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Janet Flanders Johnston, TrimTabs

The TrimTabs All Cap US Free-Cash-Flow ETF consistently outperforms Russell 3000


The TrimTabs All Cap US Free-Cash-Flow ETF (TTAC) has consistently beaten its benchmark, the Russell 3000 Index, since inception, reports Janet Flanders Johnston, (pictured), Portfolio Manager at TrimTabs Asset Management.

Launched at the end of September 2016, TTAC has achieved an annualised return of 25.95 per cent, or 6.65 per cent of alpha over the Russell 3000 Index returns, as of February 28th, 2018.  TrimTabs Asset Management has managed this strategy since October 2011.

“We believe that we have the next generation model, combining our quantitative approach based on free cash flow with active management,” Johnston says.

“We are trying to construct ‘all weather’ portfolios that outperform in both up and down markets. What helps us achieve this is focusing on free cash flow growth, which allows us to skirt all the financial shenanigans that are discretionary, as well as other non-cash factors, so we can get a true picture of the organic growth of a company.”

TTAC is primarily focused on generating long-term gains that exceed those of the Russell 3000 Index through selecting approximately 100 companies that are generating free cash flow, maintaining strong balance sheets, and reducing their share count without the use of leverage.

“Seeking companies with both improving balance sheet and strong free cash flow gives us a list of high quality names,” Johnston says. “Those companies are sitting on a big cushion of cash, which gives us the ability to sleep well.”

The other factor she takes into account is share count reduction. “We want to be sure that the companies we are buying aren’t financially engineering growth by leveraging up in order to buy back their stock.”

On the quant side, the firm examines and quantitatively ranks the 1500 most liquid Russell 3000 stocks, with the lowest scoring being candidates to sell and highest candidates to buy.
“We factor in disruptive technology, legislative, political and regulatory risks,” Johnson says, explaining that they recently sold Facebook, believing that while it had excellent free cash flow growth, questions hung over it.

“We believe it has a lot of political and regulatory risk because of the Russian use of Facebook during the elections.”

The ETF has USD53 million under management, having achieved 36 per cent growth in assets since the beginning of 2018.

"We are fully diversified with 100 names equally weighted.  We are achieving this performance without leverage, concentration, and a market beta of one," Johnson says.

“I believe that investors are looking at TTAC as a high-quality core equity holding or as a substitute if they own other buy back exposure ETFs. We are an obvious trade-up for them.”

This ETF’s performance is ranked highly by Morningstar. “We believe that the big opportunity for us and where we should have traction is as a core equity portfolio allocation. We think our process of seasoned, disciplined and active management combined with our quant models is a true next generation product,” Johnston says. “While our models do much of the heavy lifting, we also factor in and incorporate information that our models wouldn’t necessarily pick up.”

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