Advisors and investors looking to increase their exposure to small caps may want to consider the VictoryShares Small Cap Free Cash Flow ETF (SFLO). Small caps remain an asset class investors have been closely watching this year, particularly as concerns around technology stock concentration, valuations, and artificial intelligence (AI) resilience persist. Compared to major equity benchmarks, small caps offer diversified sector exposures that may be attractive in the current market environment.
SFLO’s holdings have demonstrated strong financial performance relative to the Russell 2000 Value Index as of 1/31/2025. Over the last five years, current SFLO constituents generated earnings-per-share (EPS) growth of 15.19%, more than double the 6.56% growth of the Russell 2000 Value Index. Over the last three years, SFLO’s constituents maintained an impressive 18.93% EPS growth rate, nearly twice the 9.68% growth seen in the Russell 2000 Value Index.
Beyond earnings growth, SFLO’s holdings have also delivered superior profitability. Over the last 12 months, SFLO’s constituents achieved a return on equity (ROE) of 16.48%, significantly higher than the 4.40% ROE of the Russell 2000 Value Index as of 1/31/2025.
For investors seeking small-cap exposure with strong earnings growth and higher profitability, SFLO presents a compelling opportunity.
SFLO Focuses on FCF Yield Within Small Caps
SFLO tracks the Victory U.S. Small Cap Free Cash Flow Index (the Index). The strategy focuses on quality companies trading at a discount, with Index constituents that have historically generated high free cash flow (FCF) yields.
FCF is the remaining cash a company has after covering all expenses. Companies use this money to grow the business, pay dividends or pay down debt. It’s also considered one component of measuring a company’s health. Looking at this from a valuation standpoint, FCF yield is a financial ratio that standardizes the FCF per share a company is expected to earn compared to its market value per share.
The Index screens for both current FCF and anticipated FCF, providing a more holistic approach to FCF investing. Additionally, a growth screen helps to remove the slowest growing companies. By focusing on high-FCF-yielding companies with an attractive growth rate, SFLO may provide an attractive solution within small caps.
Furthermore, the Index minimizes liquidity constraints by beginning with a large universe of 2,500 companies through the VettaFi US Equity Mid/Small-Cap 2500 Index and by also eliminating the bottom 10% of securities based on liquidity.
SFLO carries a net expense ratio of 0.49% (gross expense ratio of 0.87%).
Net expense ratios reflect the contractual waiver and/or reimbursement of management fees through October 31, 2025.
For more news, information, and analysis, visit the Free Cash Flow Channel
VettaFi LLC (“VettaFi”) is the index provider for SFLO, for which it receives an index licensing fee. However, SFLO 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 SFLO.
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. 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. Investments in smaller companies typically exhibit higher volatility. 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.
Fund holdings and sector allocations are subject to change, may differ from the Index, and should not be considered investment advice.
The Victory U.S. Small 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.
The Russell 2000® Value Index is a market-capitalization-weighted index that measures the performance of those companies in the Russell 2000® Index with lower price-to-book ratios and lower forecasted growth values.
VictoryShares ETFs distributed by Victory Capital Services, Inc. (VCS), an affiliate of Victory Capital Management Inc. (VCM). Neither VCS nor VCM are affiliated with VettaFi.
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