Investors are increasingly reassessing their exposure to expensive growth stocks as concerns surrounding artificial intelligence spending create renewed interest in value investing. On FINTECH.TV’s ETF Rundown, Kristin Myers speaks with Sean O’Hara, President of Pacer ETFs Distributors, about the rotation from growth to value stocks, the importance of free cash flow and why profitable small-cap companies could offer opportunities as investors look beyond the AI trade.
The episode begins with an ETF spotlight on the newly launched Tema Commodity Income ETF (ICOM), which seeks to combine income generation with exposure to commodity-related businesses. Rather than investing directly in commodity futures, the fund holds dividend-paying companies operating across energy, metals and agriculture. Listed on the Texas Stock Exchange, ICOM offers investors an alternative approach to gaining commodity exposure through equities, although its performance may differ from the prices of underlying commodities.
Myers then turns to O’Hara to examine why value stocks are gaining momentum after an extended period of growth stock dominance. O’Hara explains how concerns about elevated technology valuations and the enormous cost of AI infrastructure are encouraging investors to reconsider what they are paying for future earnings. He discusses why reducing a portfolio’s overall valuation exposure could become increasingly important when markets begin questioning whether expensive growth companies can deliver sufficient financial returns.
Free cash flow yield takes center stage as O’Hara explains the investment philosophy behind Pacer’s Cash Cows ETF series. Rather than relying primarily on traditional valuation measures such as price-to-book ratios, Pacer uses free cash flow relative to enterprise value to identify businesses generating substantial cash after meeting their operating and investment requirements. O’Hara explains why this approach can help investors distinguish financially healthy companies from stocks that appear inexpensive but may have underlying business problems.
The conversation explores two of Pacer’s flagship strategies, the Pacer US Cash Cows 100 ETF (COWZ) and the Pacer US Small Cap Cash Cows ETF (CALF). O’Hara explains how these funds seek exposure to companies demonstrating strong cash generation and attractive valuations. While COWZ focuses on larger U.S. companies, CALF targets smaller businesses with positive free cash flow, offering a different approach to small-cap investing.