As the exchange traded funds industry has evolved, so have the number of weighting methodologies used by issuers. In addition to traditional market capitalization weighting, investors can find ETFs weighted by dividend yield, revenue, GDP in some international funds and share count reduction.
Investors looking for international companies that are prodigious generators of free cash have an ETF to call their own with Tuesday’s debut of the TrimTabs International Free-Cash-Flow ETF(NYSEArca: FCFI). California-based TrimTabs has enjoyed previous ETF success with the TrimTabs Float Shrink ETF (NYSEArca: TTFS), one of the largest equity-based actively managed ETFs. [Another Milestone for the Float Shrink ETF]
The TrimTabs Intl Free-Cash-Flow ETF, TrimTabs’ second ETF, tracks the TrimTabs Intl Free-Cash-Flow Index, which holds international companies with the highest free cash flow yield. Free cash flow yield is calculated by dividing the amount of free cash per share a company generates by its share price.
“Free cash flow is the most important metric, and it is often overlooked” says portfolio manager Minyi Chen. “While everyone else looks at earnings or sales, we have developed a proprietary strategy that identifies those companies creating stable, intrinsic value in a diversified basket of international stocks.”
Chen also serves as the portfolio manager for TTFS, which carries a five-star Morningstar rating. [Float Shrink ETF Lands Five-Star Rating]
The TrimTabs Intl Free-Cash-Flow ETF holds stocks from Canada, Germany, United Kingdom, Hong Kong, Japan, France, Switzerland, Netherlands, South Korea, and Australia.
“Candidates for inclusion in each country are ranked by free cash flow yield and equal weighted too. This equal weighting methodology may mitigate some of the specific company risk facing investors looking to add diversification to their portfolio. The ten global markets composing the fund are then equally weighted, with 10% allocated to each,” according to TrimTabs.
FCFI is home to 100 stocks, none of which account for more than 2.34% of the new ETF’s weight. The fund’s top 10 holdings combine for just 18.5% of its weight. That group includes Swiss industrial conglomerate ABB (NYSE: ABB) and Royal Dutch Shell (NYSE: RDS-A), Europe’s largest oil company.
The new ETF charges 0.69% per year.
FCFI Top 10 Holdings
Table Courtesy: TrimTabs