Investors may be able to enhance a portfolio’s risk-adjusted returns by pairing a free cash flow (FCF) ETF with their growth exposure.
FCF represents the cash a company generates after accounting for cash payments to support operations and maintain its capital assets. It allows companies to reinvest cash, pay dividends, or pay off debt. Strong FCF generation is an indicator of a company’s financial strength.
Whether done intentionally or not, many portfolios are currently overweight growth. As U.S. large-cap growth stocks have performed well in the past year, some investors may have added additional exposure to growth strategies. Other investors may have neglected to rebalance their portfolios. This may cause the initial weights within the portfolio to deviate from the original asset allocation.
See more: VFLO’s Q3 Rebalance Brings Profitability Into Focus
It’s important to remember that as a portfolio’s asset allocation changes, so does its risk profile. An investor may need to sell some successful investments and reallocate funds to the lower-performing investments to return the portfolio to the desired risk profile.
Long-term investors could potentially enhance returns and reduce risk by maintaining a well-diversified portfolio and incorporating the VictoryShares Free Cash Flow ETF (VFLO). The fund works as a solution for adding value exposure while complementing an existing allocation to growth.
Enhance Returns with a FCF ETF
The Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100 Index, is a popular growth ETF with investors. The ETF has returned nearly 37% in the past year but is also highly concentrated. Notably, according to the fund’s website, the top 10 names make up over 50% of the fund by weight as of November 13, 2024.
Past performance does not guarantee future results. The performance data quoted represents past performance and current performance may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.
ETF shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Market price returns are based on price of the last reported trade on the fund’s primary exchange. If you trade your shares at another time, your return may differ. ETF redemptions are limited and commissions are often charged on each trade. ETFs may trade at a premium or discount to their net asset value.
Returns include reinvestment of dividends and capital gains.
Fee waivers and/or expense reimbursements were in place for some or all periods shown for VFLO, without which, fund performance would have been lower.
Net expense ratios reflect the contractual waiver and/or reimbursement of management fees through October 31, 2025 for VFLO.
Standardized performance for the VictoryShares Free Cash Flow ETF (VFLO) can be accessed here, and can be accessed here for the Invesco QQQ Trust (QQQ).
Impressively, VFLO, which serves as a large-cap value holding, generated returns that outpaced QQQ over the year-period ended November 13, 2024. VFLO provides exposure to quality companies with high FCF yields currently trading at a discount and seeks to track the Victory U.S. Large Cap Free Cash Flow Index (the Index).
This means that VFLO and QQQ have minimal portfolio overlap. In fact, the two funds only have seven overlapping holdings as of November 13, according to ETF Research Center.
Historically, QQQ and VFLO have tended to work in opposite directions. That potentially makes them a complementary pair, effectively creating what we believe is an all-weather portfolio.
For more news, information, and analysis, visit the Free Cash Flow Channel.
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. VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of VFLO.
The Nasdaq-100 Index is a modified-capitalization-weighted index designed to measure, based on market capitalization, 100 of the largest nonfinancial domestic and international companies listed on The Nasdaq Stock Market®.
VFLO Disclosure:
Carefully consider VFLO’s investment objectives, risks, charges, and expenses before investing. To obtain a prospectus or summary prospectus containing this and other important information, visit Read it carefully before investing.
The VictoryShares Free Cash Flow ETF (VFLO) prospectus, fund information, and holdings can be found here.
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 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 information in this article is based on data obtained from recognized services and sources and is believed to be reliable. The securities highlighted, if any, were not intended as individual investment advice.
Distributed by Foreside Fund Services, LLC (Foreside). Foreside is not affiliated with Victory Capital Management Inc. (VCM), the Fund’s advisor or with Invesco Capital Management LLC or its affiliates. (Invesco). Neither Foreside nor VCM are affiliated with VettaFi or Invesco.
The VictoryShares Free Cash Flow ETF seeks to offer exposure to high-quality, large-cap U.S. stocks that trade at a discount and have favorable growth prospects. VFLO seeks to provide investment results that track the performance of the Victory U.S. Large Cap Free Cash Flow Index (the Index) before fees and expenses. As of 12/5/2024, the total expense ratio was 0.48%, AUM was $1.5B and the inception date of the fund is 6/21/2023.
References to other securities is not an offer to buy or sell.
QQQ Disclosure:
An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus, which contains this and other information about the Invesco QQQ, a unit investment trust, please visit invesco.com/fundprospectus. Please read the prospectus carefully before investing.
The Invesco QQQ ETF (QQQ) prospectus, fund information, and holdings can be found here.
There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund’s return may not match the return of the Underlying Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund. The Index and Fund use the Industry Classification Benchmark (“ICB”) classification system which is composed of 11 economic industries: basic materials, consumer discretionary, consumer staples, energy, financials, health care, industrials, real estate, technology, telecommunications and utilities. Investments focused in a particular sector, such as technology, are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.
Typically, security classifications used in calculating allocation tables are as of the last trading day of the previous month. The sponsor of the Nasdaq-100 TrustSM, a unit investment trust, is Invesco Capital Management LLC (Invesco). Nasdaq, Nasdaq-100 Index, Nasdaq-100 Index Tracking Stock and QQQ are trade/service marks of The Nasdaq Stock Market, Inc.. They have been licensed for use by Invesco, QQQ’s sponsor. Nasdaq makes no representation regarding the advisability of investing in QQQ and makes no warranty and bears no liability with respect to QQQ, the Nasdaq-100 Index, its use or any data included therein. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Distributed by Invesco Distributors, Inc.
Invesco QQQ ETF tracks the Nasdaq-100® Index — giving you access to the performance of the 100 largest non-financial companies listed on the Nasdaq. The fund and the index are rebalanced quarterly and reconstituted annually. As of 12/5/2024, the total expense ratio was 0.2%, AUM was $322B. The inception date of the fund is 3/10/1999.
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