Over the years, many companies have transitioned from asset-heavy to asset-light business models, where intangible assets drive most of their growth.
Tangible assets are assets that appear on a company’s balance sheet. Asset-heavy business models focus on such tangible assets as buildings, land, equipment, and inventory.
On the other hand, intangible assets include things like patents, intellectual property, brand development, and R&D. While intangible assets don’t appear on a company’s balance sheet, they can be important drivers of growth.
See more: “Why Price-To-Book Ratio Doesn’t Reflect a Company’s True Value”
Certain sectors, like technology, consumer, and healthcare, often include companies in which the value of their respective businesses comes from intangible assets and intellectual property.
“Anyone can invest capital to design a smartphone,” said Michael Mack, Associate Portfolio Manager at VictoryShares and Solutions. “But only the strongest brands can produce one that consumers value.”
Those sectors that focus on intangible assets tend to generate high free cash flow (FCF) yields as of the 3rd quarter of 2023.
FCF is a crucial metric for assessing the value of a company. A positive FCF means a company generates more cash than it needs to cover all expenses. This can be a sign of quality and operating efficiency.
VictoryShares believes FCF is a more reliable metric than earnings, which can be impacted by non-cash charges, depreciation, or write-offs.
Target Strong Brands With Intangible Assets Through VFLO
The VictoryShares Free Cash Flow ETF (VFLO) tracks an index that seeks to capture profitable U.S. large-cap companies with high FCF yields. While value indexes like the Russell 1000® Value Index emphasize sectors such as financials and industrials, the Index VFLO tracks provides exposure to sectors like healthcare and information technology while avoiding financials.
The Index selects companies from a universe of U.S. large-cap stocks[1] by applying a profitability screen. It then selects companies with the highest free cash flow yields that exhibit relatively higher growth potential based on trailing and forward-looking metrics.
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, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of VFLO.
Disclosure Information
[1] The Victory U.S. Large Cap Free Cash Flow Index’s starting universe is the VettaFi 1000 Index, which consists of market cap weighted U.S. large-cap stocks.
The Russell 1000® Value Index is a market-capitalization-weighted index that measures the performance of Russell1000® Index companies with lower price-to-book ratios and lower forecasted growth rates.
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 Fund 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. 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.
Additional Information
Derivatives may not work as intended and may result in losses. 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. Investments in mid-cap companies typically exhibit higher volatility. 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 information in this article is based on data obtained from recognized services and sources and is believed to be reliable. The securities highlighted, if any, were not intended as individual investment advice.
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.
20231116-3229382