There are scores of exchange-traded funds focusing on refined, hyper-focused investment niches and concepts. Some catch investors' eyes and assets while others struggle. Perhaps a new ETF focusing on companies that are prodigious generators of free cash will catch on with investors.
After all, the concept is admirable and potentially profitable. Enter the Pacer US Cash Cows 100 ETF (BATS: COWZ), which debuted Monday. Clearly, COWZ has the benefit of a memorable ticker, but there is more to the story.
The new ETF “tracks the Pacer US Cash Cows 100 Index, which screens equities based on their average projected free cash flows and earnings, if available, over two fiscal years. The companies are ranked by their trailing 12-month free cash flow yield and the 100 companies with the highest free cash flow yields are included in the index,” according to a statement issued by Pacer.
COWZ holds the 100 members of the Russell 1000 Index with the highest trailing 12-month free cash flow yields. No stock accounts for more than 2.71 percent of the ETF's weight and its top 10 holdings combine for less than 23 percent of the total roster.
The top three holdings in COWZ are all airlines – United Continental Holdings Inc (NYSE: UAL), Delta Airlines, Inc. (NYSE: DAL) and Southwest Airlines Co (NYSE: LUV). Three other top 10 holdings in COWZ are technology stocks.
Technology is the largest sector allocation in COWZ at nearly a quarter of the rookie ETF's weight, followed by industrials at 20.5 percent. Consumer discretionary and healthcare names combine for over 30 percent of the ETF's lineup.
“Free cash flow is the cash remaining after a company has paid expenses, interest, taxes, and long-term investments. It can be used to buy back stock, pay dividends, or participate in mergers and acquisitions,” according to Pacer.
COWZ sports a free cash flow yield of 8.65 percent with a dividend yield of 2.13 percent. The ETF's holdings have a weighted average market value of $46.4 billion.
The free cash flow yield on COWZ is nearly 500 basis points above the same metric on the Russell 1000. COWZ charges 0.49 percent per year, or $49 on a $10,000 investment.
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