With the S&P 500 Index pushing to new highs, many advisors are confronting a familiar challenge: how to maintain equity exposure without taking on unnecessary valuation risk. In a recent webcast, AI, Valuations, and Concentration Risks: Why Free Cash Flow Matters More Than Ever, Victory Capital client portfolio manager Michael Mack made the case for why free cash flow (FCF) has become one of the most effective tools for identifying durable, high-quality opportunities in today's market. During the discussion ...

FCF's Influence on Growth The start of the webinar highlighted a historical account on the dominance of growth and value, which tends to come in cycles. Attendees were asked how they allocated to both factors, which resulted in a relatively balanced outcome — 23% towards growth and 15% to value in today's market. "I congratulate our audience on having a healthy growth allocation because that's been beneficial over time,†Mack said upon seeing the results, mentioning that the resilience of growth over time ca ...

Core Insights - The VictoryShares Free Cash Flow ETF (VFLO) has demonstrated a balance between value and growth, resulting in significantly lower drawdowns compared to the S&P 500, while also outperforming it during certain market rallies [1] Performance Analysis - VFLO's empirical performance indicates that it has outperformed broader market indices in specific phases, showcasing its effectiveness in capitalizing on market rallies [1] Investment Strategy - The investment approach of VFLO combines rigorous risk management with a long-term perspective on value creation, focusing on macroeconomic trends, corporate earnings, and financial statement analysis [1]

Core Insights - The S&P 500 has reached multiple record highs, leading to investor concerns about whether valuations have peaked and if it is the right time to invest new capital [1] - Victory Capital emphasizes the importance of free cash flow (FCF) as a metric to identify high-quality businesses in elevated-valuation markets [1][2] Free Cash Flow ETFs - Victory Capital has launched a suite of ETFs focused on FCF, including the flagship VictoryShares Free Cash Flow ETF (VFLO), which tracks the Victory U.S. Large Cap Free Cash Flow Index [2] - The VFLO Index targets high-quality, large-cap companies with attractive valuations and solid growth prospects [2][12] Valuation Risks - Current market conditions present valuation risks, with stock prices showing a disconnect from fundamental metrics [3] - Investors are encouraged to mitigate valuation risks by investing in stocks with high free cash flow [3] Growth Factor and FCF - Research indicates that combining growth with FCF can enhance investment effectiveness [4] - The VictoryShares Free Cash Flow Growth ETF (GFLW) provides exposure to U.S. companies with high FCF profitability and growth potential [3][4] International Opportunities - With the dollar's weakness and other macroeconomic factors, investors are increasingly looking at international equities [5] - Victory Capital has introduced the VictoryShares International Free Cash Flow ETF (IFLO) and the VictoryShares International Free Cash Flow Growth ETF (GRIN) to expand access to high-quality, high FCF companies globally [5][6] Diversification Strategy - The suite of FCF ETFs allows investors to build a diversified portfolio, including small-cap exposure through the VictoryShares Small Cap Free Cash Flow ETF (SFLO) [6] - Research supports the appeal of FCF across various regions and asset classes, promoting a diversified investment approach based on FCF [7]

Group 1: VettaFi and Indexing Business - VettaFi, formed from the merger of multiple indexing businesses, was recently acquired by TMX Group and now manages over $75 billion in assets across various indices [2] - The company assists clients in product development, offering services such as formalizing rulebooks, conducting backtesting, and evaluating liquidity [2] - Ongoing management and education are essential for partners to differentiate themselves in the crowded ETF market, which has over 4,000 products [3] Group 2: Thematic ETFs and Portfolio Management - Thematic ETFs are becoming increasingly important, with a focus on analyzing portfolio overlap to enhance existing allocations [3] - Key thematic areas attracting investor demand include artificial intelligence and nuclear energy, with advisors typically allocating 5-10% of portfolios to these strategies [3] Group 3: Gold Market Dynamics - Gold prices are driven by strong physical demand from China and central banks, record ETF inflows, and macroeconomic factors such as a weaker U.S. dollar and inflation uncertainty [4] - Gold serves as a portfolio diversifier and can coexist with bitcoin, fulfilling different roles within an investment strategy [4] Group 4: Notable ETFs - Alerian MLP ETF (AMLP) has over $10 billion in assets and recently celebrated its 15-year anniversary [5] - VictoryShares Free Cash Flow ETF (VFLO) is approaching $5 billion in assets despite being less than three years old [5] - The ROBO Global ETF Suite focuses on robotics and artificial intelligence, while the Range Nuclear Renaissance Index (NUKZ) expands VettaFi's thematic indexing in nuclear energy [5]

