Companies have enormous discretion in how they report sales, earnings, assets, and liabilities. However, free cash flow is significantly less likely to be subject to some of the financial gimmickry in today’s accounting practices. Free cash flow provides closer scrutiny of underlying corporate fundamentals, making it easier to identify quality companies with growing cash reserves.
Furthermore, the focus on share reductions or companies that execute share reductions by lowering the amount of shares outstanding, most commonly through stock buybacks, is also another value screen. This helps investors as they end up holding a “larger piece of the pie.” TrimTabs also takes an extra step by targeting companies that execute buybacks are only doing so with free cash flow and not through additional leverage.
TTAI is similar to TrimTabs’ other U.S. domestic-market oriented ETF play, TrimTabs Float Shrink ETF (BATS:TTAC), which targets U.S. companies that have strong free cash flow and reduce share counts.
“We’re thrilled to be able to expand our free cash flow offerings to encompass non-US based companies as well,” Charles Biderman, Founder of TrimTabs Asset Management, said in a note. “When used in conjunction with one another, TTAI and TTAC will allow investors to customize their domestic and international free cash flow exposure, all within one product suite.”
Investors who are feeling a sense of déjà vu may remember that TrimTabs had previously listed the TrimTabs International Free-Cash-Flow ETF (NYSEArca:FCFI), which debuted in June 2015 and closed on Oct. 2016.
For more information on new fund products, visit our new ETFs category.