At the end of the second quarter, COWZ had a free cash flow yield of almost 8.5% compared to 3.6% on the Russell 1000 Index, according to Pacer data. The ETF has a dividend yield of 2.3%, which is higher than the S&P 500 and the fund’s methodology and emphasis on cash flow gives it the potential to post long-term dividend growth that outpaces that of the Russell 1000.
“Well, for one it is too early to tell if it will outperform the broader index. Looking at Pacer’s literature, they cite a number of studies, including one from FactSet which looks at the performance of the Russell 1000 components based on FCF yield,” according to Seeking Alpha. “From that study, we can see that from 1991 through 2016, the top 10% of the Russell 1000 components based on FCF yield achieved the highest annualized returns.”
Component companies are then ranked by free cash flow yield for the trailing twelve month period, and equity securities of 100 companies with the highest free cash flow yield are included in the underlying index. Holdings are also weighed in proportion to their trailing twelve month free cash flow with a capped 2% of the weight of the index for any individual company.
COWZ allocates 58% of its combined weight to technology and consumer discretionary stocks. The ETF is up 5.4% year-to-date.
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