State Street Global Advisors has launched a new range of factor-focused ETFs in Europe, introducing two funds that target high-quality companies with a proven track record of generating positive free cash flow.
Matteo Andreetto, SSGA’s Head of Intermediary Clients coverage in Europe.
The SPDR S&P Developed Quality Aristocrats UCITS ETF (QDEV) and the SPDR S&P 500 Quality Aristocrats UCITS ETF (QUS5) are now listed on the London Stock Exchange in USD and on Xetra in euros.
QDEV is offered with an expense ratio of 0.35%, while QUS5 charges 0.25%.
The strategy behind these ETFs mirrors the approach of SSGA’s highly successful Dividend Aristocrats ETF range, which boasts $6.8 billion in assets under management. The Dividend Aristocrats ETFs focus on companies with consistent records of maintaining or increasing their dividend payments.
Similarly, the new Quality Aristocrats ETFs emphasize companies that exhibit strong quality fundamentals through their ability to generate positive free cash flow over extended periods.
Free cash flow, calculated as operating cash flow minus capital expenditures, is a key indicator of financial health. It represents the cash a company generates after maintaining or expanding its asset base and highlights the resources available to enhance shareholder value.
This metric is particularly relevant for assessing quality, as it is less susceptible to manipulation compared to metrics like sales, earnings, or liabilities, which can sometimes be adjusted to present a more favorable view.
Matteo Andreetto, SSGA’s Head of Intermediary Clients coverage in Europe, commented: “High cash flow enables companies to make sustained strategic investments and acquisitions and to return capital via dividends, buybacks, and/or debt reduction.
“These two new ETFs present a compelling opportunity for investors seeking enhanced risk-adjusted returns relative to traditional indices, particularly in today’s market where volatility is driven by geopolitical and economic uncertainty, and we’re excited to be bringing these new ETFs to the market.”
Methodology
QDEV tracks the S&P Developed Quality FCF Aristocrats Index, which selects its constituents from a global universe of large- and mid-cap stocks across developed markets.
In contrast, QUS5 is tied to the S&P 500 Quality FCF Aristocrats Index, drawing its constituents exclusively from the US large-cap S&P 500 universe.
Both indices first screen for companies that have generated positive free cash flow for at least ten consecutive years.
From these screened universes, each index selects the top 100 companies with the highest free cash flow scores, determined by their free cash flow margin and free cash flow return on invested capital.
Constituents are weighted using a blend of their float-adjusted market capitalizations and free cash flow scores, while maintaining limits on country, sector, and individual stock weights to ensure diversified exposure.
By prioritizing free cash flow, the ETFs aim to deliver exposure to companies with robust corporate fundamentals and disciplined financial practices, appealing to investors seeking quality-focused equity strategies.