There’s An ETF for That? Free Cash Flow

Pacer US Cash Cows Growth ETF

BUL

BUL offers a distinct twist on leveraging free cash flow yield by targeting growth-oriented stocks rather than strictly value plays.

 Unlike its sibling ETF, COWZ, which bases its stock selection on the Russell 1000 Value Index, BUL focuses on the S&P 900 Pure Growth Index. It selects the top 50 companies based on free cash flow yield, demonstrating the flexibility of the free cash flow metric across different market segments.

This makes BUL an appealing alternative for those looking to blend growth with value aspects, often akin to a Growth at a Reasonable Price (GARP) strategy.

With a free cash flow yield of 5.64% compared to the broader S&P 900 Pure Growth Index’s 2.46%, and a more moderate P/E ratio of 15.90 versus 37.52, BUL positions itself as a strategic choice for investors seeking growth stocks that also generate substantial cash flows.

Global X U.S. Cash Flow Kings 100 ETF

FLOW

Global X, widely recognized for its thematic ETF offerings, also ventures into smart beta strategies, notably with FLOW.  

This ETF is designed around the proprietary Global X U.S. Cash Flow Kings 100 Index, which applies a stringent screening process for companies exhibiting high free cash flow yields. To ensure a diversified risk profile, the index implements a sector cap of 25% and limits individual stock exposure to 2%.

What stands out about FLOW is its cost-efficiency. With an expense ratio of just 0.25%, it is significantly more affordable than some of its counterparts like COWZ, which charges 0.49%.

Distillate U.S. Fundamental Stability & Value ETF

DSTL

Finally, we have DSTL, one of my favorite actively managed ETFs. Charging a reasonable 0.39% expense ratio, DSTL offers a well-thought-out methodology for capturing value in large-cap U.S. stocks.

The process starts by screening around 500 profitable large-cap companies, focusing on those with low leverage and stable cash flows. From there, it zeroes in on the most attractively valued 100 companies based on Distillate Capital’s normalized free cash flow methodology, weighting them by free cash flow and rebalanced quarterly.

Notable, DSTL is one of the few active ETFs that consistently outperforms the S&P 500. Over the past three years, it has returned 12.97% compared to the S&P 500’s 11.91%, and over five years, 16.82% versus 15.98%. Since its inception, DSTL has delivered 16.17%, outpacing the S&P 500’s 15.26%.

How to Use Free Cash Flow ETFs

All three of these ETFs—COWZ, BUL, and DSTL—exhibit high active shares, meaning that the holdings in these ETFs differ significantly from those in the S&P 500.

This divergence from the market index indicates that these funds are not merely replicating broad market moves but are selecting stocks based on specific financial health metrics, such as free cash flow.

I personally prefer using these ETFs as satellite allocations within a portfolio. They can provide exposure to a fundamental weighting strategy that complements the broader, more traditional market cap-weighted ETFs that might form the core of your investment strategy.

This approach allows you to diversify your investment style and potentially tap into different sources of alpha while maintaining a solid foundation of low-cost beta.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.