How Popular FCF ETF ‘VFLO’ May Help to Avoid Value Traps

VFLO provides exposure to large-cap companies with high free cash flow (FCF). The ETF seeks to track the performance of the Victory U.S. Large Cap Free Cash Flow Index (the Index). The Index methodology assesses FCF based on a historic and forward-looking basis.

FCF is what companies have after they spend everything to run the business. FCF can be used for share repurchases, to pay or increase dividends, or for capital or after-capital expenditures. Importantly, FCF is a sign of a company’s financial health and quality.

The Index’s unique methodology seeks to identify companies generating healthy FCF and screen out value traps. A value trap is a stock trading at a low valuation that appears attractively priced but is actually a risky investment due to fundamental business issues.

The starting universe includes approximately 1,000 stocks. From there, the Index’s methodology selects the 400 largest profitable companies, then screens 75 for highest FCF yield. Next, it applies a growth filter to narrow down to 50 and finally weights those companies by FCF yield and size.

The growth filter seeks to screen out companies that are not growing, potentially avoiding value traps that one might find within a value ETF or other FCF ETF.

For investors looking for a large-cap, growth-oriented FCF ETF, the VictoryShares Free Cash Flow Growth ETF (GFLW ) may be an ideal solution. GFLW’s approach seeks to provide exposure to companies capable of compounding FCF generation through the combination of profitability and growth.

The issuer also offers the VictoryShares Small Cap Free Cash Flow ETF (SFLO ), which provides access to small-cap companies generating healthy FCF.

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

VettaFi LLC (“VettaFi”) is the index provider for VFLO, GFLW, and SFLO, for which it receives an index licensing fee. However, VFLO, GFLW, 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, GFLW, 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 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. ETFs may trade at a premium or discount to their net asset value. The ETF 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 ETF 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.

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.

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.

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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