The Pacer US Cash Cows 100 ETF (COWZ) has become one of the fastest-growing funds in the US. Launched in 2016, the fund’s total assets have jumped to over $15 billion, with over $4.3 billion coming in this year alone. It has had inflows in all months this year apart from May and June, when it shed almost $120 million in assets. The fund has a 5-star Morningstar rating.

COWZ is an ETF that Warren Buffett would love because it is made up of 100 value companies. Unlike funds like SPDR S&P 500 ETF (SPY) and Invesco QQQ, COWZ focuses on value stocks with a strong free cash flow yield. Free cash flow yield is a financial metric that compares at a company’s FCF per share it is expected to earn against its market value per share.

By focusing on free cash flow, the fund is weighted more towards energy companies that are generating huge cash flow. These energy companies account for 32.34% of the total fund. Health care companies have a 17.6% value in the fund followed by consumer discretionary, materials, consumer staples, and industrials.

In most cases, Warren Buffett loves investing in companies with high free cash flows. Apple, his biggest holding, had over $111 billion in FCF. Other companies in his portfolio like Occidental, American Express, Chevron, and Moody’s are also cash flow machines.

COWZ ETF has done well since its inception as it has outperformed the S&P 500 for the most part. As shown below, COWZ’s total return in the past three years came in at 74.53% compared to SPDR SPY ETF’s 26.67%.

COWZ total returns

It lagged the SPY ETF this year because of the latter’s exposure to fast-growing technology companies like Nvidia, Meta Platforms, and Microsoft. Things have now changed around as energy prices jump. 

As I warned recently, however, concentration is the biggest risk facing COWZ ETF. While analysts expect energy prices to continue rising, the reality is that the industry is highly cyclical with booms and busts. This is the same concern that the SPY ETF has since it is weighted towards technology stocks.

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