In a market where the Magnificent Seven (Mag 7)1 account for more than 30% of the S&P 500 Index, The VictoryShares free cash flow (FCF) suite of ETFs takes a different road. Only one Mag 7 name appears in the Large Growth ETF, among a suite of five products spanning Small Value, Foreign Large Value, Foreign Large Growth, Mid-Cap Value, and Large Growth offerings.As equity markets grapple with record-high concentration amid the artificial intelligence (AI) arms race, investors have been searching for a fundamental anchor, something FCF may offer. Companies with strong free cash flow have historically demonstrated greater financial flexibility — defined as the capacity to accommodate large shortfalls between investment needs and cash flows — enabling them to pursue acquisitions, buybacks, or R&D investment. This relationship is supported by empirical evidence across U.S. public firms from 1970–2019 (Compustat universe, excluding financial services and regulated utilities), where higher financial flexibility scores were associated with significantly greater investment activity, including capital expenditures, cash acquisitions, and R&D spending.2
TMX VettaFi sat down with Michael Mack, VictoryShares and Solutions client portfolio manager, at the VettaFi Exchange 2026 Conference to discuss the opportunities emerging as more investors rotate from high-beta growth strategies to value. In a market defined by volatility from stretched valuations in certain mega-cap companies, Mack described FCF as a “weighing machine,” a nod to Benjamin Graham’s long-term value framework, designed to separate durable winners from short-term hype.Breaking the Mag 7 HabitMarket concentration is an ongoing concern for advisors in 2026. In volatile markets, concentration can make portfolios susceptible to heavy market fluctuations. With the Mag 7 accounting for more than 30% of the S&P 500 as of March 31, 2026, many investors are heavily concentrated in a handful of names. As Mack noted, that concentration risk extends to funds with value and dividend sleeves, where investors may assume more diversification than they’re getting.
This is where funds with an FCF screener can extract signal from the market noise. Two funds highlighted during the interview were the flagship VictoryShares Free Cash Flow ETF (VFLO B+) and the VictoryShares Free Cash Flow Growth ETF (GFLW ).
“Market concentration is number one. We think that sets up very well for our free cash flow suite because across all five products, only one Mag 7 name makes it into any… and that’s Nvidia in GFLW,” Mack explained which screened into the index based on it’s high levels of free cash flow return on invested capital.3 GFLW is a recently launched fund with a limited operating history after being incepted on December 3rd, 2024.
As of March 31st, 2026 the S&P 500 was trading near 21 times forward earnings (source: FactSet) and Mack pointed to historically elevated valuation levels as a potential source of volatility. Geopolitical friction and higher-for-longer interest rates compound that risk.
“Historically, that’s been a level where volatility has ensued,” he said. “If you own something like VFLO, we think you’re going to be less susceptible to that risk.” As of March 31st, 2026 the VFLO was trading at 12.6 times forward earnings (source: FactSet). That valuation gap becomes even more meaningful when you examine how FCF-strong companies deploy their capitalWhy FCF Yield MattersHigh levels of FCF allow companies to reinvent themselves during periods where indiscriminate selling occurs. Mack cited Merck as a prime example of how FCF can cut through the noise of negative investor sentiment.
“Merck generates a lot of free cash flow. They have a blockbuster drug, Keytruda, but it goes off-patent in 2028. The fear is five or 10 years out,” Mack noted. “Well, when you have free cash flow, you have two things in your favor: a strong balance sheet and the ability to reinvest in your business, often through acquisition.”
Mack further identified Salesforce and Adobe as examples of mitigating the risk of AI disruption. These companies are using their cash to acquire companies to expand their AI capabilities.
As of March 31, 2026, VFLO held a 3.25% position in Salesforce, a 3.08% position in Adobe, and a 2.92% position in Merck. GFLW holds no current positions in these companies.4The Free Cash Flow "Run Game" of InvestingMack equates the overall setup for FCF investing in relation to sports. Defense matters in this environment, but so does the ability to go on offense. Using a football analogy to describe the Index methodology, Mack framed FCF as the reliable ground game that sets up the bigger plays.
“I think what free cash flow does is it sets your portfolio up in short-yardage situations,” Mack concluded. “It’s the run game that establishes the pass. VFLO’s index construction is going to try to get you in position where you can take a shot downfield and still have another down to pick up the first.”
