This paper introduces the Abacus FCF Leaders strategy, a systematic and data-driven approach to quality investing based on Free Cash Flow Return on Invested Capital (FCF-ROIC). It demonstrates how FCF-ROIC outperforms traditional accounting metrics by focusing on actual cash generation and capital efficiency. The strategy decomposes FCF-ROIC into four alpha-driving components—Prudent CapEx, Low Accruals, High Cash Flow Margins, and Strong Asset Turnover—and employs a proprietary risk-adjusted portfolio construction process. The paper also highlights how dynamic risk management based on business cycle indicators can further enhance risk-adjusted returns and consistency across market environments.
Free Cash Flow Leaders: Turn The Promise of Quality Investing Into Measurable Results
