Return to the Pacer Cash Cows ETF Series

Common Sense Value Investing: COWZ

Common Sense
Value Investing

What caused value investing to fall out of favor
can be debated at another time. But right now,
the Cash Cow Series is trying to rethink value investing
by using free cash flow yield.

 

The large-cap Cash Cows fund, the Pacer US Cash Cows 100 ETF (COWZ), uses a free cash flow yield screen aiming to find high quality large-cap companies.

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 COWZ, that means:

  • Screening the Russell 1000 Index for the top 100 free cash flow-yielding stocks
  • Weighting those 100 companies in COWZ by the highest free cash flow (on a 12-month basis), with a 2% cap

COWZ repeats this rebalancing process quarterly. Aiming to give investors exposure to the highest quality stocks based on current market conditions.

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