Free Cash Flow Investing With Innovators

Free cash flow analysis reveals the extent to which companies that invest heavily in R&D outperform their peers, suggesting investors should be looking to ensure these innovators form a core part of their portfolios going forward.

Key Insights:

• Companies combining high R&D intensity with strong free cash flow generation tend to outperform
• FCF analysis helps distinguish between genuine innovators and companies spending on R&D without profitable results
• The intersection of innovation and profitability provides a differentiated source of returns
• This research underpinned the development of the Abacus FCF Innovation Leaders ETF (ABOT), which applies a dual screen for FCF-ROIC and R&D intensity

The full paper examines the empirical evidence across multiple time periods and market conditions, demonstrating the robustness of combining free cash flow quality with innovation metrics.

Originally published on Abacus FCF Advisors FCF Institute