Pacer US Small Cap Cash Cows 100 ETF retains its Morningstar Medalist Rating of Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy's investment process inspires confidence and earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a high quality exposure is rooted in holding stocks with low financial leverage and strong returns on equity. The team managing this passive strategy earns a Below Average People Pillar rating. The strategy's parent firm has some investor-friendly attributes, like overall affordable fees and a high success ratio across its product shelf. As a result, the firm gets an Average Parent Pillar rating.

Analyst Rating

Andersons

CVR Energy

Mueller Industries

American Eagle Outfitters

SM Energy

Signet Jewelers

California Resources

Insight Enterprises

M.D.C. Holdings

Owens & Minor

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Pacer US Small Cap Cash Cows 100 ETF earns an Above Average Process Pillar rating. 

The main contributor to the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Respectable risk-adjusted performance also contributes to the process. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. Lastly, the process is limited by the parent firm's five-year retention rate of 52%, which suggests it could do more to hold onto its portfolio managers.

 This strategy tends to pick smaller market-cap firms compared with the average fund in its peer group, the Small Value Morningstar Category.  But in terms of style (value/growth) exposure, it is similar. Examining additional factor exposure, this strategy has consistently tilted toward companies with relatively higher trading volumes in the last few years. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy also has tilted in favor of high-quality stocks, those that have demonstrated low financial leverage and solid return on equity, during these years. This means the fund holds consistently profitable, growing companies with solid balance sheets that may help it endure downturns better than Morningstar Category peers. Compared with category peers, the strategy also had more exposure to the Quality factor in the most recent month. In addition, this strategy has exhibited a tilt toward higher-volatility stocks in these years, meaning companies that have a higher historical standard deviation of returns compared with peers. This is a higher-risk, higher-reward approach. In this month, the strategy also had more exposure to the Volatility factor over its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in consumer cyclical and healthcare relative to the category average by 22.4 and 3.8 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and real estate, underweight the average by 23.2 and 5.9 percentage points of assets, respectively. The portfolio is positioned across 103 holdings and is less top-heavy than peers. Specifically, 21.9% of the portfolio's assets are concentrated within the top 10 fund holdings, as opposed to the category’s 28.1% average. And in closing, in terms of portfolio turnover, on a year-over-year basis, 101% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Above Average

Process

Pacer’s team receives a Below Average People Pillar rating. The team is supported by its parent firm's five-year success ratio of 69%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. However, the rating is limited by the instability of management across its parent firm. The firm's asset-weighted manager tenure of seven years suggests it could do more to retain portfolio managers. The instability of its management team also weakens the team. The fund last saw a manager change two years ago.

Below Average

People

Pacer's track record as a steward is mixed, leading to an Average Parent Pillar rating. One notable advantage of Pacer is its below-average fees. On average, the firm's open-end and exchange-traded fund fees fall in the second-lowest quintile of category peers. The product lineup at Pacer has exhibited exemplary durability compared with peer asset managers when looked at over the past five years. Notably, its five-year risk-adjusted success ratio stands at 69%, meaning that 69% of its products have both survived and beaten their respective category median on a risk-adjusted basis. Portfolio management turnover at Pacer is higher than at peer firms, detracting from the overall assessment of the firm's stewardship. Turnover in the portfolio-management ranks can happen for a number of reasons, including mergers and liquidations, portfolio managers moving into other roles, or portfolio managers leaving the firm. In some cases, such change may not signal a serious or immediate problem at the firm, but can still be disruptive for investors, hinder the effectiveness of a firm’s investment processes, or suggest a weaker investment culture.

Average

Parent

Pacer US Small Cap Cash Cows 100 ETF

CALF tracks an index of 100 companies out of the S&P Small Cap 600 Index selected and weighted by free cash flow.

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I believe small-caps has the potential to outperform in 2024 provided the economy performs well as investors rotate out of expensive mega-caps. The Pacer US Small Cap Cash Cows 100 ETF could be a good way to gain small-cap exposure as it focuses on profitable, high free cash flow generating companies. CALF has significantly outperformed the iShares Core S&P Small-Cap ETF (IJR) and offers a higher risk-adjusted return.

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News for Pacer US Small Cap Cash Cows 100 ETF ETF (CALF)