Is VFLO Still a Buy After WBI's Partial Exit?

The recent partial exit by WisdomTree Investments (WBI) from its stake in the VictoryShares Free Cash Flow ETF (VFLO) has sparked debate among investors about the fund's strategic value. While institutional selling by WBI-reducing its holdings by 33.9% in the quarter-raises questions, the broader context of VFLO's performance, methodology, and institutional buying activity suggests the ETF remains a compelling addition to a diversified portfolio.

Institutional Activity: Contrasting WBI's Exit with Atlas Wealth's Entry

WBI's reduction in VFLO exposure, which now accounts for 1.5% of its portfolio, contrasts sharply with the actions of Atlas Wealth Management. The latter added $8.7 million in VFLO shares in the past quarter, increasing its stake to 2.9% of its 13F reportable assets. This divergence highlights divergent strategic priorities: WBI's exit may reflect a broader reallocation toward value-oriented strategies, as evidenced by its December 2025 launch of European UCITS ETFs targeting shareholder yield, while Atlas Wealth's purchase underscores confidence in VFLO's rules-based approach to free cash flow (FCF) investing.

Notably, institutional ownership of VFLO has grown by 4.84% in the past month, with 235 institutional holders filing 13D/G or 13F forms. This suggests that while some firms are trimming positions, others are viewing VFLO as a hedge against market volatility, particularly given its lower maximum drawdown (-17.79%) compared to the S&P 500 (-21.36%).

Performance and Risk-Adjusted Returns: VFLO vs. the S&P 500

VFLO's risk-adjusted returns outperform the S&P 500 in key metrics. As of December 2025, it boasts a Sharpe ratio of 0.92 and a Sortino ratio of 1.39, versus 0.87 and 1.34 for the S&P 500, respectively. The ETF's Ulcer Index (4.38%) also indicates lower volatility than the broader index (5.83%) as per comparison data. These metrics align with its strategy of targeting companies with strong FCF yields, which historically correlate with lower valuation risk.

The fund's methodology-adjusting stock weights based on FCF yield to capitalize on undervalued positions-has proven effective. For example, Expedia (EXPE), a top holding, demonstrated how the strategy enhances returns during market corrections. This rules-based approach, combined with a 0.39% expense ratio (versus 0.60% for similar ETFs like FCFY), makes VFLO a cost-efficient option for investors seeking quality growth as shown in performance analysis.

Strategic Merits: Free Cash Flow Yield and Diversification

VFLO's focus on free cash flow yield-a metric calculated as expected FCF divided by enterprise value-positions it to capture companies with both strong profitability and growth potential as detailed in SEC filings. The fund's top sectors-healthcare, energy, and consumer discretionary-offer diversification benefits, particularly in a macroeconomic environment marked by rate volatility as suggested by market analysis.

While WBI's exit could signal a shift in its portfolio strategy, the ETF's fundamentals remain robust. VFLO's 1.58% trailing dividend yield and 8% one-year total return suggest it continues to deliver value, even as it underperforms the S&P 500 by 5 percentage points. This underperformance is partly offset by its lower volatility, making it an attractive option for risk-averse investors.

Conclusion: A Buy for Diversified Portfolios

Despite WBI's partial exit, VFLO's strategic merits-strong FCF yield, superior risk-adjusted returns, and institutional buying by firms like Atlas Wealth-justify its inclusion in a diversified portfolio. The ETF's methodology provides a disciplined approach to capitalizing on undervalued quality stocks, while its sector diversification mitigates concentration risk. Investors should view WBI's move as a reflection of broader strategic reallocations rather than a indictment of VFLO's fundamentals.

As the market navigates 2025's uncertainties, VFLO's focus on free cash flow-paired with its competitive expense ratio and institutional support-positions it as a resilient, long-term holding.