The Pacer US Cash Cows 100 (COWZ) ETF has become a popular investment fund as it continues to outperform its closest rivals. On Tuesday this week, the stock traded at $57.50, a few points below its all-time high of $61.60. Since its inception in 2016, it has soared by over 131%, bringing its assets to over $25.2 billion.
A value investor’s dream
Value investors have had a rough patch in the past few years as investors have moved to flashy technology companies dominating the stock market. All companies in the Magnificent 7 group of companies like Apple, Microsoft, and NVIDIA have all surged and doubled in the past few years.
Most value investors like Warren Buffett have also underperformed the broader market in this period.
Many value-focused ETFs are in the market today, but the Pacer US Cash Cows 100 ETF is one of the best. While most of the value funds focus on valuations, the COWZ fund focuses on the most important number in a company: free cash flow (FCF).
Free cash flow is a key number that looks at all the funds that remains when a company has covered all its operating expenses and capital expenditures. These are the funds that are available for the company to pay dividends, repurchase shares, and pay creditors.
The COWZ ETF has a simple approach in that it invests in companies that have the highest FCF yield metric in the US. It starts its screening by looking at all companies in the Russell 1000 index.
It then looks at 100 of these companies and sorts them by FCF in dollars. The end result is an ETF whose most companies are in the energy sector followed by consumer discretionary, information technology, healthcare, and consumer staples.
Qualcomm, AT&T, Gilead Sciences, Valero Energy, and EOG Resources are the biggest companies in the fund. Other top names are Marathon Petroleum, Schlumberger, Cencora, and Chevron.
All these are firms with a huge market share in their industries. Qualcomm is a market leader in mobile semiconductors, while AT&T is one of the biggest telecom companies in the United States. Gilead is a top firm in the HIV industry, while Schlumberger, which is today known as SLB is the biggest offshore drilling company.
COWZ ETF beats the S&P 500
The COWZ ETF has had a strong performance over time. According to the WSJ, its five-year performance has been about 15.7%, higher than what the S&P 500 has returned.
This is a notable performance since the fund does not have the flashy companies like NVIDIA and Microsoft that have done well over time. The chart below shows that the COWZ ETF has returned 108% in the last five years compared to S&P 500.
Is CALF ETF is a good alternative to COWZ?
Pacer also runs the US Small Cap Cash Cows 100 ETF also known as CALF. The concept is similar to COWZ, with the main difference being that it focuses on the S&P Small Cap 600 companies and then identifies companies with a high FCF yield.
The biggest companies in the CALF ETF are in areas like consumer discretionary, information technology, industrials, and energy. Some of the top names in the fund are Patterson, Qorvo, Insight Enterprises, Crescent Energy, and TEGNA.
The CALF ETF has a dividend yield of almost 10% compared to COWZ’s 7.8%. However, as shown above, the fund’s total return in the last five years stood at 78%, lower than the COWZ and VOO funds.
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