
We're going to be 20 years old,I think, at some point in the
next, not too distant future.
So we're getting up there andyou know, fast forward.
We got 18 funds soon to be 19and 20 this year and we're right
around three billion and gotabout same amount of people's
funds, but located here inManhattan Beach, and if you're
(23:19):
ever in the neighborhood, comesay hi.
But we put out a lot of content.
I think our podcast is onepisode 666 not sure what that's
that means for the guest, butum, we, uh.
We've been putting out a lot ofideas over the years and you
can find the white papers andeverything else.
Um, most of it's free.
Cambriafundscom is the homepage for the work, and then meb
(23:41):
faber blog and Twitter andeverywhere else.
Speaker 1 (23:45):
I got to ask you just this is more, maybe, for me
than for anybody else but whatkeeps you motivated to keep
doing the content you're doing?
I mean, you're just a machinewith this.
Speaker 2 (23:54):
Doesn't always, man.
You know, sometimes I don'thave anything to say.
I'm doing Bloomberg after thisand I was kind of joking with
producers like what do you wantto talk about?
I was like I don't know.
I'm, I'm uh, it's summertime,I'm feeling a little, uh,
demotivated.
But no, I don't know, it varies.
We had some fun the last couplemonths.
Take, I took an ai class and uh,so built a custom gpt on uh.
(24:18):
If you guys go search mytwitter, you can find it, but
there's uh, we trained it up onall my blogs and white papers
and books and podcasts, and soyou can ask it questions and,
and God, to be honest, it's likeit's pretty good.
It's like 80% there.
It's actually a little morecasual than I feel, like I talk,
um, it's a little more kind ofjokey hokey, but maybe that's
(24:41):
because it's picking stuff upfrom Twitter and YouTube.
I'm not sure.
Um, the style's a little uh.
But if you ask it questions likehey, what do you think about my
asset allocation?
Like it's, it's honestly likeit's pretty, it'd be hard to
distinguish.
So that's been fun and so we'vebeen feeding it some ideas for
articles and uh prompts and uh,various uh, but maybe I I don't
(25:05):
know, pretty soon I'm going tobe able to just hang at the
beach and let it wear in thebackground and not have to do
any sort of hustling.
But speaking from oneentrepreneur to another, I know
you know how it is, but it'shard to switch off the brain
sometimes.
But I'm going to Vancouver andup to Salt Spring Island this
next week, so if you're localthere, come say hi, let me know.
Speaker 1 (25:28):
Dude Meb AI just sounds great, like it's just it
kind of rolls off the tonguevery nicely, I just got that
domain.
Speaker 2 (25:33):
Oh, I don't know if I got Meb AI.
I got Meb's favorite.
Speaker 1 (25:37):
You better get Meb AI real quick yeah.
You guys can have it all good,appreciate your time if they get
ready for watching again.
Folks edited podcast on believelike live and a lot of big
things coming on my end you willall soon hear about, so learn
more about the three of the onesthat med just mentioned and
I'll see you all next episode.
Thank you, man, bye.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
My Favorite Murder with Karen Kilgariff and Georgia Hardstark
My Favorite Murder is a true crime comedy podcast hosted by Karen Kilgariff and Georgia Hardstark. Each week, Karen and Georgia share compelling true crimes and hometown stories from friends and listeners. Since MFM launched in January of 2016, Karen and Georgia have shared their lifelong interest in true crime and have covered stories of infamous serial killers like the Night Stalker, mysterious cold cases, captivating cults, incredible survivor stories and important events from history like the Tulsa race massacre of 1921. My Favorite Murder is part of the Exactly Right podcast network that provides a platform for bold, creative voices to bring to life provocative, entertaining and relatable stories for audiences everywhere. The Exactly Right roster of podcasts covers a variety of topics including historic true crime, comedic interviews and news, science, pop culture and more. Podcasts on the network include Buried Bones with Kate Winkler Dawson and Paul Holes, That's Messed Up: An SVU Podcast, This Podcast Will Kill You, Bananas and more.
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.