Home etftrends.com How Future Free Cash Flow Creates Returns for Investors

How Future Free Cash Flow Creates Returns for Investors

Many investors tend to focus on past performance or backward-looking indicators when evaluating a stock’s future potential.

While a stock’s past performance, valuation, or historic cash flow yield can potentially serve as a guide to assessing its future strength, these measures do not provide a comprehensive picture of a security’s potential to generate attractive returns.

In the free cash flow space, the team at VictoryShares believes there are better methods for assessing future returns than looking at the past 12 months. Importantly, they also share the belief that future cash flows drive returns, not the trailing free cash flow yields.

That’s why the VictoryShares Free Cash Flow ETF (VFLO) looks at future free cash flow in addition to free cash flow generated in the past 12 months. The fund uses analyst estimates for future free cash flow for the upcoming 12 months. It combines those figures with historical free cash flow to assess the space entirely.

See more: “Mythbusting in Finance: Unraveling Dividend Growth Misconceptions Among Advisors

Why Future Free Cash Flow Generation Matters for Returns

Moderna (MRNA) serves as a prime example of why considering future free cash flow is important. The pharmaceutical and biotechnology companies generated significant cash flow by rolling out their COVID-19 vaccine.

Moderna stock jumped over 176% between January 1, 2021, and September 1, 2021. However, shares of the company dropped significantly since they peaked in September 2021. Moderna stock fell nearly 78% since September 1, 2021, through February 14, 2023.

After the initial rush, demand for COVID-19 vaccines subsided going forward. Shares of Moderna were negatively impacted as the company returned to being viewed as a speculative biotech company.

“Investors could have potentially anticipated this drop in biotech companies stock prices that have benefited from the vaccine by considering forward-looking free cash flow generation,” stated Micheal Mack, Associate Portfolio Manager for VictoryShares and Solutions. “One could have potentially foreseen that sales would be lower following the initial rollout of the COVID-19 vaccine.”

This highlights how forward-looking free cash flow estimates, instead of the trailing 12 months, can uncover more regarding potential returns.

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, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of VFLO.


Free cash flow (FCF) is a company’s net cash flow from operations minus capital expenditures.

The VictoryShares Free Cash Flow ETF did not have any position in Moderna (MRNA) as of the latest reporting period, 12/31/2023.

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. 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 in smaller companies typically exhibit higher volatility. 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. Derivatives may not work as intended and may result in losses.

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. Neither Foreside nor VCM are affiliated with VettaFi.

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