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Target Future Strong Growth Companies With Free Cash Flow

It’s important to remember that many of today’s best-performing growth stocks were once unfavorable value stocks. It wasn’t that long ago that these companies had fallen out of favor with investors. With expectations low, it was their free cash flow (FCF) yields at the time that pointed to a potentially brighter future.

Free cash flow remains after a company has paid expenses, interest, and taxes, and has reinvested in the business. The uses include buying back stocks, paying dividends, or participating in mergers and acquisitions. It also arguably provides a more comprehensive and accurate snapshot of a company’s potential profitability.

Michael Mack, Associate Portfolio Manager for VictoryShares and Solutions, said “Because FCF yield focuses on profitable companies trading at a discount, it can naturally present interesting opportunities. FCF yield may actually be a useful contrarian indicator,” he said.

See more: “New VFLO ETF: High Free Cash Flow Yield Without Sacrificing Relative Growth Potential

Don’t Rely Solely on Growth Indexes

According to Mack, the market can underestimate a company’s ability to reinvent itself. Often, they can do this by finding new growth markets, whether that new market is the cloud or AI. Investors don’t have to rely solely on the growth indexes to find future growth leaders.

“There are many companies that are out of favor today that may be the growth leaders of the future,” Mack said. “You don’t always have to chase the shiniest new object to identify the strong growth companies of the future.”

For investors looking to target future growth companies with high FCF yields, the VictoryShares Free Cash Flow ETF (VFLO) may be worth looking into. VFLO tracks an index1 focused on large-cap companies with high free cash flows. These companies are then filtered to select those with the most favorable growth prospects using trailing and forward-looking metrics.

For more news, information, and strategy, 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.

Disclosure Information

Free cash flow (FCF) represents the cash that a company generates after accounting for cash outflows to support operations and maintain its capital assets.

1/ The Victory U.S. Large Cap Free Cash Flow 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.

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.

Additional Information

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. 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. 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.

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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