VictoryShares has two ETFs in its suite offering exposure to companies with attractive free cash flow yields.
The VictoryShares Free Cash Flow ETF (VFLO) and the VictoryShares Small Cap Free Cash Flow ETF (SFLO) are constructed using the same innovative methodology, but each provides nuanced exposure to the U.S. market.
Free cash flow 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. Free cash flow is a valuable metric for evaluating companies and investment opportunities.
What Distinguishes VFLO & SFLO
VFLO and SFLO provide exposure to high-quality companies trading at a discount and have favorable growth prospects. The funds’ focus on companies with higher expected free cash flow yields and high expected growth rates set them apart from their category peers.
VFLO has accreted $127 million in assets under management since its inception in June 2023. The fund provides exposure to profitable U.S. large-cap companies with high free cash flow yields. The ETF seeks to track the performance of the Victory U.S. Large Cap Free Cash Flow Index.
Moving further down cap, SFLO provides exposure to the U.S. small-cap space. The fund tracks the Victory U.S. Small Cap Free Cash Flow Index, and similarly, provides exposure to profitable U.S. small-cap companies with high free cash flow yields. The fund has garnered $24 million in assets since its launch in December 2023.
Other Free Cash Flow Points
Additionally, SFLO incorporates robust liquidity requirements to maximize trading efficiency. This is an important component of the fund unique to small-caps.
The different exposures VFLO and SFLO provide translate into a vastly different sector breakdown. Compared to the Russell 1000 Value Index, VFLO has several sector tilts. It tilts toward healthcare (31.6% by weight versus 14.6% in the broad index), energy (23.8% versus 7.8%), and consumer discretionary (16.8% versus 5.2%)1.
Meanwhile, compared to the benchmark, VFLO meaningfully underweights the industrials and information technology sectors.
Compared to the Russell 2000 Value Index, SFLO tilts toward energy (26.2% by weight versus 9.2% in the broad index), consumer discretionary (20.1% versus 10.9%), and consumer services (6.7% versus 2.4%). The small-cap ETF meaningfully underweights exposure to financials (0% by weight in SFLO versus 27.2% in the benchmark)1.
1/ Source: Victory Capital as of 12/31/2023; Sector allocations are subject to change, may differ from the Index, and should not be considered investment advice.
VettaFi LLC (“VettaFi”) is the index provider for VFLO and SFLO, for which it receives an index licensing fee. However, VFLO and SFLO are 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 and SFLO.
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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 funds are new ETFs with a limited history. As a result, prospective investors do not have a track record or history on which to base their investment decisions. In addition, to facilitate commencement and/or growth of the Funds, seed investors, such as the Funds’ Adviser or one of its affiliates, a lead market maker, Authorized Participant, or other entity may contribute all or most of the assets in the Funds.
If a seed investor redeems its shares, it could negatively impact the Funds’ NAV, market price and brokerage costs. The Funds have 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 Funds invest in securities included in, or representative of securities included in, the Index, regardless of their investment merits.
The performance of the Funds may diverge from that of their respective Indexes. 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. 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
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. Investments in smaller companies typically exhibit higher volatility. SFLO is also subject to the risk that investments in smaller companies typically exhibit higher volatility.
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 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.
More Information
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.
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.
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.
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