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].

AUM Growth and Composition - Total Assets Under Management (AUM) increased from $26.6 billion in 2022 to $31.9 billion in 2024[25] - Fixed income AUM has been a significant driver of overall growth[24], increasing from $2.1 billion in 2022 to $6.2 billion in 2024[25, 35] - The pace of fixed income AUM growth is accelerating, with the time to reach each additional $1 billion in AUM decreasing over time[33] Investment Performance - Diamond Hill's Short Duration Securitized Bond Composite showed net performance of 9.40% for 1 Year, 4.85% for 3 Years, 4.11% for 5 Years, and 4.01% Since Inception (5 Jul 2016)[28] - Diamond Hill's Core Bond Composite showed net performance of 3.58% for 1 Year, -0.81% for 3 Years, 0.89% for 5 Years, and 1.89% Since Inception (5 Jul 2016)[28] - Diamond Hill International Composite net performance was 4.03% for 1 Year, 2.14% for 3 Years, 5.14% for 5 Years, and 8.18% Since Inception (30 Dec 2016)[71] - Diamond Hill Large Cap Strategy outperformed the Russell 1000 Value Index in 61% of 1-year rolling periods, 76% of 3-year rolling periods, 89% of 5-year rolling periods, 95% of 7-year rolling periods, and 100% of 10-year and 15-year rolling periods[65] Market Environment and Equity Strategy Performance - Active equity managers faced headwinds in 2024, with active mutual funds experiencing net outflows of $373 billion[38] - US equity strategies have shown varied alpha versus core and value benchmarks, with a weighted average alpha of -9 bps versus core benchmarks and 156 bps versus value benchmarks over 5 years[58] Financial Performance - The company returned $46.8 million to shareholders in 2024 through dividends and share repurchases[82] - Revenue and average AUM show signs of improvement, with revenue increasing from $33.4 million in Q2 2023 to $39.1 million in Q4 2024[74] - Adjusted net operating profit margins have stabilized in a higher cost environment, reaching 34% in Q4 2024[77, 121] Asset Allocation - Diamond Hill Funds account for $18.05 billion of the total assets, while Institutional SMA represents $3.29 billion[93]