GCOW: Energy industry’s big bets look less risky today (Rating Upgrade) | Private Equity Weekly

In this era of high interest rates, there’s a lot of discussion and many compelling narratives surrounding the importance of free cash flow generation.Companies that can create real profits for shareholders in the here and now Said to be a solid investment candidate. Unfortunately, reality doesn’t match the overall sentiment supporting high free cash flow factors. According to Goldman Sachs’ latest weekly report, FCF stock has generated negative alpha on a high-to-low adjusted basis since last year’s third quarter.

really, Pacer Global Cash Bull Dividend ETF (Bat: GCOW) has underperformed both the S&P 500 and the Global World Index over the past year.Back in August 2022, I had a tactical sell rating on this fund before the bear market finally turned lower that year, but I have now upgraded the fund The fund holds the rating based on valuation, exposure to cyclical sectors and some promising technicals.

The high free cash flow coefficient has gradually declined since the third quarter of 2023

according to IssuerGCOW is a strategy-driven ETF that attempts to provide consistent income streams and capital appreciation over time by selecting companies with high free cash flow yields and high dividend yields. Free cash flow is the cash left over after a company has paid expenses, interest, taxes, and long-term investments. It is the source of dividend payments.

GCOW has grown significantly since I first started following the fund in the third quarter of 2022. As of March 18, 2024, total assets under management have increased from $660 million to nearly $2 billion. It’s not a very cheap product, with an annual expense ratio of 0.6%, but its trailing 12-month dividend yield is a whopping 5.2%. Share price momentum is lackluster, leaving the ETF with a lukewarm C+ rating, worse than the A- rating six months ago, while risk metrics aren’t particularly attractive either. However, the fund’s liquidity position is good, with average daily trading volume of more than 410,000 shares and a 30-day median bid-ask spread of only 3 basis points.

Morningstar’s Samsung Neutral ETF is heavily allocated to the large-cap value corner of the style box, so the portfolio doesn’t have much diversification. Only 6% of GCOW is considered mid-cap and does not present growth risk. The fund’s price-to-earnings ratio is below 10 and its long-term earnings growth ratio is 6.2, which is a bargain in absolute terms, but adjusted for typical growth, and given the PEG ratio, the fund isn’t a huge buy. of funds. Still, volatility is generally in check with GCOW, and its price-to-sales ratio is very cheap.

GCOW: Portfolio and Factor Overview

The reason for the decline in the price-to-earnings ratio is that the investment ratio in the energy industry is as high as 22.5%, which is the lowest cost segment in the global market. The diversified healthcare sector accounts for 16% of the ETF, while the cyclical industrials sector accounts for 12%, followed by defensive consumer staples. Using the modified equal-weighted approach, the top 10 positions account for only 21.5% of the allocation.

GCOW: Holdings and Dividend Information

Seasonally, GCOW’s best month is April, but historically there have been losses in May and June before a strong start to the second half of the year.

CGOW: Bullish April Trend

Technical points

With a lower valuation and higher energy exposure (a breakout is technically possible), GCOW’s chart shows some potential. Of course, key resistance below $35 remains. This is an area that has seen consistent selling pressure over the past two years. While global stock markets have risen to record highs, GCOW has been a relative laggard since early last year.

Also look at the long-term 200-day moving average. Its slope is essentially flat, indicating that neither bulls nor bears have true ownership of the trend. Encouragingly, though, the RSI momentum indicator at the top of the chart has been trading at elevated levels since December. Key support ranges between $31 and $32, with a break above $35 signaling an upside move price target near $39, so keep an eye on that price.

Overall, GCOW is an underperforming ETF, but with key resistance being tested again, the bulls may soon take over.

GCOW: Key resistance at $35

bottom line

I have a Hold rating on the Pacer Global Cash Cows Dividend ETF. I think the fund offers solid value and good technicals, but the high exposure to the energy sector remains a risk if the group falls out of favor. GCOW is an aggressive bet on a range of underperforming factors.