Pennsylvania-based Pacer ETFs has entered Europe’s ETF market with the introduction of three funds delivering the firm’s popular ‘Cash Cows’ investment strategy.
Sean O’Hara, President of Pacer ETFs Distributors.
Cash Cows refers to companies with high free cash flow yields – 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 generates after spending the money required to maintain or expand its asset base.
The metric is important because it shows a company is producing more cash than it needs to run the business and can invest in growth opportunities.
By focusing on free cash flow, the Cash Cows methodology may be better able to scrutinize the underlying corporate fundamentals of each company. Indeed, 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.
Pacer’s US-listed suite of Cash Cows ETFs houses over $35 billion in assets across ten funds, having increased its AUM by nearly 120% in 2023 through strong performance and investor demand.
In Europe, Pacer’s inaugural Cash Cows ETFs focus on global, US, and developed ex-US equity markets.
Listed on Euronext Dublin and Euronext Amsterdam, the three funds are the Pacer Global Cash Cows Dividend UCITS ETF (GCOW), the Pacer US Cash Cows 100 UCITS ETF (COWZ), and the Pacer Developed Markets International Cash Cows 100 UCITS ETF (ICOW).
GCOW, COWZ, and ICOW come with expense ratios of 0.60%, 0.49%, and 0.65% respectively.
Sean O’Hara, President of Pacer ETFs Distributors, commented: “By entering the European market, we aim to serve a broader demographic of investors and advisors who are looking to tap into the opportunity these free-cash-flow focused funds offer.”
Methodology
GCOW applies a screening process to the FTSE Developed Large Cap Index, which comprises approximately the top 1,000 stocks across developed markets globally, identifying the 300 companies with the highest free cash flow yields. From this subset, the index selects the 100 companies with the highest trailing 12-month dividend yields. These constituents are then weighted based on their dividend yield, with a maximum weight of 2% per stock.
COWZ filters the Russell 1000 Index, representing roughly the largest 1,000 stocks in the United States, to isolate the 100 companies with the highest free cash flow yields. The selected constituents are weighted by their trailing 12-month free cash flow, with individual stock weights capped at 2%.
ICOW screens the FTSE Developed ex-US Index, which includes approximately the largest 500 stocks listed in developed markets outside of the United States, for the 100 companies with the highest free cash flow yields. These companies are weighted by their trailing 12-month free cash flow, with a 2% cap on the weight of each stock.
All three ETFs are reconstituted and rebalanced semi-annually, with adjustments made in June and December.