Pacer ETFs rolled out a new exchange traded fund that screens for the highest free-cash-flow producing companies in the U.S.
On Monday, the Pacer US Cash Cows 100 ETF (BATS: COWZ) began trading. COWZ has a 0.49% expense ratio.
“The Pacer US Cash Cows strategy captures an innovative and relatively untapped segment of the market by focusing on US companies with a high free cash flow yield and we’re incredibly excited to make it available to individual investors and advisors,” Sean O’Hara, President of Pacer ETF Distributors, said in a press release. “High quality, high free-cash-flow yielding companies are an important part of a well-balanced portfolio because of their ability to sustain and grow income while also providing an opportunity for capital appreciation over time.”
The new ETF tries to reflect the performance of the Pacer US Cash Cows 100 Index, which is comprised of large- and mid-cap U.S. companies with high free cash flow yields, or those commonly referred to as “cash cows.”
The underlying index selects companies from the Russell 1000 Index and screens those based on average projected free cash flows and earnings over each of the next two fiscal years, excluding financial companies other than real estate investment trusts.
Component companies are then ranked by free cash flow yield for the trailing twelve month period, and equity securities of 100 companies with the highest free cash flow yield are included in the underlying index. Holdings are also weighed in proportion to their trailing twelve month free cash flow with a capped 2% of the weight of the index for any individual company.
The Pacer US Cash Flows 100 Index shows a 8.65% free-cash-flow yield as of December 8, compared to the 3.87% free-cash-flow yield for the broader Russell 1000 Index.
“Using a free cash flow screen to provide exposure to the top 100 companies in the Russell 1000 allows investors to track high quality US large cap companies with the potential for long term capital appreciation,” Ron Bundy, CEO of North America benchmarks for global index provider FTSE Russell, said in a press release.
Free cash flow is a measure of a company’s financial performance as calculated by operating cash flow minus capital expenditures. The measure marks the cash available after spending the money required to maintain or expand its asset base. Companies with high free cash flow also have more leeway to grow dividends over time.
Top holdings include United Continental Holdings (NYSE: UAL) 2.7%, Delta Air Lines (NYSE: DAL) 2.6%, Southwest Airlines (NYSE: LUV) 2.5%, Valero Energy Corp. (NYSE: VLO) 2.4% and Boeing Company (NYSE: BA) 2.3%.
Sector weights include information technology 24.9%, industrials 20.5%, consumer discretionary 18.8%, health care 11.7%, real estate 7.0%, materials 6.7%, energy 6.0% consumer staples 2.8% and telecom services 1.6%.
For more information on new fund products, visit our new ETFs category.