Distillate Capital International Fundamental Stability & Value ETF
Distillate Capital, a fundamentals-driven Chicago-based equity manager, has launched its second ETF, the Distillate International Fundamental Stability & Value ETF (NYSE:DSTX).
This fund seeks to distill a starting universe of around 1,500 non-US large- and mid-cap stocks down to 100 attractively valued stocks that exhibit stable cash flows and healthy balance sheets. Instead of relying on short-term price volatility and outdated valuation metrics that have largely failed investors, Distillate focuses on free cash flow generation as the relevant metric to assess both valuation and risk. Distillate Capital’s approach seeks to preserve capital and take advantage of pricing opportunities, returning to the most basic concepts in value-investing, now adjusted for the underlying economy of the 21st century.
Distillate Capital has seen meaningful success with its first US-focused ETF, DSTL, which was launched in October 2018, and has since garnered over USD200 million in AUM. “We have been pleased with DSTL’s performance versus both the S&P 500 Index and Russell 1000 Value Index. With DSTX, we are taking the same approach to international stocks that we use to manage DSTL, where we are building a solid proof statement that value-driven investing, when valuation is measured accurately, is still a very good way to generate better than market returns for clients. We believe just as much potential for outperformance exists internationally,” says Tom Cole, co-founder and CEO.
“Contrary to popular belief, value investing is alive & well,” adds Cole. “Old metrics like Price-to-Book and Price-to-Earnings have become convoluted by accounting changes and are outdated for today’s companies due to a significant shift over recent decades toward an economy driven by intangible assets. Companies that invest heavily in research & development, for example, are difficult to compare to others that depend on physical assets using accounting-based measures.”
Both DSTX and DSTL are reflections of Distillate Capital’s free cash flow-focused approach. “Any valuable asset, whether it’s a factory, a brand, or a piece of code, should produce cash flow now or in the future,” says Matt Swanson, co-founder. “By using a proprietary measure called distilled cash yield, we’re able to restore comparability between older, more physical-asset based companies and newer, more research and development-oriented ones.” Like with DSTL, DSTX emphasises long-term fundamental stability rather than short-term stock price volatility measures to assess risk. The risk assessment also incorporates a measure of financial indebtedness that adjusts for off-balance sheet leases or other calls on capital that may not be picked up by traditional measures.
DSTX seeks to track the Distillate International Fundamental Stability & Value Index, and its expense ratio is 0.55 per cent. “We’re excited to continue to prove the merits of value investing internationally in addition to domestically,” says Jay Beidler, co-founder.