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Why free cash flow factors?
Our factors are based on free cash flow, which represents the cash that a company generates through its operations after accounting for capital expenditures on fixed assets.
01
A truer representation
Most quality investing models take inputs based on company earnings. Despite accounting standards such as GAAP, management have significant discretion in:
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Revenue recognition
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Liability and asset assessment
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Cost treatments (expense vs capitalize)
You can have more confidence in factors based on free cash flow because this data is far less open to management manipulation.
02
Higher quality
Research has shown free cash flow factors to be a more reliable indicator of strong and sustainable profitability. Compared to traditional quality investing, our model highlights companies that display higher potential to outperform the market over the medium to long term.1
1 Source: FCF Advisors
03
Better for society
Companies identified by free cash flow factors tend to have very high environmental, social and governance (ESG) scores.1
1 The final basket of securities selected by the free cash flow model is given an aggregate ESG rating. A security will be included or excluded based on the rating/score. The criteria is defined in the respective ETF prospectus. The ESG component applies only to the FCF US Quality ETF and the FCF International Quality ETF.