It’s been said it is the ETF year for active management, and the year for crypto ETFs, and the year for fixed income. All true, but there’s still demand for smart-beta index-based equity ETFs. Just ask Victory Capital.
The VictoryShares Free Cash Flow ETF (VFLO ) just passed $1 billion in assets, less than 16 months after it launched in mid-2023. The ETF takes a forward-looking approach to free cash flow investing and tracks a proprietary index supported by VettaFi. VFLO blends some quality, value, and growth approaches. It results in a portfolio that looks different than the S&P 500 or the Russell 1000 Value indexes.
To celebrate VFLO’s success, the Victory Capital team and many of its clients helped open the Nasdaq this week. VettaFi was honored to be a part of the event.
What Does VFLO Own?
VFLO holds just 50 stocks, with Amgen, Cigna, Expedia, Merck, and Qualcomm among its largest. In contrast, Berkshire Hathaway, JPMorgan, and Walmart are found in the top 10 of the iShares Russell 1000 Value ETF (IWD ).
At the sector level, VFLO was recently overweighted relative to the Russell Value 1000 index in consumer discretionary (19%), energy (22%), and healthcare (29%). This stems in part from the growth filter of the fund’s index. Starting with a universe of 400 profitable companies, the index selects 75 value stocks based on trailing and projected free cash flow. From there, the index removes those with the weakest growth profiles.
VFLO’s Popularity Accelerated Over the Summer
In the first nine months of 2024, VFLO pulled in $800 million of new money. While nearly $500 million flowed in during the third quarter, what is compelling is this was not the result of just one large institutional investment. According to VettaFi data, the strongest organic day was Aug. 6, when VFLO gathered $89 million. We believe advisors and retail investors have embraced the growth tilt to a free cash flow strategy.
Year-to-date as Oct. 7, VFLO was up 20%, ahead of the 16% gain for IWD. Another free cash flow ETF, the Pacer Cash Cows 100 ETF (COWZ ), was up 14% for the year.
A Look at Victory Capital’s ETF Lineup
Victory Capital offers 28 ETFs that, combined, manage more than $9 billion in assets. The VictoryShares Core Intermediate Bond ETF (UITB ) is the largest at $2.3 billion. It’s tapping into the growing demand by advisors for actively managed fixed income in an ETF wrapper. The firm also offers volatility weighted and multifactor index ETFs.
However, VFLO’s success in a short period of time is a sign that there’s room for relatively new, innovative, index-based equity ETFs to gain traction.
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.
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