The technology sector saw massive inflows during the first half of 20241, suggesting portfolios may be overweight growth exposure.
The technology sector alone took inflows four times greater than the amount going into all other sectors combined between November 2023 and June 20241.
Furthermore, investors’ insatiable appetite for tech stocks is also evidenced by significant flows into growth ETFs. ETFs providing exposure to growth stocks took in close to $35 billion during the first half of 20241.
Broad indexes intended to be a benchmark for the U.S. market, such as the S&P 500, continue to skew more heavily toward growth and tech stocks. Therefore, investors may want to consider a diversifying approach to get more balanced exposures.
See more: Enhance Your Value Exposure and Growth Allocation With VFLO
Value and growth tend to perform in opposition to each other. Thus, by pairing them, investors can potentially create an all-weather portfolio that may be able to deliver in multiple market environments.
While it may seem like a compelling option to invest in growth when growth is winning (and invest in value when value is winning), this strategy is unlikely to be successful over the long term. It’s hard for even the most experienced investors to properly time the market, making it essential for portfolios to maintain a balanced exposure across multiple diversified return drivers.
Addressing Growth Overweight in Portfolios
Free cash flow ETFs, such as the VictoryShares Free Cash Flow ETF (VFLO), may help solve for the current growth bias in many portfolios.
VFLO provides access to three distinct types of exposures: quality, value, and growth. This ETF provides exposure to high-quality companies that are trading at a discount. Furthermore, VFLO’s Index, the Victory U.S. Large Cap Free Cash Flow Index, screens these high free cash flow companies for strong growth prospects. VFLO’s Index methodology focuses on companies with higher expected free cash flow yields and high expected growth rates.
VFLO may be able to add value through its multifactor exposure. The value and quality exposure suggests that VFLO aims to isolate profitable companies that are not overvalued. Meanwhile, the growth angle indicates this approach also targets stocks that have the potential for strong returns in the future.
By improving on traditional approaches to free cash flow investing, VFLO can help open new avenues of constructing a diversified portfolio built for a range of market environments.
1/ VettaFi Data & Reporting
For more news, information, and analysis, visit the Free Cash Flow Channel.
VettaFi LLC (“VettaFi”) is the index provider for VFLO, for which it receives an index licensing fee. However, VFLO is not issued, sponsored, endorsed, or sold by VettaFi. VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of VFLO.
Disclosure Information
Carefully consider a fund’s investment objectives, risks, charges, and expenses before investing. To obtain a prospectus or summary prospectus containing this and other important information, visit http://www.vcm.com/prospectus. Read it carefully before investing.
All investing involves risk, including the potential loss of principal. Please note that the Fund is a new ETF with a limited history. The Fund has the same risks as the underlying securities traded on the exchange throughout the day. Redemptions are limited, and commissions are often charged on each trade. ETFs may trade at a premium or discount to their net asset value. The ETF invests in securities included in, or representative of securities included in, the Index, regardless of their investment merits.
The performance of the Fund may diverge from that of the Index. Investing in companies with high free cash flows could lead to underperformance when such investments are unpopular or during periods of industry disruptions The ETF could also be affected by company-specific factors that could jeopardize the generation of free cash flow. Investments concentrated in an industry or group of industries may face more risks and exhibit higher volatility than investments that are more broadly diversified over industries or sectors. Derivatives may not work as intended and may result in losses.
Additional Information
If a seed investor redeems its shares, it could negatively impact the Funds’ NAV, market price and brokerage costs. The ETF has the same risks as the underlying securities traded on the exchange throughout the day. Redemptions are limited, and commissions are often charged on each trade. ETFs may trade at a premium or discount to their net asset value. The ETF invests in securities included in, or representative of securities included in, the Index, regardless of their investment merits.
Large shareholders, including other funds advised by the Adviser, may own a substantial amount of the Fund’s shares. The actions of large shareholders, including large inflows or outflows, may adversely affect other shareholders, including potentially increasing capital gains. The value of your investment is also subject to geopolitical risks such as wars, terrorism, environmental disasters, and public health crises; the risk of technology malfunctions or disruptions; and the responses to such events by governments and/or individual companies.
The Victory U.S. Large Cap Free Cash Flow Index aims to select high quality companies from its starting universe by applying profitability screens. It then selects companies with the strongest free cash flow yield that exhibit higher growth. The Index is rebalanced and reconstituted quarterly. This Index calculates free cash flow yield by dividing expected free cash flow by enterprise value. Expected free cash flow is the average of trailing 12-month FCF and next 12-month forward free cash flow. Enterprise value (EV) measures a company’s total value, often used as a more comprehensive alternative to equity market capitalization.
Distributed by Foreside Fund Services, LLC (Foreside). Foreside is not affiliated with Victory Capital Management Inc. (VCM), the Fund’s advisor. Neither Foreside nor VCM are affiliated with VettaFi.
20240829-3813067