Backward-Looking FCF ETFs May Have Missed Vistra and NRG

NRG and Vistra are high-performing stocks that have benefited from the surge in electricity demand. This is further strengthened by the high electricity demand of data centers. The VictoryShares Free Cash Flow ETF (VFLO B+) was able to spot these stocks due to its unique forward-looking approach to FCF investing.

Electricity is expected to increase dramatically by the end of the decade as AI model training and running continue to be energy-intensive processes. Additionally, electricity demand growth from data centers is a long-term growth opportunity for companies that generate electricity, such as NRG and Vistra.

Vistra and NRG’s success highlights why it is important to look at forward expectations instead of backward-looking metrics. The price-to-earnings (P/E) ratio is a popular valuation metric that provides insight framed in a historical context and compares a company’s share price with its earnings per share. However, investors need to also assess the stock’s future profitability to better assess its potential.

Shares of Vistra and NRG began an impressive surge in late 2023, following years of relatively slow growth.

If one only considers historical metrics, like price-to-earnings, Vistra and NRG may not appear poised for growth potential. However, forward-looking metrics may also consider the expected long-term growth in electricity demand and other tailwinds for the companies.

Vistra and NRG are utility stocks. As of November 30, 2024, VFLO had a 6.13% allocation in the utilities sector. This is higher than the Russell 1000 Value Index’s 4.65% weighting.

As of November 30, 2024, Vistra’s 3.58% weight in VFLO made it a top-five holding by weight. NRG’s weight was 2.55%.

Vistra and NRG serve as helpful examples of why investors should ensure that the FCF ETFs in their portfolios are designed to consider both trailing and future free cash flow.

VettaFi LLC (“VettaFi”) is the index provider for VFLO, for which it receives an index licensing fee. However, VFLO 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 VFLO.

For more news, information, and analysis, visit the Free Cash Flow Channel

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 vcm.com/prospectus. Read it carefully before investing.

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. It will incur the expenses of the underlying ETFs in which it invests. 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.

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 Russell 1000® Value Index is a market-capitalization-weighted index that measures the performance of Russell1000® Index companies with lower price-to-book ratios and lower forecasted growth rates.

Distributed by Foreside Fund Services, LLC (Foreside). Foreside is not affiliated with Victory Capital Management Inc. or its affiliates.

20241218-4093834