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Resurgence of the Pacer U.S. Cash Cows ETF (COWZ) Driven by High-Performing Stocks
Rebounding Performance of the Pacer U.S. Cash Cows ETF
The Pacer U.S. Cash Cows ETF (COWZ), a popular exchange-traded fund (ETF) focusing on cash flow, is regaining momentum after underperforming the broader market in the first half of 2023. Over the past two weeks, COWZ has hit several record highs, including a closing price of $51.49 per share, a level not seen in over a year. Despite a year-to-date increase of 12%, which pales in comparison to the Nasdaq Composite's 32% surge, all gains have been realized in the past three months.
Fund flows for COWZ have also started to recover following a slump in May and June. The fund has attracted $200 million over the past month, boosting its total assets under management to over $14 billion.
Impact of Rising Oil Prices
The resurgence of COWZ coincides with a rise in oil prices. Energy holdings, with Chevron being the largest, constitute the most significant sector in the fund. Despite a negative year-to-date performance, Chevron shares have increased by more than 3% over the past three months.
"For the first half of the year, we were essentially matching our benchmark, the Russell 1000 Value, despite energy comprising 34% of the portfolio and the sector's downturn," commented Sean O'Hara, President of Pacer ETFs. "The past 90 days have seen a shift in sentiment as the world begins to recognize potential supply-demand issues in oil production, leading to a rebound in the energy sector."
Comparison with Other Funds and Indexes
For context, the iShares Russell 1000 Value ETF (IWD) has seen less than a 7% increase year to date. On average, funds in COWZ's category have experienced less than an 8% rise, according to Morningstar.
Custom Index and Rebalancing Strategy
COWZ is based on a custom index that is rebalanced quarterly. This index comprises Russell 1000 stocks with the best free cash flow yield. A total of 100 stocks are selected for the index, with those demonstrating superior cash flow metrics receiving a higher portfolio weight, capped at 2%.
This strategy has not only led to an overweight position in energy but has also uncovered winners in other sectors. For instance, Booking Holdings, which was not part of the fund in January, is now among the top five holdings following a 60% surge year to date and a more than 40% rise in net income year over year in the second quarter.
"The key to our strategy is the 90-day rebalancing cycle, which maintains focus on the most current free cash flow yield and the stocks with the highest yield. This approach allows for effective rotation and results in ownership of companies that grow their earnings faster than their index," concluded O'Hara.
Hot Take: Implications of COWZ's Strategy for New Businesses
The rebounding performance of the Pacer U.S. Cash Cows ETF (COWZ) and its unique strategy provide valuable insights for new businesses navigating the complexities of financial markets.
Adapting to Market Changes
COWZ's resurgence, despite underperforming in the first half of 2023, demonstrates the importance of resilience and adaptability in the face of market volatility. New businesses can learn from this, understanding the need to stay agile and responsive to market fluctuations.
Leveraging Sector-Specific Opportunities
The fund's recovery, coinciding with rising oil prices, underscores the potential of sector-specific opportunities. New businesses should stay abreast of industry trends and seize opportunities that align with their strategic goals.
Strategic Rebalancing and Focus on Cash Flow
COWZ's success can be attributed to its strategic rebalancing and focus on companies with the best free cash flow yield. This approach has not only allowed the fund to capitalize on high-performing sectors but also to uncover winners in other areas. New businesses can apply this strategy by regularly reviewing and adjusting their portfolios and focusing on cash flow as a key performance indicator.
In conclusion, COWZ's rebound offers valuable lessons for new businesses in resilience, sector-specific opportunity leveraging, and strategic rebalancing, all of which can contribute to sustainable growth and success.
Article First Published at: https://www.cnbc.com/2023/08/10/this-cash-cows-etf-is-hitting-record-highs-these-stocks-are-driving-it.html
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