Home etftrends.com How SFLO Compares to the Small-Cap Value Benchmark

How SFLO Compares to the Small-Cap Value Benchmark

Investors who are underexposed to small-cap stocks may be missing out on compelling growth potential.

Many investors avoid small caps, unaware they can mitigate some unwanted risk by focusing on companies with attractive free cash flow yields.

The VictoryShares Small Cap Free Cash Flow ETF (SFLO) offers exposure to high-quality companies trading at a discount that have favorable growth prospects. The small-cap ETF’s focus on companies with higher expected free cash flow yields and high expected growth rates sets it apart from the benchmark and category peers.

Free cash flow 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. Free cash flow is a valuable metric for evaluating companies and investment opportunities.

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

SFLO focuses exposure on the U.S. small-cap universe by incorporating robust liquidity requirements to maximize trading efficiency. This is an important component of SFLO that is unique to small caps.

Sector Diversification: Comparing SFLO and the Small-Cap Value Benchmark

SFLO’s unique methodology and focus on companies generating strong free cash flow gives it a significantly different sector breakdown compared to the benchmark Russell 2000 Value Index.

SFLO overweights the consumer discretionary, energy, consumer services, industrials, information technology, and materials sectors.

The most notable difference, however, is the small-cap ETF’s significant underweight of the financials sector compared to the value benchmark. SFLO has no exposure to the financials sector, whereas the benchmark gave financials a greater weight (27.0%) than any other sector as of the end of January. This is important because free cash flow may not be an applicable metric for financial companies due to accounting practices.

SFLO tracks the Victory U.S. Small Cap Free Cash Flow Index. The Fund has garnered $43 million in assets since its launch in December 2023, accreting over $14 million in the one-month trailing February 28, according to ETF Database.

VettaFi LLC (“VettaFi”) is the index provider for SFLO, for which it receives an index licensing fee. However, SFLO 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 SFLO.

For more news, information, and analysis, visit the Free Cash Flow Channel.

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.

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. 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.

Additional Information

Small-Capitalization Stock Risk—Investments in small-capitalization companies involve greater risks than those associated with larger, more established companies. Free Cash Flow Risk—Investing in companies with high free cash flows could lead to underperformance during periods when such investments are unpopular, and fluctuations in market conditions, industry disruptions, or company-specific factors may jeopardize the generation of free cash flow. Fund holdings and sector allocations are subject to change, may differ from the Index, and should not be considered investment advice.

The Victory U.S. Small Cap Free Cash Flow Index aims to select high quality companies from its starting universe by applying profitability screens. It then selects companies with the strongest free cash flow yield that exhibit higher growth. The Index is rebalanced and reconstituted quarterly. This Index calculates free cash flow yield by dividing expected free cash flow by enterprise value. Expected free cash flow is the average of trailing 12-month FCF and next 12-month forward free cash flow. Enterprise value (EV) measures a company’s total value, often used as a more comprehensive alternative to equity market capitalization.

The Russell 2000 Value Index is a market-capitalization-weighted index that measures the performance of those companies in the Russell 2000® Index with lower price-to-book ratios and lower forecasted growth values.

Distributed by Foreside Fund Services, LLC (Foreside). Foreside is not affiliated with Victory Capital Management Inc., the Fund’s investment adviser.

©2024 Victory Capital Management Inc.

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