Betashares has announced that it is soon planning to launch a new ETF centred around so-called “cash flow kings” from around the world.
The Betashares Global Cash Flow Kings ETF (CFLO) is expected to begin trading on the ASX later this month and will seek to provide investors with exposure to a portfolio of global companies with “strong and consistent free cash flow generation”.
Free cash flow, which is the amount generated from business operations after working capital needs and capital expenditures, is an “important barometer” of a company’s health, Betashares said, and determines their ability to pay dividends, buy back shares and expand.
Betashares chief executive officer Alex Vynokur noted that cash flow is often used by investors and analysts to gauge a company’s overall financial position and performance prospects.
“We believe that investing with a focus on cash flow is an intelligent approach offering the potential for outperformance versus traditional broad global equity benchmarks over time,” he said.
“In addition, because it will have similar sector and country weights to broad global equity benchmarks, our view is that CFLO can be considered as a compelling candidate for a core exposure to global equities.”
The ETF provider noted that a strong association has been observed between free cash flow generation and sharemarket performance. Companies with strong free cash flow have historically beaten broad global equity benchmarks over the medium to long term.
Backing up this claim, the Solactive Global ex-Australia Cash Flow Kings Index, which CFLO will aim to track, has outperformed the MSCI World ex-Australia Index by 2.31 per cent per annum since May 2006.
According to Betashares, CFLO will provide exposure to a portfolio of 200 global companies (excluding Australia) which have been chosen based on their ability to demonstrate strong free cash flow, growth of free cash flow and relatively low levels of debt.
The top holdings of the new ETF are expected to include Microsoft, Visa, and Adobe.
CFLO will add to Betashares’ ever-expanding line-up of ETFs. Recent fund launches by the ETF provider have included the Betashares FTSE 100 Currency Hedged ETF (H100), the Betashares Inflation-Protected US Treasury Bond Currency Hedged ETF and the Betashares US Treasury Bond 7-10 Year Currency Hedged ETF.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.