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Diversify the Herd: ICOW

Diversify the
Herd

Most investors agree that diversity in a portfolio is essential.
So why not diversify where your portfolio’s free cash flow yield is coming from?

 

The Pacer Developed Markets International Cash Cows 100 ETF (ICOW) takes the free cash flow yield screen strategy global, aiming to find high quality companies in developed markets outside of the US.

What is Free Cash Flow Yield?
Free cash flow yield (FCFY) is a valuation ratio. It’s calculated by dividing a company’s Free Cash Flow by its Enterprise Value (Market Cap + Debt – Cash).

Positive free cash flow means that a company generates more cash than it needs to run the business. And companies with the highest FCFY are better positioned to take part in mergers or acquisitions, pay dividends, or buy back stock.

Free Cash Flow Yield in Action
Every Cash Cow ETF uses free cash flow yield for screening stocks into the fund based on the fund’s rebalancing calendar and benchmark index.

For ICOW, that means:

  • Screening the FTSE Developed Ex-US Index for the top 100 free cash flow-yielding stocks
  • Weighting those 100 companies in ICOW by the highest free cash flow (on a 12-month basis), with a 2% cap

ICOW repeats this rebalancing process semi-annually. Aiming to give investors exposure to the highest quality stocks based on current market conditions.

Diversify Your Herd