Global X has launched a new ETF in the US targeting US large and mid-cap companies exhibiting high free cash flow yields.
Rohan Reddy, Director of Research at Global X ETFs.
The Global X US Cash Flow Kings 100 ETF (FLOW US) has been listed on NYSE Arca with an expense ratio of 0.25%.
Free cash flow is a measure of a company’s financial performance, calculated as operating cash flow minus capital expenditures. It represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base.
The metric is important because it shows the amount of funds that a company possesses to pursue opportunities that enhance shareholder value. It also offers one of the most unbiased means of scrutinizing a company’s corporate fundamentals as management tends to have less discretion on how free cash flow is reported compared to other metrics such as sales, earnings, assets, or liabilities which can, in some cases, be massaged.
Rohan Reddy, Director of Research at Global X ETFs, said: “With the launch of FLOW, we are offering investors the chance to invest in companies that have exhibited the highest free cash flow yield, making them likely well-positioned to meet financial obligations, expand, and/or return money to their shareholders.
“During this period of elevated interest rates, companies with such robust profitability may be a particularly appealing addition to the core components of investors’ equity portfolios, especially when combined with the tax efficiency of an ETF.”
Methodology
The fund is linked to the Global X US Cash Flow Kings 100 Index which is constructed from an initial universe of the largest 1,000 non-financial companies listed in the US.
The index selects the 100 constituents with the largest free cash flow yields over the last twelve months, weighting them by free cash flow yield subject to an individual stock cap of 2% and a sector cap of 25%.
As of 13 July, stocks from the energy sector accounted for a quarter (25.0%) of the index weight with materials (16.1%), health care (15.0%), consumer discretionary (14.2%), and information technology (10.3%) also playing notable roles.
The ETF comes with an expense ratio of 0.25%.