Victory Capital targets free cash flow with new US equity ETF

Jun 27th, 2023 | By | Category: Equities

Victory Capital Management has launched a new US equity smart beta ETF that seeks to capture both quality and growth investment factors.

Mannik Dhillon, President of VictoryShares

Mannik Dhillon, President of VictoryShares.

The VictoryShares Free Cash Flow ETF (VFLO US) has been listed on Nasdaq with an expense ratio of 0.39%.

The fund is linked to the proprietary Victory US Large Cap Free Cash Flow Index which selects its constituents from a universe of the 1,000 largest securities listed in the US excluding financial companies and real estate investment trusts. Any firm with negative earnings or a negative free cash flow yield is removed from the selection pool.

The methodology first screens for the 75 companies with the highest free cash flow yield – 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.

By focusing on free cash flow, the 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.

From the reduced pool of 75 securities, the index selects the 50 stocks with the highest growth trend of sales and earnings.

Constituents are weighted using a combination of a company’s total free cash flow and its free cash flow yield. Individual stocks are capped at 4% and any single sector is limited to a maximum weight of 45% or 20% above its weight in the parent universe.

Mannik Dhillon, President of VictoryShares, said: “With the launch of VFLO, we are evolving traditional value strategies by leveraging well-researched methodologies designed to provide investors with a compelling opportunity to capitalize on companies with attractive free cash flow yields without sacrificing growth potential. It is a testament to our commitment to developing innovative solutions designed to deliver improved investment outcomes for our clients and investors.”

Tags: , , , , , ,

Leave a Comment