"This shift reflects growing concerns about expensive technology valuations and concentration risk, with the Magnificent Seven trading above 30x earnings on average while comprising over 30% of the S&P 500. COWZ addresses a specific portfolio problem, exposure to profitable, cash-generative businesses trading at reasonable valuations. The ETF screens the Russell 1000 (NYSEARCA:IWB) for the 100 stocks with the highest free cash flow yield, then holds them in equal weight. It's a quality value strategy that prioritizes companies converting revenue into cash shareholders can actually use."
"The return engine is straightforward: businesses with strong free cash flow can fund dividends, buy back shares, pay down debt, or reinvest for growth without relying on external financing. This capability matters more now than during the zero-rate era. With the Federal Funds rate at 3.75% and the 10-year Treasury yielding 4.09%, companies that generate cash internally gain a competitive advantage."
S&P 500 sits flat year-to-date while Pacer US Cash Cows 100 ETF (COWZ) has risen nearly 7%. COWZ selects the 100 Russell 1000 stocks with the highest free cash flow yield and weights them equally. Strong free cash flow allows companies to fund dividends, buybacks, debt reduction, or reinvestment without external financing. Higher interest rates increase the value of internally generated cash versus costly external capital. With the Federal Funds rate at 3.75% and the 10-year Treasury around 4.09%, cash-generative companies gain an advantage and can compete with fixed income. Portfolio tilts favor Healthcare (22.3%) and Energy (18%), and COWZ delivered roughly 20 percentage points of outperformance over five years.
Read at 24/7 Wall St.
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