The Advantages of Free-Cash Flow in Portfolio Construction
About This Episode
Free-cash-flow yield is the surplus cash after expenses and investments divided by the price of the security. Free-cashflow yield has been used for a long time by active hedge funds. Now it has become part of the indexing landscape, competing for assets with other quantitative approaches. It has historically outperformed in markets that favored value stocks and shown resilience in growth markets. My guest today will explain why, in today's intangible asset-driven economy, traditional metrics like price to earnings and price to book face challenges, making free cash flow a more relevant valuation metric. We will discuss how advisors should think about free cash flow and the steps VictoryShares & Solutions has taken to enhance traditional approaches.
All investments involve some degree of risk.
About Our Guest
Michael Mack is an associate portfolio manager with VictoryShares. In this role, he leverages his experience in portfolio management and product development to support and grow the firm’s rules-based and custom investment solutions.
Prior to this position, Mr. Mack was the director of research and portfolio manager for Pacer ETFs, where he helped design and develop the firm’s ETF platform and investment strategies. Previously, he was an associate with Cameron Capital Management from 2011 to 2012.
Mr. Mack holds a Bachelor of Science in economics from Arizona State University and Master’s in finance from Villanova University.
Here are some resources to learn more about VictoryShares:
- VictoryShares Free Cash Flow ETF (VFLO) Product Page- https://www.vcm.com/products/victoryshares-etfs/victoryshares-etfs-list/victoryshares-free-cash-flow-etf
- VFLO Brochure- https://www.vcm.com/content/dam/vcm/campaigns/intermediary/VS%20VLFO%20IB.pdf
- VFLO Factsheet- https://www.vcm.com/assets/etf/factsheet-pdf/VS%20VFLO%20FS.pdf
- VettaFi Free Cash Flow Channel- https://www.etftrends.com/free-cash-flow-channel/
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Distributed by Foreside Fund Services, LLC. Foreside is not affiliated with Victory Capital Management Inc. or its affiliates.
Price to earnings (P/E) is the ratio for valuing a company that measures its current share price relative to its earnings per share.
Price to book (P/B) is the ratio of the market value of a company's shares (share price) over its book value of equity.
S&P 500 Index is a market-capitalization-weighted index that measures the performance of the common stocks of 500 leading U.S. companies.
Enterprise value is a measure of a company's total value, reflecting the market value of its business. EV includes in its calculation the market capitalization of a company, which is the value of its equity, but also its debt and cash.
A basis point is a unit of measure used in finance to describe the percentage change in the value of financial instruments or the rate change in an index or other benchmark. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.
The VettaFi 1000 Index is a market cap weighted index designed to track the 1000 largest US stocks.
Fund risk and distributor language: The fund invests in securities included in, or representative of securities included in, ore representative of securities included in, the index, regardless of their investment merits. The performance of the Fund may diverge from that of the index. Distributed by Foreside Fund Services, LLC.
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. 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. 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 Fund’s shares. The actions of large shareholders, including large inflows or outflows, may adversely affect other shareholders, including potentially increasing capital gains. Investments in mid-cap companies typically exhibit higher volatility. 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.