VictoryShares launched its newest free cash flow (FCF) ETF today with a focus on growth companies. The VictoryShares Free Cash Flow Growth ETF (GFLW) expands on the existing FCF ETF suite by delivering a portfolio of high-quality, profitable, large-cap growth companies with the potential to compound FCF over time.
“Given the favorable response from financial advisors and clients to both VFLO and SFLO, the addition of a free cash flow alternative that sits on the growth side of the style box was a natural evolution of our FCF suite,” said Mannik Dhillon, CFA®, CAIA®, President, Investment Franchises and Solutions, for Victory Capital. “GFLW builds on the innovative methodologies used by VFLO and SFLO and allows investors to capitalize on companies with attractive free cash flow profitability and strong growth prospects in the large-cap growth allocation of their portfolios.”
See also: How to Reduce Your P/E Exposure While Investing for Growth
The growth ETF landscape is dominated by cap-weighted benchmark indexes. Innovating beyond traditional growth solutions, GFLW provides exposure to companies we believe are capable of compounding FCF generation through the combination of profitability and growth. The ETF seeks to track the Victory Free Cash Flow Growth Index (the Index), which selects securities based on high FCF relative to return on invested capital, according to VettaFi’s Index page. This calculation provides a more comprehensive picture of a company’s financial health compared to using FCF relative to sales. It captures the efficiency in which a company is using its capital to generate cash flow.
Under the Hood of GFLW's Growth-Oriented Strategy
The Index 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, measuring each company’s trailing 12-month FCF as well as its forward 12-month FCF estimates. This provides a holistic look at a company’s financial health while offering a forward-looking approach to FCF investing.
Companies with negative average trailing and forward FCF, or negative FCF growth are removed at each quarterly rebalance. The strategy 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 receive a growth screen, 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.
The Index weights securities based on FCF size and momentum2, 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. According to the Index website, the top constituents of the Index were Nvidia, Meta, Costco, Netflix, and Motorola as of 10/29/24. We believe this makes the strategy a noteworthy complement to growth portfolios. The holistic approach to FCF investing also keeps the strategy dynamic and a contender among FCF-oriented strategies.
VictoryShares also offers the VictoryShares Free Cash Flow ETF (VFLO ) and the VictoryShares Small Cap Free Cash Flow ETF (SFLO ).
GFLW carries an expense ratio of 0.39% and a gross expense ratio of 0.58%.
Net expense ratios reflect the contractual waiver and/or reimbursement of management fees through October 31, 2026.
1/ Free cash flow 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.
2/ Momentum is measured as the securities 1-year total return.
For more news, information, and analysis, visit the Free Cash Flow Channel
VettaFi LLC (“VettaFi”) is the index provider for GFLW, VFLO and SFLO, for which it receives an index licensing fee. However, GFLW, VFLO and SFLO 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 and 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 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. 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 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 disruptions.
The Funds could also be affected by company-specific factors that could jeopardize the generation of free cash flow. Derivatives may not work as intended and may result in losses. 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 VettaFi 1000 US Large Cap Index represents the 1000 largest US stocks.
Distributed by Foreside Fund Services, LLC (Foreside). Foreside is not affiliated with Victory Capital Management Inc. (VCM), the Fund’s advisor. Neither Foreside nor VCM are affiliated with VettaFi.
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