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What Lies Ahead for Trim Tabs' New International FCF ETF?

A company’s cash position is the true reflection of its financial health. In fact, a profit-making company may be a candidate which runs out of cash. On the other hand, cash-rich companies can wait out any broader market volatility with ease.

Since a cash cushion is always needed in a rough market, one can easily take a look at the indicators related to cash flows to measure the performance of a company. This is where the free cash flow metric gain prominence. 

One of the important factors that makes free cash flow a highly dependable metric is that operating cash flow adds back non-cash charges such as depreciation and amortization to net income, truly diagnosing the financial health of a company. The metric measures “the quantity of cash a company generates each reporting period after accounting for future organic growth,” as per Trim Tabs Asset Management.

Probably, this is why several issuers are stressing on free cash flow (FCF) or FCF yield while launching products. In this suite, TrimTabs All Cap International Free-Cash-Flow ETF TTAI is one of the new entrees. Let’s delve a little deeper (read: Top 3 Foreign ETFs of Q2).

TTAI in Focus

The fund looks to provide long-term returns that exceed those of the S&P Developed Ex-U.S. Index. The actively managed fund targets about 85 companies in non-U.S. developed markets that are “generating free cash flow, reducing their share count and maintaining healthy balance sheets.”

The fund has maximum exposure to the industrials sector while consumer staples, health care and materials sectors take the next three spots. WH Group LTD, FNAC DARTY and Cash & Other are the top three holdings of the fund. No holding accounts for more than 1.31% of the portfolio. The fund charges 59 bps in fees (read: Top Sector ETFs of 1H).

How Could it Fit in a Portfolio?

The fund could be a good choice for value investors with a global market focus. TTAI only picks those companies that are buying back their shares with free cash flow, representing the company’s underlying strength.

Investors should note that, if share counts fall, there will be a rise in earnings per share and return on equity. Also, repurchasing shares gives a positive indication about the health of the company and its confidence in the future value of its shares. So, even from from this point of view, TTAI can be an intriguing investment.

Apart from bolstering shareholder value, this strategic move also lifts the relatively undervalued share price. Moreover, the step is also a perfect medium for the use of excess cash. This is also a tax-efficient mode of enhancing shareholder value.

Finally, since the fund is exposed to developed international economies, which are on the mend now, this fund has chances of outperforming ahead (see all Broad Developed World ETFs here).

ETF Competition

There are some free cash flow related funds in the space likePacer Developed Markets International Cash Cows 100 ETF (ICOW) and Pacer Global Cash Cows Dividend ETFGCOW which may give TTAI some competition.

Notably, ICOW looks to track the Pacer Developed Markets International Cash Cows 100 Index to give exposure to large and mid-cap non-U.S. companies in developed markets having high free cash flow (FCF) yields. GCOW gives exposure to global companies with high dividend yields backed by a high free cash flow yield (read: Pacer Adds Two New ETFs to its Cash Cow Lineup).

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PACR-GL CC DIV (GCOW): ETF Research Reports
PACR-DMI CC1 (ICOW): ETF Research Reports
TRIMT-AC INT CF (TTAI): ETF Research Reports
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