The VictoryShares Free Cash Flow ETF (VFLO) offers a distinctive approach by investing in companies with strong free cash flow (FCF), which is a key indicator of financial health and efficiency. To help investors better understand VFLO’s Index methodology, today its portfolio can be grouped into three thematic categories (energy, cyclicals and healthcare).
VFLO tracks the Victory U.S. Large Cap Free Cash Flow Index (the Index), which is comprised of companies that generate strong FCF by first applying a profitability screen to a universe of U.S. large-cap stocks. The Index then selects companies with the highest FCF yields exhibiting higher growth potential. The FCF ETF has grown to over $4.2 billion in assets under management as of June 27, 2025, two years since the ETF’s launch.
The majority of VFLO’s sector exposures can be grouped into three baskets: energy, cyclicals, and health care. Each category has played an important role in the FCF ETF’s performance and volatility.
Energy
Energy is the second-largest sector weight in VFLO, comprising 19.63% of the ETF, as of May 31, 2025. VFLO has a considerably larger exposure to energy stocks compared to the benchmark Russell 1000 Value Index, in which energy makes up 6.20%.
The energy sector currently serves as a portfolio diversifier for VFLO, as the sector tends to “march to its own beat,” Michael Mack, client portfolio manager for Victory Capital, told VettaFi.
See more: How Productivity Enhances FCF in the Energy Sector
Cyclicals
The second key theme of VFLO’s portfolio is cyclicals, which — for VFLO — includes the consumer discretionary, industrials, information technology, and materials sectors.
These four sectors make up 51.11% of the ETF by weight as of May 31, 2025. Meanwhile, the same four sectors make up 34.43% of the Russell 1000 Value Index by weight. Compared to the benchmark, VFLO has greater exposure to the consumer discretionary and informational technology sectors.
The cyclicals segment of VFLO has historically helped reduce the FCF ETF’s overall volatility, particularly in periods when free cash flow remains strong while stock prices decline — boosting FCF yield and meeting the criteria for inclusion in the underlying Index. Conversely, when prices rise faster than free cash flow, the FCF yield compresses, making those stocks more likely to be screened out of the Index, Mack said.
Healthcare
Finally, VFLO’s underlying Index has included health care exposure, which has historically helped balance the volatility of its cyclical holdings. The health care sector makes up 25.98% of VFLO by weight compared to 13.20% in the Russell 1000 Value Index as of May 31, 2025.
Over the past couple of years, VFLO’s index methodology has resulted in allocations to health care companies that, despite trading at lower valuations, have demonstrated strong free cash flow characteristics. This reflects how the rules-based process can capture companies with attractive FCF yield characteristics based on the index criteria, potentially including those whose valuations may later expand as earnings recover.
Notably, VFLO has no exposure to real estate, consumer staples, or financials. The Index’s lack of inclusion of financials and real estate is important because FCF may not be an applicable metric for companies within those sectors.
For more news, information, and analysis, visit the Free Cash Flow Content Hub.
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.
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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, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of VFLO.
