ETF Trends CEO Tom Lydon discussed the Pacer US Cash Cows 100 ETF (COWZ) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
A strategy-driven ETF that aims to provide capital appreciation over time by screening the Russell 1000 for the top 100 companies based on free cash flow yield.
Despite the uncertainty, you can still find value if you use the right approach. Value investing does not mean an investor has to give up on innovative companies. For example, 35% of Russell 1000 technology companies now show a price-to-earnings ratio below market value. Value investing is also about regular rebalancing to adhere to a rules-based investment methodology to target the best value in the market place.
COWZ has benefited from a rules-based approach to value investing. Since the recovery from March 2009 when the Russell 1000’s P/E was around 11, the price to earnings ratio has expanded 93.50% in the Russell 1000. By rebalancing, the Pacer U.S. Cash Cows 100 Index has maintained P/E’s at lower valuations while offering higher capital appreciation.
This type of value play provides a very cheaply discounted opportunity for long-term investors. The Pacer U.S. Cash Cows 100 Index shows a -50.55% discount to the Russell 1000 Index, compared to its historical average of -32.79%. Additionally, the Index even trades at a -40.80% discount to the Russell 1000 Value Index, compared to its historical average of -22.25%.
COWZ has also showed continued outperformance against the Russell 1000 Value benchmark and attractive valuations on free cash flow yield and P/E ratio.
The COWZ indexing methodology
COWZ is an objective rules-based methodology that uses a quality screen to select the top companies in the index universe. The underlying index selects companies from the Russell 1000 Index and