Learn more about VFLO.
Learn more about GFLW.
1] The Mag 7 consists of Alphabet (GOOGL; GOOG), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), NVIDIA (NVDA), and Tesla (TSLA).
2] Dasgupta, Li, and Wu, “Inferring Financial Flexibility: Do Actions Speak Louder than Words?” November 2023
3] FCF / Invested Capital Rate (FCF ROIC) is measured by the average of trailing 12-month FCF and next 12-month forward FCF divided by invested capital, also called free cash flow return on invested capital (FCF ROIC)
4] Holdings are subject to change and there is not guarantee that these securities remain in or out of the fund. This information is provided for educational purposes only and is not investment advice or a recommendation to buy, sell, or hold any security.
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VettaFi LLC (“VettaFi”) is the index provider for VFLO and GFLW, for which it receives an index licensing fee. However, VFLO and GFLW are 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 and GFLW.Disclosure Information
Carefully consider a fund’s investment objectives, risks, charges, and expenses before investing. To obtain a prospectus or summary prospectus containing this and other important information, visit //www.vcm.com/prospectus. Read it carefully before investing.
All investing involves risk, including potential loss of principal. Please seek independent tax and/or legal advice regarding your particular circumstances before making any investment decisions.
The market prices of securities may go up or down, sometimes rapidly or unpredictably, due to general market conditions, such as real or perceived adverse economic, political, or regulatory conditions, recessions, inflation, or changes in interest or currency rates. The Funds have the same risks as the underlying securities traded on the exchange throughout the day. ETF shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Market price returns are based on price of the last reported trade on the fund’s primary exchange. If you trade your shares at another time, your return may differ. GFLW is a Fund is new with a limited operating history. As a result, it does not have a record of performance or other dealings for prospective investors to evaluate when making investment decisions. Investing in companies with high free cash flows could lead to underperformance when such investments are unpopular or during periods of industry disruptions. The funds could also be affected by company-specific factors that could jeopardize the generation of free cash flow. Index Funds invest in securities included in, or representative of securities included in, the Index, regardless of their investment merits. The performance of the Funds may diverge from that of their respective Indexes. Large shareholders, including other funds advised by the Adviser, may own a substantial amount of the Funds shares. The actions of large shareholders, including large inflows or outflows of cash, may adversely affect other shareholders, including potentially increasing capital gains. Investments concentrated in an industry or group of industries may face more risks and exhibit higher volatility than investments that are more broadly diversified over industries or sectors. Investments in companies in the energy sector may be subject to substantial government regulation, as well as risks involving changes in energy prices, international political instability, and liability for environmental damage and accidents resulting in loss of life or property. The profitability of companies in the healthcare sector may be affected by government regulations and healthcare programs, fluctuations in the cost of, and demand for, medical products and services and product liability claims. Investments in companies in the industrials sector, including producers of durable goods and companies that process raw materials, may be adversely affected by changes in supply and demand for products and services, governmental regulation and changes in spending policies, world events and economic conditions. Derivatives may not work as intended and may result in losses. The Funds may frequently change their holdings, resulting in higher fees, lower returns, and more capital gains. The value of your investment is also subject to geopolitical risks such as wars, terrorism, trade disputes, environmental disasters, and public health crises; the risk of technology malfunctions or disruptions; and the responses to such events by governments and/or individual companies.
The Victory U.S. Large Cap Free Cash Flow Index aims to select high quality companies from its starting universe by applying profitability screens. It then selects companies with the strongest free cash flow yield that exhibit higher growth. The Index is rebalanced and reconstituted quarterly. This Index calculates free cash flow yield by dividing expected free cash flow by enterprise value. Expected free cash flow is the average of trailing 12-month FCF and next 12-month forward free cash flow. Enterprise value (EV) measures a company’s total value, often used as a more comprehensive alternative to equity market capitalization.
The Victory Free Cash Flow Growth Index focuses on high quality profitable companies that display a positive free cash flow trend. It selects larger cap companies with the highest free cash flow relative to invested capital that also exhibit higher growth.
You cannot invest directly in an index.
VictoryShares ETFs distributed by Victory Capital Services, Inc. (VCS). VCS is not affiliated with VettaFi.
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