SFLO Offers Access to New Small Cap FCF Leaders

VictoryShares’ small-cap free cash flow (FCF) ETF was met with interesting changes to its top holdings and sector weights following a recent rebalance.

The VictoryShares Small Cap Free Cash Flow ETF (SFLO)  offers exposure to high-quality small-cap companies trading at a discount with favorable growth prospects and high FCF yield. The ETF’s index methodology incorporates robust liquidity requirements to maximize trading efficiency.

Following the ETF’s recent rebalance, SFLO’s largest sector exposure by weight is energy, followed by consumer discretionary, industrials, and information technology.

Exposure to energy, industrials, communication services, and materials grew following the rebalance, while exposure to consumer discretionary, information technology, healthcare, and consumer staples fell.

The small-cap FCF ETF has virtually no exposure to real estate, utilities, or financials. SFLO’s underweight to financials is important because FCF may not be an applicable metric for financial companies due to accounting practices.

A Change To Holdings

The top 10 holdings in SFLO changed in the third quarter, and a few new names were added following the rebalance. The key changes include the rise of Jazz Pharmaceuticals, now the top holding by weight and International Seaways, the third largest holding by weight as of September 16, 2024.

Jazz Pharmaceuticals, a healthcare stock, is a biopharmaceutical company focused on oncology and neuroscience. International Seaways, an energy name, transports crude oil and petroleum products via crude tankers.

New companies entering the top 10 holdings include Tapestry, TD SYNNEX, and Collegium Pharmaceutical.

Tapestry is an American fashion holding company. It is the parent company of Coach New York, Kate Spade New York, and Stuart Weitzman. TD SYNNEX provides information technology services to businesses. Finally, Collegium Pharmaceutical is a Massachusetts-based pharmaceutical company with a presence in responsible pain management as well as ADHD medication.

Mueller Industries, Civitas Resources, and California Resources fell out of the top 10 names. This follows the recent rebalance, however, the three companies remain holdings in SFLO.

Civitas Resources and California Resources Corp operate in the energy sector. Mueller Industries is an industrial manufacturer with products that are used in applications ranging from potable water distribution to automotive drive trains to household appliances to radar defense systems, among others.

Why Focus on FCF as a Metric

Focusing on companies with attractive FCF yields and high expected growth rates has set SFLO apart from its benchmark, the Russell 2000 Value Index, as well as category peers.

FCF represents the cash a company generates after accounting for cash payments to support operations and maintain its capital assets. It allows companies to reinvest cash, pay dividends, or pay off debt. FCF can be used to evaluate companies and investment opportunities.

Strong FCF generation is an indicator of a company’s financial strength. Additionally, small-cap companies that have an attractive FCF tend to exhibit higher quality and lower valuations, potentially compelling characteristics for an investment.

For more news, information, and analysis, visit the Free Cash Flow Channel.

VettaFi LLC (“VettaFi”) is the index provider for SFLO, for which it receives an index licensing fee. However, SFLO 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 SFLO.

SFLO Rebalances in Q3 ‘24, Offering Access to New Small-Cap FCF Leaders


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.

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 in smaller companies typically exhibit higher volatility. Investing in companies with high free cash flows could lead to underperformance when such investments are unpopular or during periods of industry disruptions.

The Fund could also be affected by company-specific factors that could jeopardize the generation of free cash flow. 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.

Additional Information

Investments in small-capitalization companies involve greater risks than those associated with larger, more established companies. Free Cash Flow Risk—Investing in companies with high free cash flows could lead to underperformance during periods when such investments are unpopular, and fluctuations in market conditions, industry disruptions, or company-specific factors may jeopardize the generation of free cash flow. Fund holdings and sector allocations are subject to change, may differ from the Index, and should not be considered investment advice.

The Victory U.S. Small 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.

The Russell 2000® Value Index is a market-capitalization-weighted index that measures the performance of those companies in the Russell 2000® Index with lower price-to-book ratios and lower forecasted growth values.

Distributed by Foreside Fund Services, LLC (Foreside). Foreside is not affiliated with Victory Capital Management Inc., the Fund’s investment adviser.

20241104-3979801