Pacer Industrials and Logistics ETF’s management team is just average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Bronze. The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant underweight position in liquidity exposure and an overweight in quality exposure compared with category peers. Low liquidity risk exposure is attributed to stocks with a low trading volume, limiting managers' flexibility. And a high quality exposure is rooted in holding stocks with low financial leverage and strong returns on equity. The team managing the passive strategy earns the strategy an Average People Pillar rating. The strategy's parent firm has some investor-friendly attributes, like overall attractive fees and a strong risk-adjusted track record. As a result, the firm gets an Average Parent Pillar rating.

Analyst Rating

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Canadian Pacific Railway

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Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. Pacer Industrials and Logistics ETF earns an Above Average Process Pillar rating. The main driver of the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's five-year risk-adjusted success ratio of 69% also bolsters the rating. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. Their compelling success ratio suggests that the firm does well for investors and that this fund may benefit from that. Lastly, the process is limited by the experience of the management team, which averages five years at this fund.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to track the total return performance, before fees and expenses, of the Pacer Global Supply Chain Infrastructure Index.  The fund employs a “passive management” (or indexing) investment approach designed to track the total return performance, before fees and expenses, and of the index. The index consists of globally-listed stocks and depositary receipts of industrials and logistics companies. The fund is non-diversified. 

 The portfolio is overweight in technology by 9.5 percentage points in terms of assets compared with the category average, and its communication services allocation is similar to the category. The sectors with low exposure compared to category peers are industrials and consumer cyclical, with industrials underweighting the average portfolio by 6.9 percentage points of assets and consumer cyclical similar to the average. The portfolio is composed of 98 holdings and its assets are more dispersed than the typical peer in the category. In the most recent disclosure, 58.1% of the portfolio's assets were concentrated in the top 10 fund holdings, as opposed to the category’s 73.1% average. And in closing, in terms of portfolio turnover, this fund trades less frequently than the category’s average, potentially limiting costs to investors.

Above Average

Process

Pacer’s team is good but unexceptional, earning the strategy an Average People Pillar rating. There are two managers listed on the fund: Bruce Kavanaugh, Danke Wang.  Together, they manage a total of 26 strategies, with solid long-term prospects. The strategies average a Silver asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

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-cheapest quintile of category peers. Pacer's risk-adjusted performance compares similarly to competitors. Across its open-end and exchange-traded funds, the firm’s average five-year Morningstar Rating is 3.5 stars, which is about standard. Pacer's longest-tenured managers do not possess comparable experience as teams at other firms, a cause for concern. Specifically, average tenure within the firm is four years. As such, there is less confidence in the group's ability to manage capital through a full market cycle effectively.

Parent

Pacer Industrials and Logistics ETF

SHPP tracks a market cap-weighted index of global companies engaged in transportation, logistics software and hardware, as well as the ancillary services that support the global distribution supply chains.

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