In a dynamic macro environment, focusing on quality companies could benefit investors seeking reliable returns. The VictoryShares Free Cash Flow Growth ETF (GFLW) captures quality companies capable of compounding free cash flow (FCF) generation through growth and profitability.
Markets today present both risks and opportunities for investors. Traditionally, investors look to quality companies when uncertainty rises. These companies generally offer strong fundamentals, high potential profitability, and reliable performance and/or earnings. Quality companies may prove attractive to investors in an environment of elevated risks for their reliable return potential across a variety of market environments. GFLW combines quality and profitable growth in an approach centered around FCF.
FCF is the cash a company has remaining after it has paid its expenses. A company uses FCF to pay dividends, pay down debt, or grow its business. It’s also a metric used to measure a company’s financial health.
An Approach That Focuses on Profitable Growth by Using FCF
GFLW seeks to track the Victory Free Cash Flow Growth Index (the Index). The Index selects securities based on high FCF relative to return on invested capital. It begins with a starting universe of 1,000 companies via the VettaFi 1000 US Large Cap Index, excluding financials and real estate. It then uses a rules-based methodology and screens for profitability. This entails measuring each company’s trailing 12-month FCF as well as its forward 12-month FCF estimates. In doing so, this provides a holistic look at a company’s financial health while offering a forward-looking approach to FCF investing.
Companies with negative FCF growth are removed at each quarterly reconstitution and rebalance. The index methodology then selects the top 400 companies by float market cap.
Companies receive scores based on their FCF over return on invested capital, constructed using trailing and forward free cash flow estimates, with the top 150 companies selected. Next, the companies are screened for growth, where the bottom performers are removed, leaving the top 100 companies with the highest growth prospects. These growth scores take into account trailing five-year and two-year forward-looking trends.
Diversified Sector Representation
The Index weights securities based on FCF size and momentum (based on 12-month total returns), capping individual securities at a 4% weight. Overall sector representation cannot exceed 45% of the portfolio or 20% greater than the sector’s weight in the starting universe of the VettaFi 1000 US Large Cap Index.
GFLW results in a diversified portfolio of growth companies. The top sector breakdown for GFLW included 36.96% to information technology, 18.15% to communication services, and 15.28% to consumer discretionary as of March 31, 2025. In comparison, the Russell 1000 Growth Index’s sector exposures included information technology at 46.17% weight, consumer discretionary at 14.88%, and communication services at 12.75% over the same period.
The holistic approach to FCF investing keeps the strategy dynamic and a contender among FCF-oriented strategies. GFLW carries an expense ratio of 0.39% and a gross expense ratio of 0.58%.
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VettaFi LLC (“VettaFi”) is the index provider for GFLW, for which it receives an index licensing fee. However, GFLW 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 GFLW.
VettaFi LLC (“VettaFi”) is the index provider for GFLW, for which it receives an index licensing fee. However, GFLW 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 GFLW.
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. 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 disruption. The Funds could also be affected by company-specific factors that could jeopardize the generation of free cash flow. Large shareholders, including other funds advised by the Adviser, may own a substantial amount of the Funds’ 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.
The Victory Free Cash Flow Growth Index measures the performance of profitable companies that generate high free cash flow from invested capital and display higher growth characteristics. The indices are subject to sector and security weight constraints. The constituents are weighted by modified absolute momentum.
The VettaFi 1000 US Large Cap Index represents the 1000 largest US stocks.
VictoryShares ETFs distributed by Victory Capital Services, Inc.
