2025 brings with it a host of new challenges for equities, coupled with a large dose of uncertainty. For investors looking to diversify away from growth-heavy strategies, the VictoryShares Free Cash Flow ETF (VFLO) is worth consideration. The Index methodology may be compelling across a number of market environments, which could prove beneficial this year.
Companies with strong, healthy balance sheets may be attractive to investors in volatile equity market environments. Investors look to a company’s free cash flow (FCF) as one measure of its financial health. FCF is the cash left after a company has covered its expenses. It’s used in various ways, from paying dividends to investing in growing the business or even paying down debt.
VFLO invests in quality companies with high FCF yield and tracks the Victory U.S. Large Cap Free Cash Flow Index (the Index). The Index seeks a holistic approach to FCF investing using a rules-based methodology that includes both trailing 12-month FCF measurements and forward 12-month FCF estimates. By combining these two measurements, the Index seeks to ascertain a company’s expected FCF, providing a forward-looking approach to FCF investing. This expected FCF is then divided by a company’s enterprise value to calculate FCF yield. The Index also applies a growth filter intended to eliminate companies with high FCF but with weak growth prospects.
Investors Found Opportunity in VFLO During the First Half of 2025
VFLO resonated strongly with investors in the first half of the year, with the ETF bringing in $2.47 billion in net flows, according to FactSet data as of June 27, 2025. By combining value investing and a focus on healthy balance sheets with a growth lens, VFLO may offer opportunity in a challenging environment for traditional large-cap growth stocks.
The methodology also limits the sector and individual weights of securities. Companies within an individual sector may not exceed 45% of the Index. Single securities may not exceed 4% weight within the Index. Furthermore, individual sectors may not exceed 20% of the sector weight of the starting universe.¹
The ETF provides notable diversification from large-cap equity benchmark indexes with their overweight to the information technology sector. As of the end of May 2025, top sectors for VFLO included health care at a 25.98% weight, energy at 19.63%, and consumer discretionary at 20.24%.
VFLO carries a net expense ratio of 0.39% and a gross expense ratio of 0.48%.
Net expense ratios reflect the contractual waiver and/or reimbursement of management fees through October 31, 2025.
¹VettaFi 1000 Index. This Index represents the 1,000 largest US stocks.
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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.
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. The Fund has the same risks as the underlying securities traded on the exchange throughout the day. ETFs may trade at a premium or discount to their net asset value. Index Funds invest 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 fund could also be affected by company-specific factors that could jeopardize the generation of free cash flow. The value of your investment is also subject to geopolitical risks such as wars, terrorism, trade disputes, 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.
VictoryShares ETFs distributed by Victory Capital Services, Inc. (VCS). VCS is not affiliated with VettaFi.
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