The California-based firm has rolled out an ETF that it says breaks fresh ground in the way that it captures returns for investors.

TrimTabs Asset Management, which is based in Sausalito, California, has launched an exchanged traded fund that the firm says is the first such ETF to invest in international firms with the highest free cash-flow yields, an example of what is known in industry jargon as a “smart beta” offering.

The firm is launching the TrimTabs Intl Free-Cash-Flow ETF (listed on the New York Stock Exchange). The ETF tracks the TrimTabs Intl Free-Cash-Flow Index, which follows the top companies measured by free cash flow yield in ten international markets.
While the definition of smart beta varies, a common definition is that a smart beta fund, for example, tracks a style index or uses a mechanical investing strategy to obtain the returns associated with a particular strategy without the cost of active management.

Free cash-flow yield, TrimTabs said, is important because it is a strong indicator of solid balance sheets and cash-flow positions and is therefore a reliable way to establish a firm’s quality.

“Free cash flow is the most important metric, and it is often overlooked,” portfolio manager Minyi Chen said in a statement. “While everyone else looks at earnings or sales, we have developed a proprietary strategy that identifies those companies creating stable, intrinsic value in a diversified basket of international stocks,” Chen continued.

Instead of using market capitalisation weightings, this ETF uses an equal weighting by country. Candidates for inclusion in each country are ranked by free cash flow yield and equal weighted too.