Cash Is Retaking the Throne

Cash is king…

That phrase dates back to a different time in the markets. It comes from before investors started falling in love with cash-burning, “basement-dwelling kid” companies.

Back then, investors focused more on managing risk. They didn’t just assume growth-promising, money-losing companies would eventually figure things out.

Cash really was king in those days. And investors avoided companies that didn’t produce it.

The expression lost its power in recent years. Investors didn’t start to completely hate companies with a lot of cash. But they didn’t love those companies as much, either.

Instead, growth became the name of the game. And investors prioritized companies with a lot of growth potential over businesses with solid cash flows.

Today, the world is hostile toward many asset classes…

The Federal Reserve is aggressively raising interest rates in an effort to combat inflation. It hopes to do so without triggering a recession.

Sure, it would be nice if the Fed can balance on the “economic tightrope” this time. But I’ll believe it when I see it. And with everything going on these days, one thing is certain…

Investors are no longer as interested in hearing, “Yeah, sure, we’ll make money someday.” Instead, cash is becoming king yet again…

In short, many investors now want to find companies that are making money today. They can’t afford to get behind companies with the potential to make money in the future.

And neither can we. Fortunately, there’s an easy way for us to do that…

I’m talking about an exchange-traded fund (“ETF”) known as the Pacer U.S. Cash Cows 100 Fund (COWZ).

This ETF prioritizes companies with high free cash flow (“FCF”). That’s simply the cash that comes into the company minus the cash that goes out. (Using financial jargon, FCF is “cash from operations” minus “capital spending.”)

More specifically, COWZ invests in the top 100 companies in the Russell 1000 Index based on “FCF yield” (FCF divided by enterprise value). And the portfolio isn’t weighted based on market value. Rather, the holdings are weighted in terms of the FCF they generate.

Also, the individual allocations are subject to a 2% maximum at the ETF’s quarterly rebalancing. That’s important… It means companies with large market caps won’t distort COWZ the way a few “FAANG” stocks have overpowered the S&P 500 and its tracking ETFs.

The holdings within COWZ are fundamentally strong compared with one of the S&P 500’s primary tracking ETFs, the SPDR S&P 500 Trust (SPY). Take a look…

Based on those fundamentals, you might think that the stocks within COWZ would be more highly valued today than the holdings in SPY. However, they’re still in the bargain aisle…

In the end, COWZ could offer investors a different form of protection in the months ahead.

With a new bear market upon us, folks are getting spooked again…

They don’t want to look too far into the future right now. They can’t afford to simply hope that companies will make money down the road. They know that cash is king once again.

If you’re looking for a “one click” way to get involved, consider checking out COWZ today.

Good investing,

Marc Gerstein

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