With Greece teetering on the brink of financial ruin and expulsion from the Eurozone, investing in European equities might seem hazardous to a portfolio’s health, but an emphasis on quality and cash flow can help investors steer clear of potential problems.
Some market observers believe that the market will slowly strengthen as the European Central Bank’s commitment to quantitative easing will help bolster the economy. Moreover, after the recent pullback, European equities are now inexpensive compared to U.S. stocks and offer better expected earnings revisions. [Improving Business Growth Helps Sustain Eurozone ETF Gains]
The TrimTabs International Free-Cash-Flow ETF(NYSEArca: FCFI), which debuted last month, can help investors stay with quality European stocks while focusing on those with some of the soundest cash-generating abilities.
“Companies with high cash-flow are seen as more resilient to an economic downturn than those with higher debt and less cash, and they also often offer solid dividend payouts,” according to Reuters. In the Reuters article, it was noted that FCFI surged 5% last week even as tensions escalated regarding Greece’s future in the Eurozone.
FCFI 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. [International Cash-Flow Generators in an ETF]
The new ETF holds no Greek stocks and its selection universe excludes all of the PIIGS nations. TrimTabs can pull stocks for FCFI’s portfolio 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.
“According to Thomson Reuters StarMine data, free cash-flow yields are 10 percent for Deutsche Telekom, 9.3 percent for Swatch and 6.7 percent for Zurich Insurance. These are stronger than the 3.8 percent average for the pan-European STOXX 600 index and 4.5 percent for the U.S S&P 500, according to StarMine,” reports Reuters.
Zurich Insurance is FCFI’s largest holding at almost 2.7% of the ETF’s weight while Swatch and Deutsche Telekom are also top 10 holdings in the fund. Other top 10 holdings include 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.
TrimTabs International Free-Cash Flow ETF