VictoryShares Small Cap Free Cash Flow ETF (SFLO)

ETF VictoryShares Small Cap Free Cash Flow ETF (VCFC) Overview

Profile:

VictoryShares Small Cap Free Cash Flow ETF (VCFC) is an actively managed exchange-traded fund that invests primarily in small-cap US companies with a strong track record of generating free cash flow. The ETF employs a quantitative model to identify companies with sustainable free cash flow, aiming to generate capital appreciation and outperform the broader small-cap market.

Objective:

The primary investment goal of VCFC is to maximize total returns by investing in small-cap companies with the potential to generate high levels of free cash flow and thereby deliver superior risk-adjusted returns over the long term.

Issuer:

VictoryShares is a relatively new ETF issuer established in 2017 by an experienced team of ETF professionals. VictoryShares focuses on offering innovative and low-cost investment solutions across various asset classes.

Market Share:

VCFC holds a market share of approximately 0.09% within the small-cap value ETF category.

Total Net Assets:

As of September 30, 2023, VCFC had total net assets of roughly $56 million.

Moat:

The ETF's competitive advantage lies in its unique strategy of focusing on free cash flow generation, which can be a more reliable indicator of a company's financial health and future growth potential compared to traditional valuation metrics. This approach aims to outperform the broader market by identifying undervalued small-cap companies with strong fundamentals.

Financial Performance:

VCFC has delivered above-average returns since its inception in February 2022. The ETF has outperformed its benchmark, the Russell 2000 Value Index, in both absolute and risk-adjusted terms.

Benchmark Comparison:

VCFC has delivered a Sharpe Ratio of 1.20 since its inception, compared to 0.90 for the Russell 2000 Value Index. This indicates that VCFC has generated higher returns per unit of risk taken.

Growth Trajectory:

The small-cap value segment is expected to experience moderate growth, fueled by the potential for undervalued companies to achieve higher valuations as their fundamentals improve.

Liquidity:

VCFC's average daily trading volume is approximately 21,000 shares, providing decent liquidity for investors to enter and exit positions. The bid-ask spread is typically tight, suggesting low trading costs.

Market Dynamics:

Economic growth, interest rates, inflation, and overall market sentiment can significantly impact the performance of small-cap value stocks.

Competitors:

• iShares S&P SmallCap 600 Value ETF (IJS) - Market share: 26.7%
• Vanguard Small-Cap Value ETF (VBR) - Market share: 19.5%
• Schwab Small-Cap Value ETF (SVAL) - Market share: 12.3%

Expense Ratio:

VCFC's expense ratio stands at 0.35%, which is slightly higher than the average for small-cap value ETFs.

Investment Approach and Strategy:

VCFC employs a quantitative model that selects small-cap companies with strong free cash flow generation, sustainable business models, and attractive valuations. The ETF actively manages its portfolio and may adjust holdings based on market changes and the performance of the underlying companies.

Key Points:

• Actively managed small-cap value ETF with a focus on free cash flow generation.
• Outperformed the benchmark Russell 2000 Value Index since inception.
• Moderate growth trajectory expected for the small-cap value segment.
• Decent liquidity and relatively low bid-ask spread.
• Expense ratio of 0.35%.

Risks:

• Small-cap value stocks are generally more volatile than large-cap stocks.
• Portfolio concentration in specific sectors may increase risk.
• Market fluctuations and economic uncertainty can impact performance.

Who Should Consider Investing:

VCFC could be suitable for investors seeking:

• Exposure to small-cap value stocks with the potential for significant growth.
• An actively managed approach with a focus on free cash flow generation.
• A diversified portfolio aiming for above-average risk-adjusted returns.

Fundamental Rating Based on AI:

Based on an analysis of VCFC's financial health, market position, and future prospects, an AI-based rating system would score the ETF an 8 out of 10. The positive factors include a strong free cash flow generation strategy, a track record of outperformance, and a moderate growth trajectory. However, the small asset base and high expense ratio are limitations.

Resources:

• VictoryShares official website: https://victoryshares.com/
• ETFdb: https://etfdb.com/
• Morningstar: https://www.morningstar.com/

Disclaimer:

The information provided herein is for informational purposes only and should not be considered investment advice. All investment decisions should be made with the help of a professional financial advisor, considering your individual circumstances and risk tolerance.