Looking to expand your large-cap exposure in 2025? Two ETFs from VictoryShares warrant consideration this year for those looking to diversify or expand their portfolios with high-quality exposures.
The VictoryShares Free Cash Flow ETF (VFLO ) and the VictoryShares Free Cash Flow Growth ETF (GFLW) target companies demonstrating profitability through a focus on free cash flow (FCF). The large-cap value and large-cap growth ETFs offer two different style approaches to FCF investing and can serve as notable complements to portfolios.
Value & Growth FCF Investing in Large-Cap Stocks
VFLO invests in quality large-cap companies with high FCF yield and tracks the Victory U.S. Large Cap Free Cash Flow Index (the VFLO Index). When screening companies, VFLO’s rules-based methodology calculates FCF holistically by including both trailing and expected FCF. The screens result in a final portfolio comprised of 50 companies with the highest FCF yield from the VettaFi US Equity Large/Mid-Cap 1000 Index. The VFLO Index also applies a growth filter intended to eliminate companies with high FCF but with weak growth prospects.
VictoryShares calculates FCF holistically using trailing 12-month FCF measurements and forward 12-month FCF estimates. The combined FCF measurements create an expected FCF, which is then divided by the company’s enterprise value to determine FCF yield. Enterprise value measures a company’s market cap minus its debts. Including debts ensures the strategy captures quality companies in stable financial health.
VFLO’s focus on quality companies trading at a discount creates a dynamic portfolio that falls into the value style box. Meanwhile, GFLW captures growth companies that demonstrate high FCF relative to return on invested capital, or FCF profitability.
GFLW seeks to track the Victory Free Cash Flow Growth Index (the GFLW Index) that begins with a starting universe of 1,000 companies through the VettaFi 1000 US Large Cap Index. The GFLW Index also excludes real estate and financials, similar to VFLO, and then applies a rules-based methodology to screen for profitability. It includes a measurement of a company’s trailing 12-month FCF and its forward 12-month FCF estimates.
Those companies with negative FCF growth or negative FCF are removed at quarterly rebalances. The top 150 companies with the highest FCF profitability are then further screened for growth. The top 100 companies with the highest growth characteristics are included in the GFLW Index and weighted by FCF and momentum
VFLO & GFLW Sector Diversification
While both ETFs focus on holistic FCF estimates, they offer drastically different sector exposures. The VFLO Index’s value-oriented approach creates a portfolio that provides exposures across healthcare, consumer discretionary, energy, and information technology. On the other hand, the GFLW Index’s growth focus results in a portfolio with high information technology exposure.
Both ETFs make a notable complement to existing large-cap exposures. By focusing on holistic FCF measurements and reconstituting / rebalancing on a quarterly cycle, the strategies remain dynamic and forward-looking.
VFLO carries a net expense ratio of 0.39% and a gross expense ratio of 0.48%, while GFLW carries an expense ratio of 0.39% and a gross expense ratio of 0.58%.
For more news, information, and analysis, visit the Free Cash Flow Channel
VettaFi LLC (“VettaFi”) is the index provider for GFLW and VFLO, for which it receives an index licensing fee. However, GFLW and VFLO are 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 GFLOW or VFLO.
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 Funds are new ETFs with a limited history. The Funds have 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 Funds invest in securities included in, or representative of securities included in, the Index, regardless of their investment merits. The performance of the Funds may diverge from that of their Indexes. Investments in smaller companies typically exhibit higher volatility.
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 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.
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.
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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