January 17, 2025

1 Cash Cow ETF That Beat The Market

There’s a reason even Warren Buffett advocates his heirs to buy an exchange-traded fund over Berkshire Hathaway when he passes on. They are low-cost, tax-efficient, and, for the most part, transparent.

But not all ETFs are built the same, and the Pacer US Cash Cows 100 ETF has some features that will be highly attractive to some investors.

The fund is relatively new, having launched in 2016, and is passively managed with a goal to provide investors with broad exposure to mid and large-cap U.S. traded companies. The idea behind this ETF is that these companies have high levels of cash flows, so they can withstand downturns in the market while growing earnings.

So who is COWZ best for and is it a good investment?

Key Points

COWZ focuses on U.S. mid- and large-cap companies with high free-cash-flow yields, providing resilience in downturns.
Launched in 2016, it has outperformed the S&P 500 over five years, with a 127% return versus 112%.
COWZ has a 0.49% expense ratio and a 1.81% dividend yield. While pricier than some ETFs like VTV or SCHD, it consistently delivers strong returns, even during market volatility.

What is the Pacer US Cash Cows 100 (COWZ) ETF?

The Pacer US Cash Cows 100 ETF aims to provide investors with similar returns to the Pacer US Cash Cows Growth Index, which tracks stocks from the Russell 1000 index. The ticker symbol for this ETF is COWZ.

Its name comes from the fact that it invests in “cash cows,” or companies that have high free-cash-flow yields.

The free-cash-flow yield compares the free cash flow per share to the market capitalization and measures the ability to pay investors dividends, meet debt obligations, and finance operations.

So far, COWZ boasts over $25 billion in assets under management, making it among the largest ETFs by assets in the large-cap value segment.

COWZ Holdings

COWZ holdings are spread across sectors, ranging from energy and consumer discretionary to information technology and healthcare.

It is worth noting, though, that the energy sector makes the biggest share of its holdings at 23.13%, followed by consumer discretionary at 16.87% and IT at 16.82%. Combined, these make up about 56% of the portfolio, which opens up sector-specific risks. For instance, high volatility in oil prices has the potential to substantially impact the ETF’s performance.

In total, COWZ has over 100 holdings, with some of its top holdings being as outlined below in no particular order:

EOG Resources Inc (EOG)
Chevron Corp (CVX)
ConocoPhillips (COP)
Archer-Daniels-Midland Co. (ADM)
Gilead Sciences Inc (GILD )
QUALCOMM Inc. (QCOM)
Schlumberger NV (SLB)
Valero Energy Corp (VLO)
Cencora Inc (COR)
Marathon Petroleum Corp (MPC)

COWZ’s top ten holdings account for about 20% of the total holdings, making it a relatively balanced investment in terms of individual stock concentration because no single company has a huge influence on the ETF’s performance.

Fees and Cost

COWZ isn’t at the low end of the cost curve but neither is it particularly high as passively-managed ETFs go. The expense ratio is 0.49% is reasonable, although similar S&P 500 ETFs that track broad market indices can have expense ratios under 0.1%.

As an example of what it would cost you to invest in COWZ on the fee front, if you were to invest $20,000 in this ETF, you would pay $98 in annual fees.

COWZ’s 12-month trailing dividend yield is 1.81%, with its last payment being $0.24 per share in December 2024.

Performance

COWZ focus on companies with high free cash flow yield has resulted in a pretty good track record, especially during times of market volatility and bearish conditions. By way of comparison, when the S&P 500 index dropped by about 18% in 2022, COWZ had a return of 0.2%.

Somewhat remarkably given how well the broader market has performed, the Pacer US Cash Cows 100 ETF’s returns for the past five years have outperformed top S&P 500 ETFs. The total returns for this period are 127% compared to S&P 500’s 112%.

In fact, its generally good performance saw COWZ win ETF of the Year in 2022 at the With Intelligence’s Mutual Fund and ETF Awards.

The Case for Pacer US Cash Cows 100 ETF

The fact that this ETF has consistently outperformed similar S&P 500 ETFs builds a pretty strong case for why it may be a good investment, and it’s what lies under the hood that makes it so.

Strong Fundamentals

Since its focus is on high free-cash-flow yields, COWZ holdings are, almost by definition, comprised of financially stable businesses.

So when a dip occurs in the broader market, the Pacer US Cash Cows 100 ETF may well be buttressed from the bearish turbulent onslaught better than most thanks to the high collective cash flows.

This is largely due to the fact that companies with positive or high free-cash-flow yields can generate consistent cash flows even during harsh market conditions, which is essential for paying dividends and reinvesting back into the company.

Regular Rebalancing

As you would expect, COWZ rebalances its cash-flow rich holdings from time to time to ensure the portfolio aligns with the mandate of the exchange-traded fund to feature only companies only high free-cash-flow yields.

The fund sidelines companies that fail to meet this requirement, and so ensures that the fund is quite resilient even during times of market downturns.

Why COWZ May Not Be a Good Investment

The Pacer US Cash Cows 100 ETF has a lot of great features, but it also has some drawbacks, so should you buy it?

One of the most apparent disadvantages is the fact that this ETF focuses on companies located in just the U.S. so geographic diversification is limited.

Should the U.S. market undergo a downturn expect COWZ to be affected more so than an exchange-traded fund with higher geographic exposure.

Buy Or Skip?

COWZ is a rare ETF that checks a lot of boxes, and its credentials are in some ways exemplified by the $25 billion in assets under management, which reveal that the word is out on how good the ETF actually is.

By collecting a series of cash-flow rich companies under one ETF, and more so one that has eclipsed the already-impressive returns of the S&P 500 over the past few years, COWZ has the ability to withstand downturns better than most while riding on the coattails of bullish market conditions too.

If you want to invest in a similar ETF, though, there are alternatives you can consider, including the Vanguard Value ETF (VTV) and Schwab U.S. Dividend Equity ETF (SCHD). These two funds track a similar index and have lower expense ratios than COWZ.