SSeveral factors, from high inflation to the war in Ukraine to a hawkish Federal Reserve, have led markets to yo-yo this year. The S&P 500 has fallen almost 14% since the start of the year at the end of July. So, with stocks priced lower than they were at the start of the year (but beginning to rise in value), investors are looking for undervalued stocks with high free cash flow.
Free cash flow represents the cash a company has available to repay creditors or send dividends to investors. Todd Rosenbluth, head of research at VettaFi, said: “Given the volatility of the market in 2022, advisors have been looking for companies with strong free cash flow generation, as they offer relative stability.”
The FCF American Grade ETF (TTAC) is an actively managed fund that aims to outperform the Russell 3000 through a fundamental-driven investment process that selects around 150 stocks based on the strength of free cash flow, according to the ETF’s FactSet analyst report . Its holdings are then weighted by a logarithmic transformation of modified market capitalization, which allows for increased exposure to companies with the best proprietary free cash flow rankings.
After that, the portfolio will be rated with an ESG score, excluding companies with low ESG ratings. Companies with an extreme increase in the number of shares and an increase in indebtedness are excluded.
The CAGR increased in value by almost 7% during the month of July.
Active domestic equity managers do their best when markets are volatile. According to Morningstar, 62.9% of US equity funds beat their benchmarks through the end of May. For the category, the average excess return was 1.36%. Investors also put money into active ETFs, especially domestic stock funds.
Citing FactSet data as of June 30, the New York Stock Exchange revealed that active equity ETFs brought in $30.7 billion in capital to investors in the first half of the year.
For more news, insights and strategy, visit the Free cash channel.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.