Mannik Dhillon, Victory Capital

Mannik Dhillon spent the first part of his career grading other people's asset management firms. Eight years at Hewitt, now Aon, building defined contribution plan lineups and then in dedicated manager research, followed by head of manager research at Wilshire Associates. Atlanta to Chicago to Santa Monica, sitting across from CEOs and CIOs on due diligence trips, reviewing what he puts at thousands of business models. When somebody with that resume finally picks a firm to join, the structure of the firm is the tell.

Why He Picked a Multi-Boutique

What he liked as a consultant was the boutique. A small shop focused on one corner of the market, where specialization turns into expertise and expertise eventually shows up in results. What he could not get comfortable with was everything else about a small shop. Operational and compliance due diligence get hard, and after 2008 that stopped being a checkbox item, because boutiques that were good at investing went out of business anyway once the market fell far enough.

Victory Capital became independent of Key Bank in 2013, and the model it built answers that tension. Independent investment teams, which the firm calls franchises, run their own process autonomously, while distribution, marketing, operations, trading and compliance get handled underneath them. Mannik's line for that support layer is that it is centralized but not standardized, bending to what each franchise wants instead of forcing a house process on all of them. The part most firms would bury, he volunteers: Victory's strategies overlap, two franchises can run the same asset class, and he says they embrace it, because different teams running different processes produce a different path even when the mandate matches.

Not Really a Free Cash Flow Product

The fund at the center of the conversation is the VictoryShares Free Cash Flow ETF, launched in June 2023 and tracking the Victory US Large Cap Free Cash Flow Index. Mannik's framing of it is the most useful thing in the episode. This is not really a free cash flow product. It is a better way to measure value, and it sits squarely in large value, which is where advisors actually use it.

His case against the traditional metrics is about what companies have become. Price to book was built for a world of tangible assets sitting on a balance sheet, and that is not the economy anymore. It is IP, intangibles, future growth options. Technology is the obvious example, where the worth of the business has close to nothing to do with buildings and widgets. Free cash flow is the money left after a company pays its bills, which makes it a cleaner read on whether the business generates cash at all, and it sidesteps much of the noise in income statements and balance sheets.

Two Changes to the Screen

Free cash flow yield as a screen was not new when they launched, and he says so plainly. The question he put to his solutions team was what they would do to make it better. The first answer is that the standard approach looks only backward. Trailing free cash flow tells you what a business did, and his objection is that businesses now change faster than that number updates. So the index brings forward estimates of free cash flow in alongside the history, which is how it catches a company at a point of inflection. His example is Moderna during COVID. Flush with cash on vaccine demand, then a cash flow profile that turned over quickly. A rearview screen misses the turn in both directions.

The second is the growth filter, and the way he describes it is the part worth keeping. It is not there to find the best growing companies. It removes the worst growers. A high free cash flow yield can mean a disciplined business trading cheap, or it can mean a yield that looks attractive because the price is falling for a reason and will keep falling. Cutting the tail of companies circling the drain on growth is how you avoid backing into the second one. He is direct that this does not push the fund into growth territory. It removes an anchor, nothing more.

That filter is also what changes the behavior of the whole strategy. Value strategies built on the old metrics tend to do fine in value environments and then give it all back when growth leads. Cutting the worst growers is what keeps a value strategy in the game through a growth run instead of surrendering the ground it gained, and the strategy completed its first three years in exactly that kind of tape. The detail he returns to is that the portfolio has carried no Magnificent Seven exposure. His assumption is that most client books already hold a good bit of it, through index beta or an active large growth manager or both, so a value sleeve that does not depend on the same handful of names lands differently than a generic value pitch does.

Built to Travel

The suite now covers large value, large growth, small cap, international value and international growth, with small growth in research. That was not opportunism after the fact. A requirement Mannik carried over from his consulting years is that a rules based methodology cannot work in only one corner of the market, so before the first product launched, the solutions team had to convince him the process held up across market caps, styles and geographies. When clients started asking about international versions, the work was already sitting there. What is under research now reads like a list of client requests: enhanced income variations, since a high free cash flow yield does not automatically produce a high dividend, and a more sector complete version, because the flagship methodology leaves out financials and REITs on the reasoning that free cash flow is a poor measure for a financial. He names that tradeoff honestly. Concentration is the point when you have conviction in a process, though some clients would rather own the whole sector map.

On what is driving adoption beyond results, his first answer is that people already understand free cash flow. Nobody needs the concept explained, and the methodology is a variation on something familiar rather than a black box. He has a standing rule for the quantitative team on this. You do not have to be complex to drive outcomes, and quantitative investors get stuck building things they cannot explain themselves.

Where He Says It Belongs

On placement he concedes that every portfolio needs beta, and cheap beta with little tracking error is a reasonable thing to own. What he points at is the problem sitting inside it. An S&P 500 allocation next to a Nasdaq 100 allocation has been the same stocks for long stretches, which means doubling up on the largest names rather than diversifying away from them. Keep the low cost beta in the center, he says, and build the wings out of something that behaves differently. Advisors have been pairing the value version with the growth version from the same framework, which gets them both wings off one methodology.

Key Takeaways

• Mannik came to Victory Capital from the manager research side and picked it for its structure: independent franchises running their own process on a platform he calls centralized but not standardized, with strategy overlap between them treated as a feature.
• The flagship strategy is better understood as a value product than a free cash flow product. Price to book lost its power in an economy built on IP and intangibles instead of assets on a balance sheet.
• Two enhancements separate it from a standard free cash flow yield screen: forward estimates alongside trailing figures, so the index catches inflection points, and a growth filter that removes the worst growers to stay out of value traps.
• That filter is why a value strategy can keep pace when growth leads. The portfolio has held no Magnificent Seven exposure, which is the diversification argument for a book already full of mega cap beta.
• The framework had to work across market caps, styles and geographies before anything launched, which is why the international and small cap versions existed on paper before clients asked. On placement, low cost beta stays in the center and the value and growth versions become the wings.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.