The appeal for cash cows is back, given the stock market volatility and uncertainty. In fact, ETFs targeting cash cows like Pacer US Cash Cows 100 ETF
COWZ - Free Report) , Pacer US Small Cap Cash Cows 100 ETF (CALF - Free Report) and Pacer Cash Cows Fund of Funds ETF (HERD - Free Report) are hitting new 52-week highs.
A cash cow is a company or a business unit in a mature, slow-growth industry. Cash cows have a large share of the market and require little investment. These companies achieve a commanding position within their industry and generate consistent free cash flow. They are the profit engines of a diversified portfolio, providing the resources required for other business units to grow and invest in new opportunities.
Key Characters of Cash Cow Companies
Steady Revenue Streams: Cash cows thrive in mature markets where demand has stabilized. Their products or services achieve widespread acceptance, resulting in a consistent revenue stream.High Market Share: These companies typically have a dominant share of the market, often due to years of successful operations and brand establishment.
Operational Efficiency: Cash cows are known for their streamlined operations, efficient cost management and optimized production processes, which allow them to generate substantial profits with relatively lower expenses.
Strong Brand Identity: Building a strong brand identity over the years helps cash cow companies maintain customer loyalty and withstand market fluctuations (read: Moody's Downgrade 10 U.S. Banks: ETF Strategies to Play).
Cash Generation: As the name suggests, these companies generate ample cash flow. This surplus cash can be reinvested into the business, used for dividends, or allocated to other ventures within the company's portfolio.
Current Market Trends
Wall Street has lost momentum since the start of August triggered by the U.S. credit rating downgrade and multiple bank downgrades. The Fed’s hawkish signal, slowing U.S. job market and weak China data added to the woes.Fitch Ratings downgraded the U.S. credit rating to AA+ from AAA, citing “expected fiscal deterioration over the next three years,” an erosion of governance and a growing general debt burden. This has led to a strong sell-off in the stocks and a surge in yields. Meanwhile, ratings agency Moody's downgraded the credit ratings of several small to mid-sized U.S. banks and warned that it may downgrade some of the nation's biggest lenders too, citing a looming mild recession, higher interest rates and increased funding costs.
The Fed, in its latest meeting, raised interest rates by a quarter-percentage point to 5.25-5.50%, the highest level since March 2001, marking the 11th rate increase. The central bank also signaled the possibility of further increases ahead (read: ETFs to Gain as Fed Raises Rates to a 22-Year High).
ETFs in Focus
We have profiled the abovementioned ETFs:Pacer US Cash Cows 100 ETF (COWZ - Free Report)
Pacer US Cash Cows 100 ETF is a strategy-driven ETF that aims to provide capital appreciation over time by screening the Russell 2000 Index for the top 100 companies based on free cash flow yield. A high free cash flow yield indicates that a company is producing more cash than it needs to run the business and can invest in growth opportunities.
COWZ holds 101 stocks in its basket and has amassed $60.8 million in its asset base. It trades in an average daily volume of 1.5 million shares and charges 49 bps in annual fees.
Pacer US Small Cap Cash Cows 100 ETF (CALF - Free Report)
Pacer US Small Cap Cash Cows 100 ETF is a strategy-driven ETF that aims to provide capital appreciation over time by screening the S&P SmallCap 600 Index for the top 100 companies based on free cash flow yield. CALF tracks the Pacer US Small Cap Cash Cows Index and holds 101 stocks in its basket, with each accounting for less than 2.8% share. Consumer discretionary takes the top spot at 25.9% of the assets, followed by energy (23.2%) and industrials (20.8%).
The fund has amassed $3.2 billion in its asset base and trades in an average daily volume of 579,000 shares. It charges 59 bps in annual fees.
Pacer Cash Cows Fund of Funds ETF (HERD - Free Report)
Pacer Cash Cows Fund of Funds ETF is a fund of funds ETF composed of Pacer Cash Cows ETFs. Each of the Pacer Cash Cows ETFs is a strategy-driven ETF that seeks to
Pacer Cash Cows Fund of Funds ETF has accumulated $60.8 million in its asset base and trades in a volume of 10.0000 shares a day. It charges 74 bps in fees per year.
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