Value or Growth? Consider Both With Free Cash Flow ETFs

Core Viewpoint - Large cap growth companies have significantly driven market gains in 2025, prompting investors to reconsider the role of value-oriented investments in their portfolios. A balanced approach using two free cash flow (FCF) ETFs, the VictoryShares Free Cash Flow Growth ETF (GFLW) and VictoryShares Free Cash Flow ETF (VFLO), is suggested to capture potential upside regardless of market conditions [1]. Group 1: Investment Strategy - The GFLW and VFLO ETFs utilize FCF as a key metric for evaluating equities, which is increasingly important in the current market environment [2]. - GFLW focuses on large-cap companies with the potential to compound FCF over time, assessing both trailing and future FCF to determine growth potential [6]. - VFLO targets companies with the highest FCF yields, emphasizing those that can allocate capital towards enhancing shareholder value through reinvestment, share buybacks, or dividends [7]. Group 2: Market Dynamics - Over the past 15 years, growth has consistently outperformed value, as indicated by the disparity in P/E ratios between the Russell 1000 Growth Index and the Russell 1000 Value Index [2]. - The valuation landscape has shifted in the last five years, with growth stocks trading at a premium compared to value stocks, leading to a widening gap that may introduce risks of growth underperformance if the spread contracts [4]. Group 3: ETF Characteristics - Both GFLW and VFLO are designed to limit exposure to companies with slow growth prospects, thereby reducing the risk of value traps [8]. - The Victory U.S. Large Cap Free Cash Flow Index, tracked by VFLO, selects high-quality companies based on profitability screens and strong FCF yield, rebalancing quarterly [12]. - The Victory Free Cash Flow Growth Index, tracked by GFLW, emphasizes profitable companies with a positive FCF trend and high growth potential [13].