Don’t Overlook Value Exposure in the Current Environment

Growth has recently outperformed value, leading many investors to overweight growth exposure and underweight value. Although value won’t outperform in every market environment, it has the potential to add numerous benefits to portfolios as a long-term holding.

“I think there’s a lot of opportunity for investors to add the right type of value exposure to their portfolio,” Scott Kefer, senior portfolio manager for VictoryShares and Solutions, told VettaFi.

See more: Diversify Your Core Equity Sector Exposure With VFLO

Adding the right value exposure can potentially add diversification, lower a portfolio’s multiple, and bring in different exposures that can potentially outperform, according to Kefer. This is particularly relevant now as diversification is becoming more top of mind for investors as indexes have recently reached record concentration levels.

“Investors are becoming increasingly concerned that they see the same names across many of the different portfolios they have in their total equity exposure,” he added. “I still see a lot of opportunity for clients to potentially enhance their diversification with a free cash flow (FCF) ETF such as VFLO.”

The VictoryShares Free Cash Flow ETF (VFLO ) incorporates an interesting screening process to offer distinct value exposure.

VFLO’s underlying Index, the Victory U.S. Large Cap Free Cash Flow Index (the Index), targets companies with attractive 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 growth potential is based on trailing and forward-looking metrics.

VFLO focuses on companies with strong FCF, which is a powerful measure of the quality of a company. A company that is generating more cash than it needs to operate can be a sign of a more efficient business, a well-managed business, and a solid business model, according to Kefer.

For more news, information, and analysis, visit the Free Cash Flow Channel

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.

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. 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. 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. 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.

Additional Information

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. (VCS). VCS is not affiliated with VettaFi.

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