VFLO’s Rebalance Re-Energizes Its Free Cash Flow Strategy

Large-cap valuations continue to stretch toward unprecedented levels, which makes it difficult for traditional accounting-based metrics to locate true value. The VictoryShares Free Cash Flow ETF (VFLO B+) addresses this challenge by tracking the Victory U.S. Large Cap Free Cash Flow Index.The fund recently underwent a rebalance on September 18, 2026. That rebalance highlights its ability to find value-oriented companies through free cash flow (FCF), the remaining cash after deducting expenses from operating cash flow. VFLO uses a rules-based strategy that targets companies with high expected FCF yields. The fund also applies a growth filter to further isolate profitable, high-quality businesses with the potential to grow their FCF in the future.Key Takeaways: VFLO addresses stretched large-cap valuations by tracking a rules-based index that selects U.S. large-cap stocks using expected free cash flow yield and a secondary growth filter to avoid value traps. Following its September 18, 2026 rebalance, the fund added mature technology, media, and industrial franchises led by Micron Technology, IBM, Cognizant, Fox Corp, and Delta Air Lines. VFLO maintained its exit discipline by fully removing former holdings like Merck, Atlassian, Airbnb, Veeva Systems, and ADP, as compressed free cash flow yields or cooling growth outlooks reduced their attractiveness. See More: How the VFLO Index’s Free Cash Flow Screen Has Captured SaaS ResilienceTop 5 Additions: VFLO Captures FCF DisciplineVFLO’s portfolio construction rests on two distinct design choices. First, it measures expected FCF yield using the average of trailing 12-month and forward 12-month FCF divided by enterprise value (EV). This formula accounts for future cash-generation expectations while favoring balance sheets with lower net debt. Second, after ranking the top 75 U.S. large-cap stocks by expected FCF yield, the methodology eliminates the 25 slowest-growing companies. This secondary filter ensures the final 50-stock portfolio avoids value traps while capping sector weights. The strategy also excludes the financials and real estate sectors. A look at the fund’s most recent additions and deletions highlights how this methodology dynamically reshapes the portfolio. The top additions demonstrate VFLO’s ability to pinpoint mature technology, media, and industrial franchises where rising cash flow meets an attractive EV relative to projected cash generation. Micron Technology Inc. (MU) entered as the largest new position at a 4.20% portfolio weight. International Business Machines Corp. (IBM) joined with a 2.20% weight. Cognizant Technology Solutions Corp. (CTSH) joined at a 1.97% weight. Fox Corporation (FOXA) entered at a 1.53% weight. Delta Air Lines Inc. (DAL) rounded out the top five additions at a 1.52% weight. Micron Technology and IBM lead the new additions, benefiting from high operational cash generation. Meanwhile, additions like Cognizant, Fox Corp, and Delta Air Lines reflect companies generating steady cash flows relative to their net debt obligations, effectively passing VFLO’s combined growth and FCF yield screener.Top 5 Deletions: VFLO's Exit DisciplineConversely, the top deletions illustrate VFLO’s systematic exit discipline. Positions like Merck, Atlassian, Airbnb, Veeva Systems, and Automatic Data Processing likely exited due to expanding valuation multiples reducing their expected FCF yields or lowering their forward growth outlooks. Merck & Co. Inc. (MRK) was removed from a former portfolio weight of 2.94%. Atlassian Corporation (TEAM) was removed from a 2.38% weight. Airbnb Inc. (ABNB) exited from a 2.13% weight. Veeva Systems Inc. (VEEV) was removed from a 1.83% weight. Automatic Data Processing Inc. (ADP) exited from a 1.60% weight. By systematically selling companies whose price appreciation has compressed FCF yields or whose growth outlooks have cooled, VFLO maintains a high-conviction, value-oriented portfolio built for long-term compounding. For more news, information, and analysis, visit the Thematic Investing Content Hub. VettaFi LLC (“VettaFi”) is the index provider for VFLO, for which it receives an index licensing fee. However, VFLO is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of VFLO.