Pacer Brings Its 'Free Cash Flow Aristocrats' Strategy To Mid- And Small-Cap ETFs

Pacer ETFs is expanding its bet on cash-rich stocks, launching two new funds covering mid- and small-cap U.S. stocks with a history of steady free cash flow.

The newest launches — the Pacer S&P MidCap 400 Quality FCF Aristocrats ETF MCOW and the Pacer S&P SmallCap 600 Quality FCF Aristocrats ETF SCOW — expand the company’s “Free Cash Flow Aristocrats” franchise beyond large caps. Both ETFs track new S&P Dow Jones Indices benchmarks that are aimed at highlighting financially sturdy companies outside the elite market capitalization tier.

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How The ETFs Work

MCOW follows the S&P MidCap 400 Quality FCF Aristocrats Index, which screens for mid-cap companies with a minimum of seven consecutive years of positive free cash flow. The stocks are sorted by combining free cash flow margin and return on invested capital (ROIC), which is traditionally associated with operational excellence and conservative capital allocation.

SCOW uses the same approach to the small-cap universe through the S&P SmallCap 600 Quality FCF Aristocrats Index. Both ETFs seek to provide diversified exposure to firms that can generate and manage capital well across different economic cycles.

Strategic Context

The launches come on the heels of May’s launch of the large-cap variant, Pacer S&P 500 Quality FCF Aristocrats ETF LCOW, and follow the success of Pacer’s Cash Cows ETF family. While Cash Cows products focus on high free cash flow yield companies, the Aristocrats series focuses on quality and profitability with a target for a more stable, longer-term profile.

For investors, the new ETFs provide a means of accessing mid- and small-cap segments without giving up a disciplined emphasis on free cash flow, which is a measure that is frequently considered a superior indicator of financial well-being than earnings alone.

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