A popular ETF focused on cash flow is finding its footing again after lagging the broader market in the first half of 2023. The Pacer U.S. Cash Cows ETF (COWZ) has set several recent highs over the past two weeks, including closing at a record $51.49 per share on Wednesday. Before July 31, the fund had not closed above $51 per share in more than a year, according to FactSet. The fund is up 12% year to date, which looks meager compared to the high-flying Nasdaq Composite’s 32% advance, but all of the gains have come in the past three months. COWZ YTD mountain COWZ in 2023 Fund flows have started to rebound as well after slumping in May and June. COWZ has brought in $200 million over the past month. It now has more than $14 billion in assets under management, per FactSet. The rebound coincided with an uptick in oil prices. Energy holdings make up the largest sector in the fund, with Chevron as the fund’s biggest position. Shares of Chevron are negative year to date but up more than 3% over the past three months. “For the first half of the year, we were basically hugging our benchmark, which is the Russell 1000 Value, in spite of the fact that energy was at a 34% weight in the portfolio and the energy sector was down. I think that’s sort of a tribute to some of the robustness of the strategy,” said Pacer ETFs President Sean O’Hara. “And then the last 90 days, as the world is sort of waking up to this notion that maybe we do have a supply-demand in terms of production of oil and the energy sector picked up.” The iShares Russell 1000 Value ETF (IWD) , for comparison, is up less than 7% year to date. The average fund in COWZ’s category is up less than 8%, according to Morningstar. The COWZ fund is based on a custom index that is rebalanced on a quarterly basis. The index consists of Russell 1000 stocks with the best free cash flow yield. 100 stocks are chosen for the index, and those with better cash flow metrics get a higher weight in the portfolio, up to a 2% cap. While that process has made the fund overweight energy, it has also unearthed winners in other sectors. Booking Holdings is now a top-five holding for the fund after not being included at all in January, according to a securities filing . The travel stock has jumped about 60% year to date, and Bookings’ second quarter saw net income rise more than 40% year over year. “The rebalance every 90 day is sort of the key because it keeps the focus on the most current free cash flow yield, and the names with the highest free cash flow yield. It tends to rotate around pretty well,” O’Hara said. “When you focus on high free cash flow yield names, you actually end up owning companies who grow their earnings faster than their index,” he added.
