The Only ETF I’d Buy Today and Not Look At Again Until 2036
Tech stocks now dominate major indexes more than ever before, and the accounting tricks hiding AI's true costs could punish buy-and-hold investors for years. One overlooked ETF sidesteps that risk entirely by filtering for something far harder to fake than…
The stock market’s future is becoming more uncertain as Treasury yields and oil prices rise. That’s a good reason to consider ETFs like the Pacer US Cash Cows 100 ETF (BATS:COWZ) if you want to make a long-term bet without betting on any specific sector.
Obviously, oil prices and Treasury yields won’t rise forever, but it does show that the AI rally might not be infallible. A rate-hike cycle would be new and unexpected if it began, and so I wouldn’t buy and hold a tech stock and be confident that I’d end up in the green 10 years from now.
The Nasdaq-100 took 15 years to recover from the Dot Com crash. Earnings from companies make that sort of thing look like an impossibility, but if you judge their earnings by cash flow, something like this is certainly possible because net earnings hide the true cost of the AI buildout. If data centers deliver very low return on investment, your stock market returns will also be low over the next decade because most indexes are so tech-heavy.
How This ETF Avoids Overinvesting In Tech
If you buy the S&P 500 and stick with it for 10 years, your fate now rests on how AI companies do. Tech companies now constitute 38% of the S&P 500, with Nvidia (NASDAQ:NVDA | NVDA Price Prediction) at 8%. To put that into context, that’s a little more than what the entire Industrial sector gets.
The Pacer US Cash Cows 100 ETF does not choose a sector or buy a whole index and avoids that top-heavy structure. It instead searches the Russell 1000 for established companies that already generate substantial free cash flow relative to their enterprise values. The 100 companies with the highest free cash flow yields enter the portfolio, while the holdings are refreshed every quarter.
This lets the COWZ ETF own profitable companies without betting on the AI spending boom. Its top holding is Salesforce (NYSE:CRM), but it accounts for less than 2.5% of the portfolio, with the second-largest holding being Marathon Petroleum (NYSE:MPC). Tech is still the largest sector in the ETF at 23%, but that exposure is spread across more tech stocks.
Why Cash Cows Are Your Best Bet
The trouble with using earnings as your main measure of profitability is that earnings are an accounting result, not how much cash a company has left.
If a tech company generates $10 billion in operating cash flow and then spends $8 billion on data centers, it has $2 billion as free cash flow. However, the company can record the data centers as assets and spread that cost out across many years.
This works well and smooths things out if data centers are very profitable, because the spread-out cost will be offset each year as the data centers come online and start making money.
Conversely, if data centers don’t see demand as forecasted, they may not generate enough profit to offset the depreciation expense that hits each year. The company must continue recording that expense. This means the same accounting treatment that softened the cost during construction begins working against the company, and earnings can fall massively even if operating costs remain in the green.
Free cash flow is the cash generated from operations after you deduct capital expenditures. If you hold COWZ, you are buying businesses that have already proved they can generate cash, which removes much of the accounting drama from a 10-year holding period.
Why I Would Hold COWZ Until 2036
COWZ has one advantage very few ETFs have right now, and that is the fact that its holdings are very dynamic. The ETF reruns its free cash flow screen every quarter and replaces companies that no longer qualify.
No one knows which sector will lead the market over the next decade. AI could lead to extraordinary returns or prove to be a disappointment in the stock market. There are too many changing variables here.
What will not change is the value of a company that produces substantial cash without requiring heroic assumptions about the future.
COWZ is up 23.3% over the past year, has an expense ratio of 0.49%, and has a dividend yield of 1.93%.
Contact [email protected] for any questions or corrections.
Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
