VictoryShares Small Cap Free Cash Flow ETF (SFLO ) has reached a notable milestone as it celebrates its one-year birthday.
SFLO launched on December 21, 2023, and has garnered $167 million in assets under management as of December 16, 2024. SFLO offers a solution for investors looking to capitalize on companies with attractive free cash flow (FCF) yields without giving up the compelling growth potential and diversification benefits of small caps.
See more: SFLO Rebalances in Q3 ‘24, Offering Access to New Small-Cap FCF Leaders
SFLO’s underlying index, the Victory U.S. Small Cap Free Cash Flow Index (the Index), screens an initial universe of companies for historical and projected FCF. It then goes a step further by eliminating the slowest-growing companies to seek better outcomes in various market environments.
By screening companies for inclusion based on FCF, SFLO effectively targets companies that can grow the business, pay dividends, or pay down debt. This is important as companies that succeed in generating high FCF also tend to exhibit higher quality and lower valuations.
FCF is the company’s remaining cash after accounting for operating expenses and capital expenditures. It can be used to measure a company’s health.
Capacity constraints can be a significant problem for small-cap ETFs, particularly those screening for FCF, as that can further reduce the number of eligible securities. However, SFLO was constructed to maximize liquidity and capacity. The ETF’s index methodology incorporates robust liquidity requirements to maximize trading efficiency.
Additionally, the Index pulls from the VettaFi US Equity Mid/Small-Cap 2500 Index as its starting universe. This universe includes both small- and mid-cap companies, expanding the universe of eligible securities.
Why FCF Matters in Small-Cap Investing
FCF is a particularly useful metric in small-cap investing as companies further down the cap spectrum generally do not generate as much FCF as their large-cap peers. With SFLO’s focus on FCF, this sets it apart from many other small-cap ETFs and provides unique exposure to the small-cap space.
SFLO stands out from other FCF ETFs, as it considers a company’s expected future FCF in addition to trailing FCF. This enables SFLO to target companies with high FCF yields and the highest expected growth rates.
See more: VictoryShares Launches GFLW, a Growth-Oriented FCF ETF
SFLO uses the same FCF and growth screen as the VictoryShares Free Cash Flow ETF (VFLO ), which launched in June 2023 and has $2.0 billion in assets under management as of January 17, 2025.
Additionally, VictoryShares launched the VictoryShares Free Cash Flow Growth ETF (GFLW) in December 2024.
For more news, information, and analysis, visit the Free Cash Flow Channel
VettaFi LLC (“VettaFi”) is the index provider for VFLO, SFLO, and GFLW, for which it receives an index licensing fee. However, VFLO, SFLO, and GFLW 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 VFLO, SFLO, and GFLW.
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. 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. Investments concentrated in an industry or group of industries may face more risks and exhibit higher volatility than investments that are more broadly diversified over industries or sectors.
Investing in companies with high free cash flow 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.
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. Investments in mid-cap companies typically exhibit higher volatility. 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. Investments in smaller companies typically exhibit higher volatility.
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 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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