On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the VictoryShares Free Cash Flow ETF (VFLO) with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF overall.

Chuck Jaffe: One fund, on point for today. The expert to talk about it. This is the ETF of the Week.

Welcome to the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange traded funds with Todd Rosenbluth, the Head of Research at VettaFi. And at VettaFi.com, you will find all the tools and research that you need to make yourself a savvier, smarter investor in ETFs.

Todd Rosenbluth, it’s great to chat with you again!

Todd Rosenbluth: It’s great to be back, Chuck.

Chuck Jaffe: Your ETF of the Week is….

Todd Rosenbluth: The VictoryShares Free Cash Flow ETF, v-flow! VFLO.

Chuck Jaffe: VFLO. VictoryShares Free Cash Flow. Now this fund… Relatively new. Started last year, but man is it killing it this year! Like, this is a large value fund, I think, by most people who are looking at it. And as large value funds go, about right behind the very top of the peer group. I mean, right there. So, is that what is bringing this fund to our attention with you now?

Todd Rosenbluth: So, there’s a few things to like about VFLO and why we want to highlight it. One, you’re right. Its performance has been quite strong. It’s up roughly 30% at the time that we’re recording this. That not only outperforms the value-oriented, traditional index-based ETFs, the Russell 1000 value, the S&P 500 value-based strategies. But it’s actually outperforming or just ahead of the broader S&P 500.

And we can go into what it is in a moment. But it’s also seen over $1 billion of net inflows. As you mentioned, it just launched a little over a year ago. It’s now $1.5 billion in assets. Most of that money has come in in just 2024. So it’s having a great run from performance standpoint, great run from an investor sentiment and flow standpoint.

Before we get too far into it, I do need to disclose that TMX VettaFi is an index partner with VictoryShares for this ETF. I’m not being paid to talk about it in any way. Investors, advisors should know that.

Chuck Jaffe: They should know that… You guys are an index partner. So explain what this fund is based around and how it’s picking the stocks it’s picking.

Todd Rosenbluth: Right. So, this is an index based ETF focused on free cash flow and growth. So, free cash flow is essentially what companies have after they spend everything in order to run the business. And it’s available to buy back stock, to pay dividends or increase dividends, to do capital or after-capital expenditures. It’s a great sign of financial health and quality.

But the way that the ETF is constructed is based on yield. So it’s looking at value characteristics. How much free cash flow you have relative to your overall size.

And then the index behind this has a growth filter. So, it screens out companies that are not growing at all. As opposed to the value traps that you might often find within a value or some other free cash flow index-based products, this has a growth tilt to it.

And when we look at the underlying holdings, we see some more growth oriented companies. We see the sectors, more growth oriented sectors than you might more traditionally find.

Chuck Jaffe: In terms of this fund and its hot start… Indexes are built to be able to stand up to the test of the market over time. But certain characteristics can make a certain methodology stand out. Is this methodology one that you are interested in for the long term? In other words, is this a staple of a portfolio, or is this a tilt or a lean on a portfolio?

Todd Rosenbluth: We think that many investors are using this as part of the core of their portfolio. Because it’s value with a growth tilt that’s not exactly poor, it’s still leaning towards value, as you mentioned. It falls into the value bucket, according to Morningstar and other firms that are classifying ETFs.

And it’s diversified across sectors. It has exposure to energy, consumer discretionary, healthcare… So this can be — for many people — a core. This can complement well with the S&P 500. We’ve actually seen and heard from advisors that are pairing the flow with the Triple Q’s, the Invesco QQQ Trust, which is obviously a much more technology and communication services ETF.

So you’re blending growth and value, but with some tilts overall.

Chuck Jaffe: You’re also looking at it as large cap. But for most people, when they hear of large cap these days, they’re thinking Magnificent Seven. They’re really thinking mega cap. And this is not a mega-cap fund. It’s not dominated by the biggest of the big. So there is some diversification benefit here, even if you own large value elsewhere, right?

Todd Rosenbluth: That’s right. Let’s look at it from a core standpoint. That’s easier. The Magnificent Seven stocks, I’m not seeing within the top ten holdings. In fact, Expedia is the largest holding overall. I don’t think anybody would put that into the Magnificent dot dot dot so quickly, but it scores very well from a quality, from a value, from a growth standpoint.

But even in the value side of of the ledger, you tend to think of financials. J.P. Morgan or Berkshire Hathaway, as some of those larger mega-cap value oriented stocks. And you’re not going to see that because of the criteria. Quite simply, this is what you’d find if you were looking at something that’s rebalanced on a quarterly basis.

You will notice that the holdings will shift. The characteristics will shift, because these are companies that meet the new criteria, the updated criteria, on a quarterly basis.

Chuck Jaffe: When it comes to index funds, everybody looks at expenses. They’re expecting them to be super low. This expense ratio is like just under 0.4. Do you consider that low enough when you’re talking about an index driven ETF?

Todd Rosenbluth: Correct. The factor oriented ETFs, the smart beta ones that are not that are making changes on a quarterly basis or a semiannual basis, the fee tends to be a little bit higher. We tend to find that 40 basis points is a key threshold for many advisors, investors. You want to be below that if you’re an index based approach. If you’re active, perhaps you can charge a little bit more.

But this is going to be from a strategic standpoint. There’ll be a cost, obviously, to invest in this. This is not the S&P 500 that’s at three basis points. There’s a premium for that extra due diligence that’s being done to to find the appropriate holdings and put the stocks together.

Chuck Jaffe: It’s v-flow. VFLO. The VictoryShares Free Cash Flow ETF. The ETF of the Week from Todd Rosenbluth at VettaFi . Todd, great stuff as always. See you again next week!

Todd Rosenbluth: I’ll see you next week, Chuck!

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yep, I’m Chuck Jaffe, and you can learn all about my hour-long weekday podcast by going to MoneyLifeShow.com, or by searching for it wherever you find great podcasts.

Now, if you’re searching for information on great exchange traded funds, look no further than VettaFi.com, where they have all the tools you need to make yourself a better investor. They’re are on X at @Vetta_Fi. And Todd Rosenbluth, their Head of Research, my guest here on the ETF of the Week — he’s on X too at @ToddRosenbluth.

The ETF of the Week is here for you every Thursday. Follow us on your favorite podcast app to make sure you don’t miss an episode. And we’ll introduce you to another great ETF next week.

Until then, happy investing everybody!

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.