Investors seeking equity diversification would do well to consider the VictoryShares Small Cap Free Cash Flow ETF (SFLO ). The approach focuses on free cash flow (FCF) yield and creates a differentiated portfolio from value benchmarks.
SFLO seeks to track the Victory U.S. Small Cap Free Cash Flow Index (the Index), before fees and expenses, which provides exposure to small-cap companies with high FCF yield. FCF is the remaining cash a company has after covering all expenses. It can be used to invest in growing the business, pay dividends, or pay down debt.
FCF can be a good indicator of a company’s overall health, historically and currently. The Index takes that one step further and looks at FCF forward-looking estimates. It also applies a growth filter to identify companies with strong growth potential.
Help Enhance Your Equity Portfolio's Diversification Potential With SFLO
The Index’s quarterly rebalance in March highlights the diversification potential of the strategy within small caps.
At rebalance, the Index’s sector weights resulted in larger allocations to industrials and consumer discretionary of the top sectors. At the same time, energy and healthcare sector weights declined. This offers a markedly different portfolio regarding sector exposures compared to the benchmark Russell 2000 Value Index, designed to create enhanced diversification opportunities. The top sectors by weight for the Russell 2000 Value Index included financials at 30.06%, industrials at 12.44%, and real estate at 12.06% as of March 31, 2025, according to FTSE Russell data.
SFLO seeks to track the Victory U.S. Small Cap Free Cash Flow Index (the Index), before fees and expenses, which provides exposure to small-cap companies that demonstrate high-quality and favorable growth potential. The ETF provides exposure to companies with high FCF yields and the highest expected growth rates within their category. The Index seeks to identify not just favorable companies now but those positioned favorably looking ahead.
The ETF can also help minimize potential liquidity constraints by pulling from a larger initial universe of 2,500 companies via the VettaFi US Equity Mid/Small-cap 2500 Index. This is a wider universe than many funds in the same class that draw from the Russell 2000, helping provide greater liquidity, and increase trading efficiency.
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.
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.
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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.
All investing involves risk, including the potential loss of principal. 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.
Additional Information
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.
VictoryShares ETFs are distributed by Victory Capital Services, Inc.
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