Amplify ETFs is looking to compete in the competitive cash flow space with an index-based ETF the firm believes will differentiate itself from others in the space.

Yesterday, the Lisle, Ill.-based firm launched the Amplify Cash Flow Dividend Leaders ETF (COWS), which will invest in dividend-paying, high-free-cash-flow firms, said Christian Magoon, CEO of Amplify ETFs.

“When people buy free-cash-flow stocks, they’re also looking for some of that free cash flow to come back to them in the form of dividends,” he said.

The firm is competing with Malvern, Pa.-based Pacer Finacial's Cash Cows Index Series ETFs. Amplify has designed its new fund to stand out from Pacer’s family, including the Pacer US Cash Cows 100 ETF (COWZ), which was awarded “ETF of the Year” at the 2023 With Intelligence Mutual Fund and ETF Awards ceremony and has seen millions of dollars of inflows, according to Magoon.

COWS looks to stand out from the Pacer products in several ways, he said. For one, it tracks the Kelly U.S. Cash Flow Dividend Leaders Index, which highlights the 100 highest free-cash firms in the country. However, unlike many other ETFs including Pacer’s ETFs, COWS will take into account both the trailing and future cash flows, Magoon said.

That means investors will avoid investing in companies that have good free cash flow over the trailing 12 months, but declining flow in recent months, he said. The firm also included a 25% industry cap in the ETF, meaning it cannot become overexposed in one area. Investors are not looking to get overloaded in a particular sector when investing in free cash flow, Magoon said.

“We believe investors looking for a high-free-cash-flow ETF … don’t want to inadvertently invest in a sector fund,” he said.  “If you don’t have industry caps, you could end up with a large sector industry concentration.”

The ETF will also pay out dividend income yield monthly instead of quarterly, he said. Finally, the firm is offering a 0% expense ratio for the first year as a form of enticement to investors and advisors, he said. Even without the waiver, the expense ratio will still be less than the competition, according to Magoon.

“We’re doing this to see what the market response is and to get people to take a look at it,” he said. “If we end up not renewing the waiver next year, it would revert to 39 basis points, which would still be an advantage over the Pacer product.”

The ETF requires no account minimum and each share will cost $25, Magoon said.

The firm has filed to release another cash flow ETF. That product, HCOW, will offer a yield of up to 9% as opposed to the 2.2% that COWS offers. 

The pending ETF will have up to 90% of its portfolio consisting of COWS assets. The balance will consist of a call strategy. Magoon declined to comment on the pending ETF, citing regulatory restrictions.