Pacer Pacific Asset Fltng Rt Hi Inc ETF's Average People Pillar and Process Pillar ratings result in a Morningstar Medalist Rating of Neutral. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy’s management team earns an Average People Pillar rating. The strategy merits an Average Process Pillar rating. The People Pillar Rating and Process Pillar rating are indirectly assigned by an analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The strategy's parent organization doesn't stand out, earning the firm an Average Parent Pillar rating. It has displayed a handful of investor-friendly attributes including overall low fees and a strong success ratio across its product lineup.

Analyst Rating

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The strategy supplements its long-horizon-focused credit research with shorter-horizon opportunistic trading. The approach to the former is standard, even though the fund’s modest size allows it to be selective in the deals in which they participate. The latter is more reactive in nature and tries to either capitalize on short-term dislocations or cut positions whose fundamentals have deteriorated. Both have been executed well, but it’s hard to pin down where exactly the strategy’s advantage lies. It thus earns an Average Process rating.
To ensure liquidity, the strategy begins by filtering the bank loan universe for loan facilities greater than $300 million and EBITDA greater than $100 million. The team then examines leverage, cash flow, competitive position, capital structure, and potential catalysts, among other criteria. All issues go through the same review process and management claims they would never buy something that doesn’t meet their fundamental criteria, but they occasionally indulge in opportunistic trading on about a third of the portfolio, hence the team’s insistence on relative liquidity. This active trading, the domain of Michael Marzouk, seeks to either get out of positions whose fundamentals have deteriorated since purchase, or to make room for other issues which have traded down due to temporary—and to management reversible—problems.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a vehicle that follows a given strategy (as codified by Morningstar’s StrategyID data point) Morningstar maps the covered vehicle’s Process Pillar to any other uncovered vehicles that follow the same strategy (that is, share the same StrategyID). This ensures that the analyst’s view is leveraged whenever available and promotes consistency when assigning Process Pillar ratings to vehicles that follow the same strategy.

Average

Process

The strategy benefits from veteran leadership. The team’s size is modest given its far-ranging coverage and the integration of Aristotle Credit Partners introduces some uncertainty. It merits an Average People rating.
Comanagers J.P. Leasure and Michael Marzouk have helmed the fund since its mid-2011 inception, but their experience extends beyond that date. Leasure has worked in the industry for 26 years and Marzouk for 25; the former doubles as a credit analyst, the latter as a trader. 
Management support isn’t extensive, although the team might grow with Aristotle Pacific’s absorption of Aristotle Credit Partners. There are four credit specialists there (portfolio managers and/or credit analysts), but at this point it’s uncertain who will stay in the new structure. On Aristotle Pacific’s side, 13 credit analysts and seven portfolio managers support the effort, though all but one of those are double-listed as both manager and research analyst. This is a pretty sparse team considering that it covers, through other funds and accounts such as Aristotle Strategic Income PLSRX, a broad opportunity set that includes high yield, investment grade, bank loans, and structured products (two PMs/analysts focus on that market). Of these, five have 10 or fewer years of industry experience.
Alignment of investor interests could be better; Leasure and Marzouk each invest merely $50,000-100,000 in the fund.

Note: The People Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a vehicle that follows a given strategy (as codified by Morningstar’s StrategyID data point), Morningstar maps the covered vehicle’s People Pillar ratings to any other uncovered vehicles that follow the same strategy (that is, share the same StrategyID). This ensures that the analyst’s view is leveraged whenever available and promotes consistency when assigning People Pillar ratings to vehicles that follow the same strategy.

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.

Parent

Pacer Pacific Asset Floating Rate High Income ETF

FLRT is an actively managed fund targeting floating-rate debt from non-investment-grade issuers.

FLRT is an actively managed fund targeting floating-rate US debt from non-investment-grade issuers.

Pacer Pacific Asset Floating Rate High Income ETF has delivered outstanding results since our initial coverage of the name. FLRT is a low-duration instrument with a collateral pool consisting of leveraged loans and CLOs. The fund contains embedded leverage in the form of BB-rated CLO tranches, making it riskier compared to simple leveraged loan funds.

FLRT: No Longer An Attractive Entry Point (Rating Downgrade)

Pacer Pacific Asset Floating Rate High Income ETF is an actively managed bond fund with a 30-day SEC yield of 8.9%. The FLRT ETF has changed names and strategies twice, with only data from 10/22/2021 being relevant to the current strategy. The fund has a high level of risk, with about 80% of asset value below investment grade, 47% in bank loans, and a higher volatility than its peers.

FLRT: A High Yield, High Risk Floating Rate Bond ETF

The Pacer Pacific Asset Floating Rate High Income ETF, a smaller fund with $120 million in assets, has seen its AUM increase significantly since the start of the rate hiking cycle. The fund's portfolio blends floating rate leveraged loans with ABS/CLO securities; it currently has a 30-day SEC yield of 9%. Despite taking slightly more risk through its composition, the fund has had a total return in the past year exceeding its pure floating rate loan peers, making it an attractive investment option.

FLRT: Little 9% Yielding Gem From Pacer

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MALVERN, Pa.--(BUSINESS WIRE)--Pacer ETFs (“Pacer”), an ETF provider that offers strategy-driven, rules-based ETFs, has grown assets under management to $10.2 billion, a 76% increase from Dec. 31, 2020. “We are very pleased with the growth we've achieved in our first six years,” says Sean O'Hara, president of Pacer ETF Distributors. “We have proven to be an ETF provider that investors and advisors turn to for distinguished products across the board. I am looking forward to 2022 as we look to do

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