VictoryShares’ small-cap free cash flow ETF has quickly gained traction with investors.
SFLO serves as a potential solution for investors looking to enhance their small-cap exposure and limit the volatility associated with the space. The small-cap ETF aims to capitalize on companies with attractive free cash flow yields without giving up the compelling growth potential of small caps.
“Many advisors have limited client exposure to small caps due to the investment style’s elevated risk profile. However, an allocation to a fund focused on high-quality, more profitable small-caps can help,” Todd Rosenbluth, head of research at VettaFi, said.
Generally, companies further down the cap spectrum do not generate as much free cash flow as their large-cap peers. However, SFLO’s focus on free cash flow sets the fund apart from many other small-cap ETFs and indexes.
As a reminder, free cash flow is the company’s remaining cash after accounting for operating expenses and capital expenditures. The value of a company is the present value of its future free cash flow.
By screening companies for inclusion based on free cash flow, SFLO effectively targets companies that can grow the business, pay dividends, or pay down debt. This is important as companies that succeed in generating high free cash flow also tend to exhibit higher quality and lower valuations.
See more: “Mythbusting in Finance: Unraveling Dividend Growth Misconceptions Among Advisors”
How the Free Cash Flow ETF Evaluates Investments
SFLO uses the same methodology as the VictoryShares Free Cash Flow ETF (VFLO), which launched in June 2023, and has $129 million in assets under management.
Unlike many other free cash flow ETFs, VFLO, and SFLO consider a company’s expected free cash flow rather than just trailing free cash flow. This allows the VictoryShares free cash flow ETFs to target companies with high free cash flow yield and the highest growth rates.
For more news, information, and analysis, visit the Free Cash Flow Channel.
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 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. 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. Investments in smaller companies typically exhibit higher volatility.
The information in this article is based on data obtained from recognized services and sources. It 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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