SCHD is an absolute SWAN ETF: COWZ is even better

I wrote about the Schwab US Dividend Equity ETF (SCHD) last week and noted that it was one of the best Sleep Well at Night (SWAN) funds in the market. It combines strong dividend growth and high yield, which explains why it has grown its total assets to over $49 billion.

SCHD has also outperformed the S&P 500 and Dow Jones over time. In this article, I will present another unknown ETF that is equally good. The Pacer US Cash Cows ETF (COWZ) is a good value-oriented fund that you can SWAN with.

What is the Pacer US Cash Cows ETF?

The COWZ ETF is based on the concept of free cash flow (FCF), which is one of the most important figures in a company. FCF refers to the funds that remains after a company accounts for all outflows. 

While the net profit is an important figure in an income statement, most value investors believe that the FCF is a much better number. Companies use their FCF mostly to pay dividends, repurchase their stocks, and fund future investments.

The Pacer US Cash Cows ETF is a five-star rated ETF that tracks high-quality companies with a record of growing their free cash flows. It tracks the Pacer US Cash Cows 100 index. Companies in this index are selected from the Russell 1000 index.

The resulting fund has 100 companies spread across all industries. Most of these companies are in the energy industry followed by health care, consumer discretionary, materials, and industrials.

The biggest companies in the COWZ ETF ae Lennar, CVS Health, Mckesson, Phillips 66, and Gilead Sciences among others.

The case for the COWZ ETF

There are several reasons why COWZ is a good SWAN ETF to buy. First, it is a diversified fund that focuses on companies that Warren Buffett would love. Buffett has spent the last six decades advocating for firms based on the cash flows and valuations.

Second, the fund has demonstrated strong dividend growth over the years. Data shows that it has had a five-year Compound Annual Growth Rate (CAGR) of 20%, higher than most funds.

SCHD vs SPY vs SCHD

Third, as shown above, it has a track record of outperforming popular ETFs like the SPDR S&P 500 ETF (SPY) and SCHD. In the past five years, the fund has grown by 103.8% compared to SPY’s 90% and SCHD’s 75.92%. Remarkably, it has achieved this while having minimal exposure to technology companies like Meta and Nvidia.

Still, there are two risks to consider when investing in COWZ. First, historical performance is not always a good indicator of what will happen in the future. In some cases, what succeeded in the past could be a major laggard.

Second, there is the risk of its concentration. While the SPY ETF is highly concentrated on the technology industry, COWZ has a lot of companies in the energy industry. Historically, energy has been a cyclical sector. The other con is that the fund has a high expense ratio of 0.49%.

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