ETFs Focusing on 'Cash Cows' for Quality Exposure

Expanding on its line of so-called Cash Cows, Pacer ETFs recently launched two new exchange traded funds that target small-cap and international developed companies with free cash flow yield to single out quality names.

Pacer recently rolled out the Pacer US Small Cap Cash Cows 100 ETF (BATS: CALF) and Pacer Developed Markets International Cash Cows 100 ETF (BATS: ICOW). CALF has a 0.59% expense ratio and ICOW has a 0.65% expense ratio.

“At Pacer ETFs, we believe free cash flow yield is the best metric to measure quality,” Sean O’Hara, President of Pacer ETF Distributors, said in a note. “Our research shows companies with high free cash flow yield tend to outperform the broader market over time because they are more likely to have healthy balance sheets and growth potential. Having the cash flow story resonate well with Pacer Global Cash Cows Dividend ETF (GCOW) and Pacer US Cash Cows 100 ETF (COWZ), we are adding the ETFs to create more options for advisors looking for quality investment strategies.”

The US Small Cap Cash Cows 100 ETF tries to reflect the performance of the Pacer US Small Cap Cash Cows Index, which is comprised of small-cap U.S. companies taken from the S&P SmallCap 600 Index with high free cash flow yields, or those commonly referred to as “cash cows.” Companies are screened based on their average projected free cash flows and earnings over the next two fiscal years. Those with no forward year estimates or negative average projected estimates are eliminated. Only the top 100 companies that make the cut are ranked by their free cash flow yield for the trailing 12 month period.