Cambria Investment Management’s Meb Faber believes investors should expect pretty lousy returns in the coming years due to pricey equity valuations.

CNBC’s Mike Santoli spoke with Faber, who invests globally using a ‘deep’ value investing strategy, in an exclusive interview for CNBC PRO
. Santoli asked the ETF manager for his market outlook.

“A few years ago I said the world doesn’t really look the way it should in my mind. And over the last year or two it’s really changed. Our thesis has been that the US stock market’s expensive,” Faber said. “We’re thinking low single digit returns for stocks – let’s call it 4 percent. We’re not as bearish as some, but around 4 percent. So not awful: higher than bonds, not negative yet, but not particularly good. Again, it doesn’t mean it has to crash, but that’s kind of the bad news.”

Faber is the chief investment officer and co-founder of Cambria, which oversees around $850 million in assets. He is also the manager of Cambria’s ETFs and separately managed client investments accounts.

The Cambria’s Global Value ETF, a fund based on Faber’s quantitative screen for cheap international stocks, posted 33 percent return for the 12-month period ending June 30. The S&P 500 is up 14 percent and the MSCI World Index is up around 12 percent so far this year.

The manager also explained why value investors sometimes go astray by focusing solely on dividend yield.

“It’s certainly not horrible investment strategy, and it’s certainly better than investing in non-dividend paying stocks, but it’s not a good investment strategy,” Faber said.

Instead, Faber recommended looking at total shareholder capital return, as known as shareholder yield, which includes stock buyback in addition to dividends.

“Dividends plus net buybacks and it’s really important to include net buybacks meaning stock that’s been issued, because a lot of tech companies or companies that have options issuance will simply issue a ton of stock and buy it back on the other hand to mop it up. So it’s the net amount. And you come up with this more holistic version of yield – it gives you a much better perspective of the quality of the company.”

See here for the full CNBC PRO report and the interview video.

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