During a persistently low-rate environment, investors will have to consider alternative ways to generate extra yield to meet their income needs.
In the upcoming webcast, Seeking Yield: A Different Approach to Generating Income, Sean O’Hara, President, Pacer ETFs Distributors, will look to the fixed-income environment and point to unique yield-generating ideas to help financial advisors diversify an income-focused portfolio.
For example, focusing on companies with steady free cash flow can be a more sound approach to security selection. Free cash flow is the cash left over after a company has paid expenses, interest, taxes, and long-term investments. It is used to buy back stocks, pay dividends, or participate in mergers and acquisitions. The ability to generate a high free cash flow yield indicates that a company is producing more cash than it needs to run the business, which can then be invested in growth opportunities.
Free cash flow producing companies generally have three defining characteristics – they are productive, reliable, and self-sufficient. The companies generate more cash flow then they spend, which allows them to grow without external financing. The free cash flow is a sturdy measure of profitability than earnings, which are subject to manipulation and accounting assumptions. Lastly, as the companies are less reliant on capital markets for financing, they won’t dilute their issued company stocks.
Investors interested in the free-cash-flow metric as a focused factor now have several options to choose from. For instance, the Pacer Global Cash Cows Dividend ETF (NYSEArca: GCOW), Pacer US Cash Cows 100 ETF (NYSEArca: COWZ), Pacer US Small Cap Cash Cows 100 ETF (BATS: CALF) and Pacer Developed Markets International Cash Cows 100 ETF (BATS: ICOW) all implement free-cash-flow yield screens to narrow down their universe.
Pacer has also come out with more targeted real estate investment trust sub-sector exposures, including the Pacer Benchmark Industrial Real Estate SCTR ETF (NYSEArca: INDS), Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (NYSEArca: SRVR) and Pacer Benchmark Retail Real Estate SCTR ETF (NYSEArca: RTL).
These real estate-focused ETFs help investors gain exposure to the growing e-commerce space by investing in data center and distribution center REITs, along with higher quality retail real estate.
INDS tries to reflect the performance of the Benchmark Industrial Real Estate SCTR Index, which is comprised of cell tower REITs, data center REITs, and similar facilities – these cell towers and data processing centers store the information and handle the orders that start the e-commerce process.
SRVR tries to reflect the performance of the Benchmark Data & Infrastructure Real Estate SCTR Index, which is comprised of real estate investment trusts that specialize in the logistics required to do e-commerce work. The portfolio includes warehouses, distribution centers, and similar facilities that allow for e-commerce companies to ship goods to their final destinations, sometimes within hours.
Additionally, RTL tries to reflect the performance of the Benchmark Retail Real Estate SCTR Index, which is made up of shopping centers, shopping malls, and similar structures that are thriving enterprises filled with retail establishments and are located in prime locations with quality tenants throughout the country.
Financial advisors who are interested in learning more about income-generating ideas can register for the Wednesday, March 11 webcast here.