Core Insights - Investors may overlook growth-oriented, profitable companies generating free cash flow (FCF) due to home country bias, but can benefit from international exposure through the VictoryShares International Free Cash Flow Growth ETF (GRIN) [1] Group 1: ETF Overview - GRIN tracks the Victory International Free Cash Flow Growth Index, targeting high-growth, international large-cap companies with potential for compounding FCF generation over time [2] - The Index uses FCF as a forward-looking measure, filtering companies based on FCF trends, FCF to return on invested capital, and growth prospects [2] Group 2: Importance of FCF - FCF is a key metric for assessing sustainable growth companies, indicating their ability to reinvest, offer dividends, or buy back stock, all contributing to shareholder value [3] - GRIN's indexed approach focuses on international companies exhibiting these characteristics, helping diversify portfolios concentrated in U.S. equities [3] Group 3: Notable Holdings - Rolls-Royce Holdings, a British aerospace and defense company, is a top holding in GRIN with a 3.88% allocation, potentially benefiting from increased military spending in the EU [4] - Siemens Energy, a German company, is experiencing record orders due to power demands from AI applications, crucial for Europe's power grid [5] - Siemens is also a leading wind power company, contrasting with the U.S. political agenda, highlighting missed opportunities for investors with a home country bias [6] - Sea Limited, based in Singapore, has seen a nearly 70% increase in value for the year as of 8/31/2025, capitalizing on e-commerce strength in Southeast Asia [7] Group 4: Diversification Strategies - For global diversification, investors can pair GRIN with other VictoryShares ETFs, such as the value-oriented VictoryShares Free Cash Flow ETF (VFLO), which focuses on high-quality, large-cap U.S. stocks [8] - The VictoryShares Free Cash Flow Growth ETF (GFLW) provides exposure to U.S. companies with high FCF profitability and growth potential [9]

Investment Strategy & Market Analysis - Free cash flow is considered a crucial valuation metric, favored by investors like Warren Buffett for identifying companies generating more cash than needed for operations [2] - Traditional value investing relying on price-to-book ratios is becoming less relevant as intangible assets now constitute approximately 80-85% of assets in S&P 500 companies [4] - A portfolio based on free cash flow yield outperformed a portfolio based on value factor (determined by price-to-book) between 2000 and June 2024, returning over double the amount [5] ETF Performance & Characteristics - Pacer US Cash Cows ETF (COWZ) selects 100 companies from the Russell 1000 index with the highest free cash flow yield, currently holding approximately $21 billion in assets [7] - VictoryShares Free Cash Flow ETF (VFLO) has gathered over $26 billion in assets year-to-date, totaling $44 billion, due to its consideration of both trailing and forward-looking free cash flow [9] - Invesco NASDAQ Free Cash Flow Achievers ETF (QZ) focuses on technology companies with positive free cash flow in each of the trailing 11 years and year-over-year growth [11] - Invesco product (QZ) has shown the best performance, returning about 19% over the past year, likely due to its focus on technology stocks [15] ETF Methodologies & Holdings - Pacer's COWZ ETF portfolio is heavily weighted in healthcare (20%) and energy (19%), with top holdings including Ford, Exxon Mobil, and Chevron [9] - VictoryShares' VFLO ETF portfolio is heavily weighted in consumer discretionary, with top holdings including Qualcomm, Mercar, and United Health [11] - Invesco's QZ ETF portfolio includes top holdings like Nvidia, Meta, and Broadcom, reflecting its focus on technology companies [12]

Group 1 - The VictoryShares Free Cash Flow ETF (VFLO) offers a unique investment option for value-oriented investors, utilizing a free cash flow-weighted methodology that provides a deep value tilt [1] - This ETF distinguishes itself from traditional value funds by focusing on free cash flow, which may appeal to investors seeking more robust value strategies [1]