To many dividend and value-focused investors, the Schwab Dividend Equity (SCHD) is the gold-star ETF. It has a long track record of paying and raising dividends. Its dividend growth is second to none, which explains why investors have added over $55 billion in it. 

However, a closer look shows that another little-known ETF has a long track record of beating the SCHD and the SPDR S&P 500 ETF (SPY). The Pacer US Cash Cows 100 ETF (COWZ) has constantly outperformed these funds for many years.

Data shows that the COWZ ETF has had a total return of 10.48% this year. In contrast, SCHD and SPY have returned 3.42% and 8.2%, respectively. The same has happened in the past five years, where the fund returned 115% compared to SCHD’s and SPY’s returns of 74% and 93%.

SPY vs COWZ vs SCHD ETFs

COWZ’s performance against the SPY is notable because it has no major technology constituents. Companies in the tech sector hold just 9% of the ETF, with the most notable ones being DropBox, DocuSign, eBay, Etsy, Expedia, and Zoom Video.

In most cases, the best-performing ETFs are those with a strong presence in the technology sector. These funds benefit from key trends like cloud computing, artificial intelligence, machine learning, and Internet of Things (IoT).

The main reason why the Pacer Cash Cash Cows ETF has done well over the years is that it focuses on the most important part in a company’s finances: cash flow. For starters, as I wrote before, COWZ tracks 100 companies that have a track record of growing their free cash flow yield. 

As a result, the fund has a high concentration of oil and gas companies, which are swimming in cash as the price of crude oil jumps. Brent jumped above $91 a barrel while the West Texas Intermediate (WTI) jumped to $86.

The biggest companies in the fund are Valero Energy, Marathon Petroleum, EOG Resources, Exxon, Occidental, and Diamondback Energy. In all, energy companies account for 23% of the total fund. It is followed by consumer discretionary, health care, industrials, and materials. 

Concentration among ETFs is a big risk but COWZ is not all that different from SCHD and SPY. The technology sector accounts for 29% of all companies in the SPY ETF. It is followed by financials, health care, and consumer discretionary.

SCHD is fairly balanced, with industrials, financials, health care, and IT accounting for 17%, 16.7%, 15.90%, and 12.5%, respectively. 

Therefore, I believe that COWZ will continue doing well since energy prices will likely keep rising because of high global demand and weak investments. Oil and gas companies will continue generating strong profits and free cash flows in the coming years.

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