Free cash flow (FCF) is a critical measure of financial health, showing how much cash a company can reinvest or return to shareholders after covering essential costs. In the small-cap arena, where profitability is often limited, strong FCF can distinguish higher-quality businesses with better growth prospects and lower valuation risk. 

The VictoryShares Small Cap Free Cash Flow ETF (SFLO) seeks to capture this advantage by tracking an index that emphasizes both historical and projected FCF performance. By filtering out slower-growing firms and prioritizing those with robust FCF yields, SFLO aims to balance growth potential with disciplined valuation.

 Its broad small- and mid-cap universe also enhances liquidity and diversification, making it a potentially appealing option for investors seeking targeted small-cap exposure with a quality bias.

Finsum: Since a large share of small-cap companies remain unprofitable, focusing on those with consistent FCF can improve portfolio stability.