Evaluating Pacer US Cash Cows 100 ETF (COWZ) as a Value Play in a High-Yield, Low-Growth Market

In the current macroeconomic climate—marked by high-yield environments and subdued growth—investors are increasingly prioritizing strategies that balance income generation with risk mitigation. The Pacer US Cash Cows 100 ETF (COWZ), a smart beta fund focused on U.S. large and mid-cap companies with high free cash flow yields, has emerged as a compelling candidate for such an environment. This analysis evaluates COWZ’s effectiveness as a value play, contextualizing its performance within broader market trends and comparing it to traditional alternatives.

The Case for Free Cash Flow Yield in a High-Yield, Low-Growth Market

COWZ’s strategy centers on selecting companies with robust free cash flow (FCF) relative to their enterprise value, a metric that reflects operational efficiency and financial health [1]. In a low-growth setting, where earnings expansion is limited, FCF yield becomes a critical proxy for value. According to a report by Pacer ETFs, companies with high FCF yields historically outperform peers during market downturns due to their ability to sustain dividends and reinvest in growth [3]. This aligns with 2025 macroeconomic trends, where investors are shifting toward income-generating assets amid rising trade policy uncertainty and divergent central bank policies [4].

The European high-yield bond market, for instance, has demonstrated resilience in 2025, with an average yield of 5.1% and stable default rates [2]. While COWZ operates in equities, its focus on FCF mirrors the logic of high-yield bonds: prioritizing cash generation over speculative growth. This is particularly relevant in a market where traditional value metrics like price-to-earnings ratios are less reliable due to earnings volatility [5].

COWZ’s Performance and Strategic Advantages

As of July 2025, COWZ has delivered a 10.22% return over the past 12 months, outperforming both the S&P 500 and the Russell 1000 Value Index during the same period [6]. Its rules-based methodology—selecting the top 100 companies from the Russell 1000 by FCF yield—reduces exposure to market cap distortions and emphasizes quality. For example, the fund’s recent reconstitutions in Q3 2025 increased energy sector allocations, capitalizing on improved cash flow dynamics in the sector [1].

However, COWZ’s performance has been mixed in the short term. Year-to-date returns as of May 2025 stood at -7.26%, reflecting the challenges of navigating a volatile macroeconomic landscape [2]. This volatility underscores a key critique of smart beta strategies: their reliance on backward-looking metrics may not always align with forward-looking market expectations [7].

Cost Considerations and Competitive Landscape

COWZ’s 0.49% expense ratio is notably higher than traditional value ETFs like the Vanguard Value ETF (VTV, 0.04%) and Schwab U.S. Dividend Equity ETF (SCHD, 0.06%) [6]. While these lower-cost alternatives offer broad market exposure, they lack COWZ’s focus on FCF, which has shown resilience in 2025’s high-yield environment. For instance, the S&P Developed Market Quality Aristocrats Index, which emphasizes quality and cash flow, outperformed its benchmark in 2025, suggesting that FCF-focused strategies can deliver superior risk-adjusted returns [4].

Yet, the higher expense ratio of COWZ raises questions about its long-term viability. Academic analyses caution that smart beta strategies can underperform due to tracking errors and poor investor timing, particularly in volatile markets [7]. Investors must weigh these costs against the potential for enhanced returns in a low-growth environment.

Macroeconomic Tailwinds and Risks

The 2025 macroeconomic backdrop favors COWZ’s strategy. With global central banks adopting divergent policies—such as the Fed’s restrictive stance versus the ECB’s easing—investors are prioritizing defensive allocations. European dividend stocks, for example, have attracted inflows due to their income potential and alignment with supportive fiscal policies [4]. Similarly, COWZ’s emphasis on FCF positions it to benefit from corporate resilience in a slowing-growth environment.

However, risks persist. U.S. trade policy uncertainty and geopolitical tensions could disrupt cash flow dynamics, particularly in sectors like energy and technology [2]. Additionally, the fund’s sector concentration—energy, healthcare, and information technology—introduces exposure to sector-specific volatility [1].

Conclusion: A Nuanced Value Play

COWZ represents a compelling, albeit imperfect, value play in today’s high-yield, low-growth market. Its focus on FCF yield aligns with macroeconomic trends favoring income generation and quality, and its performance in 2025 has outpaced traditional benchmarks. However, investors must contend with its higher expense ratio and the inherent risks of smart beta strategies in volatile environments. For those prioritizing resilience and income, COWZ offers a unique angle within the value investing framework—but it is not a one-size-fits-all solution.

Source:
[1] Pacer US Cash Cows 100 ETF (COWZ) [https://www.paceretfs.com/products/cowz/]
[2] The High Yield Outlook for 2025 | Natixis Investment Managers [https://www.im.natixis.com/en-hk/insights/fixed-income/2024/the-high-yield-outlook-for-2025]
[3] Break from the herd. Consider free cash flow. [https://www.paceretfs.com/resources/resource-library/break-from-the-herd-consider-free-cash-flow]
[4] Q3 Investment Outlook [https://www.ssga.com/se/en_gb/institutional/insights/equity-compass/smart-beta-compass/investment-outlook]
[5] The Critical Role of Free Cash Flow in Growth Investing [https://www.paceretfs.com/resources/resource-library/the-critical-role-of-free-cash-flow-in-growth-investing]
[6] Is Pacer US Cash Cows 100 ETF (COWZ) a Strong ETF Right Now? [https://www.nasdaq.com/articles/pacer-us-cash-cows-100-etf-cowz-strong-etf-right-now-2]
[7] How Smart Beta Can Make It Better or Worse [https://www.researchaffiliates.com/publications/articles/687-the-biggest-failure-in-investment-management-how-smart-beta-can-make-it-better-or-worse]