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In this fortnight’s newsletter we examine how free cash flow — a key indicator of corporate strength — can underpin robust equity allocations, especially in uncertain times. We also examine how factor-based investing helped mitigate April’s tariff-driven drawdowns, the renewed investor confidence in UK mid-caps, and the evolution of high-dividend and lifecycle index strategies. Plus, our latest Global Wealth Research report highlights emerging cross-asset opportunities for diversified portfolio construction.
Dive into the topics that matter most to you.
Free cash flow: an all-weather equity strategy
In today’s market, where frequent policy shifts strike like unexpected villains, equity investors are often forced to adopt protective gear in a hurry. Strategies anchored in value stocks, dividend plays and other traditionally defensive equity sectors have been some of the obvious ways to protect against market turbulence.
But there is another strategy in the background, often overlooked but ready to save the day: quality companies with high free cash flow. These companies may be less well-known, but in times of uncertainty they may have the financial firepower to hold the line.
Why companies generating high free cash flow deserve a bigger role in portfolios
Free cash flow (FCF) is viewed as one of the most revealing indicators of a company’s financial health. In essence, free cash flow is the true cash a company generates (after accounting for the capital expenditures it needs to maintain its core operations).
Free Cash Flow = Operating Cash Flow − Capital Expenditures
This represents the money that a company can deploy freely — to pay dividends, buy back shares, reduce debt, invest in growth and innovation and more — all key attributes for investors.
Companies with strong and consistent free cash flows are typically associated with better financial health and they can respond more quickly to competitive pressures. Their financial strength and flexibility may be an advantage in times of turbulence.
FTSE Cash Flow Focus Index Series: an all-weather investment strategy
To fight off the unexpected villains in today’s market, equity investors need more than just hope. They need a resilient, all-weather strategy.
The FTSE Cash Flow Focus Index Series, launched in 2024, offers a transparent, index methodology centred on capturing high-quality, financially resilient companies with strong free cash flow profiles.
These companies can offer a triple benefit: a defensive stance during downturns, capital appreciation potential during upswings, and more reliable dividends. This combination makes them well-rounded partners for long-term investors through fast-changing market conditions.
In this article, we’ll delve into the characteristics that could make the FTSE Cash Flow Focus indices a prudent choice for equity strategies in uncertain times.
How equity factors dampened the April tariff tantrum
In a year of equity market volatility, factors have provided an oasis of relative stability. After a secular rise in equity prices in 2023 and 2024, extended valuations and high concentration laid the groundwork for factors to stabilise market excesses. The results thus far in 2025 have been attenuated downdraws without sacrifice of long-term growth potential.
The Russell 1000 Comprehensive Factor Index operates with an even tilt to each of the “big five” factors (Quality, Value, Momentum, Low Volatility and (small) Size). In this insight, we show how targeting these independent drivers of return reduced total drawdown by 29% versus the benchmark. We also give three examples of how a multifactor approach informs index constituent weightings.
Rotation into FTSE 250 shows confidence on a UK recovery
The UK equity market continues to show its resilience amid an increasingly complex geopolitical and economic landscape. Over twelve months, the FTSE 100 Index has returned nearly 20%, outperforming the US (~12%) and the World ex US (~16%) equity markets, all in US dollar terms.
Its heavy exposure to defensive sectors, like Financials and Consumer Staples, which account for nearly 41% of the market, has shielded the UK equity market from weak economic growth and allowed it to benefit from a global rotation into value stocks.
Revival of the UK domestic market
The FTSE 100, home to large-cap, globally diversified companies, has also outperformed smaller UK companies over the year. Accordingly, the FTSE 100 has risen by 12% in sterling terms, compared to about 9% for the mid and small-cap UK indices (see left Chart).
However, the last three months have seen another notable change. Investors have not only sought exposure to larger UK companies but are also embracing the broader UK equity market. The FTSE 250, often regarded as a barometer for the UK’s economic health, represents companies, which are lower down in the capitalisation levels compared to the FTSE 100. Stronger than expected UK economic growth in Q1 (though there was a tariff effect in March and a much softer month of April), underpinned by easing inflation and lower interest rates, has rekindled interest for domestically oriented companies.
Seven steps to create a new high-dividend index
Building a high-income equity portfolio requires sophistication
In today's uncertain economic landscape, financial advisors face increasing pressure to deliver portfolios that offer both growth potential and a consistent stream of income. Amid market volatility, inflation pressures, concentration risks, and shifting client demographics, dividend-yielding stocks offer advisors a powerful tool to help clients achieve goals like stable retirement income, inflation protection, and diversified portfolio construction.
Stocks with higher dividend yields often represent mature businesses with sustainable earnings and disciplined management—precisely the type of investments that can provide an anchor of stability in volatile market conditions. However, advisors who simply chase the highest dividend yields risk exposing their clients to capital losses and income disruption. These abnormally high yields (often called "yield traps") can be a precursor of dividend cuts: Traders usually anticipate such cuts by marking down share prices, and dividend yields are calculated using backward-looking data.
A more strategic high-income equity solution captures the benefits of dividend stocks, while avoiding the pitfalls of overly simplistic approaches. To meet growing investor interest in these smarter strategies, FTSE Russell launched the FTSE Global Equity High Income index series in May 2024. The index series uses a simple, capitalisation-weighted methodology to reflect the performance of global stocks with relatively high tax-adjusted dividend yields, while also addressing concerns about possible yield traps.
Index-based solutions for retirement investing
Introducing the FTSE Lifecycle Indices
We explore the innovative structure of Lifecycle indices and profile the new FTSE Lifecycle Screened Select Index Series. By analysing the design, features and objectives of Lifecycle indices, we highlight how these indices can enable a strategic approach to building wealth. We show how they can help in retirement planning and as a tool for investment managers.
Lifecycle indices are multi-asset, index-based savings plans that follow a strategic asset allocation based on a curvilinear approach (also known as the “glidepath”).
This approach considers the increased or decreased risk-taking ability of the end-investor at certain career points. The glidepath also reduces overall portfolio risk as a ‘Target date’ approaches. The Target date is a future date that is aligned either to the point of retirement or to a time-based investment goal (for example, a major life event).
The indices in the FTSE Lifecycle Screened Select Index Series are built using other FTSE Russell asset class indices. Each Lifecycle index combines a strategic asset allocation and a glidepath, based on a changing risk profile, over the index user’s lifetime.
Global Wealth Research - July 2025
Greater role for Fixed Income, Alternatives, International and Emerging Markets. More diversification opportunities and impact of currency decisions.
Top investment themes:
High uncertainty and divergence increase volatility and dispersion
Greater role for Fixed Income and Alternatives
Greater role for non-US markets
Potential of Emerging Markets
Increased importance of currency hedging and currency returns
More diversification opportunities
Our new quarterly Global Wealth Research report succinctly highlights key investment themes on a cross-asset basis globally, arising from cyclical and structural changes in the global macro and financial markets, that have implications for multi-asset portfolio construction.
Published quarterly, this report covers:
The most impactful macro indicators in the current market environment
A cross-asset comparison covering rates, credit, equities, listed alternatives, commodities, and currencies
Insights on market shifts and their implications for multi-asset portfolio construction
FTSE Russell
With over $18 trillion in reported fund assets under management benchmarked to our indices, FTSE Russell is a leading global index provider across asset classes and investment styles.
Chartered Accountant at G.Satapathy and Company, Chartered Accountants
2moThanks for sharing