Pacer ETFs has expanded its ‘Cash Cow’ line-up with a new US equity fund that tilts towards stocks with high share price momentum.

The fund is the only ETF in the Cash Cow series to tilt towards stocks with high share price momentum.

The Pacer US Large Cap Cash Cows Growth Leaders ETF (COWG US) has been listed on Nasdaq with an expense ratio of 0.49%.

Pacer’s Cash Cow ETFs are smart beta funds that select and weight stocks from their respective universes based on a free cash flow yield filter, a methodology that aims to target financially robust companies, thereby tilting portfolios towards the quality factor.

Free cash flow is the cash remaining after a company has paid expenses, interest, taxes, and long-term investments. It can be used to buy back stock, pay dividends, or participate in mergers and acquisitions. The ability to generate a high free cash flow yield indicates a company is producing more cash than it needs to run the business and can invest in growth opportunities.

Pacer’s Cash Cow line-up now consists of eight ETFs with collective assets under management in excess of $10 billion. Other available exposures in the series include US large-cap, US small-cap, US growth, global, developed ex-US, and emerging market equities, as well as a diversified fund that allocates across the other ETFs in the series.

The series has exploded in popularity during the recent challenging economic and market conditions caused by the Covid-19 pandemic with over $9bn of the series’ assets accumulated since May 2021.

Sean O’Hara, President of Pacer ETFs Distributors, commented: “In 2022, investors that favoured free cash flow yield, like in the Cash Cows series, may have fared well despite rising inflation and persistently volatile market conditions. As we continue navigating these uncertain economic times, strong fundamental qualities such as high free cash flow will remain a valuable measure of investment potential. We created COWG to deliver a new opportunity for investors that may provide a more growth-oriented strategy focusing on free cash flow margin.”

Methodology

The new fund is linked to the Pacer US Large Cap Cash Cows Growth Leaders Index which is constructed from the Russell 1000 Index universe.

The methodology selects the 100 securities with the highest free cash flow margins over the past 12-month period.

While most of the existing Pacer Cash Cow ETFs weight their constituents by free cash flow yield, the latest fund weights its holdings according to 12-month share price momentum. Any individual stock is capped at 5%.

According to Pacer, while the P/E ratio of the ETF is virtually identical to the Russell 1000, its free cash flow margin is notably higher at 32.26% (compared to 13.62%) highlighting the fund’s lean towards the quality factor.

The fund is notably tilted towards stocks from the information technology (38.3%), health care (28.0%), and energy (13.7%) sectors with the next-largest sector exposures being communication services (8.3%) and consumer discretionary (4.3%).

There is considerable diversification at the constituent level with the largest holding being Texas Pacific Land Corporation at just 3.3%.