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Launched Sept. 23, 2024, the S&P Quality FCF Aristocrats Indices track companies that consistently generate robust free cash flow (FCF) over a specific number of years. FCF, which represents the cash remaining after a business meets its operational costs and capital investments, serves as a key barometer of company quality.

The S&P Quality FCF Aristocrats Indices were initially introduced across two universes: the S&P 500^® Quality FCF Aristocrats Index and the S&P Developed Quality FCF Aristocrats Index, which both require positive FCF for at least 10 consecutive years. Both indices have outperformed their respective benchmark universes over the one-year period since their launch and on a YTD basis in 2025. The S&P 500 Quality FCF Aristocrats Index notably outperformed during the tariff-related drawdowns, while the S&P Developed Quality FCF Aristocrats Index saw a slightly higher drawdown, reflecting the different responses to the economic backdrop across regions.

Over the long term, including hypothetical back-tested performance, both indices have consistently outperformed their benchmark universes, demonstrating strong absolute terms as well as impressive risk-adjusted performance.

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An analysis of these indices across various macroeconomic environments, including hypothetical back-tested performance, shows that they have excelled in a range of regimes characterized by rising and falling inflation and growth. Historically, the S&P Developed Quality FCF Aristocrats Index outperformed or matched the S&P Developed Large MidCap in all four environments. The S&P 500 Quality FCF Aristocrats Index only underperformed the S&P 500 during periods of high growth and high inflation.

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These indices aim to identify high-quality companies through FCF-based screening and selection metrics utilized in their methodology. Exhibit 4 examines the metrics that make up the FCF score for both indices, revealing that they exhibit higher return on equity (ROE), higher operating margins and lower financial leverage compared to their respective benchmark universes.

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Quality can be assessed by various metrics; however, FCF has historically proven to be an effective lens for identifying high-quality companies. The S&P Quality FCF Aristocrats Indices have had a strong start, outperforming their benchmark universes since launch while also demonstrating positive risk-adjusted performance, robust fundamentals and defensiveness over longer back-tested periods.

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