Weakness in Pacer Trendpilot™ US Mid Cap ETF's People and Process Pillar ratings limits this strategy to a Morningstar Medalist Rating of Neutral. The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The team managing the passive strategy earns a Below Average People Pillar. The strategy earns a Below Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight yield exposure and momentum exposure compared with category peers. High yield exposure is attributed to holding high dividend-paying or buyback stocks, and is suitable for income seekers outside of fixed-income. And low momentum exposure is rooted in holding stocks that are not currently on a winning streak and instead holding those that managers believe are undervalued. The strategy's parent organization is industry standard, albeit with some strong attributes like overall reasonable fees and a high success ratio across its product shelf. This earns the firm an Average Parent Pillar rating.

Analyst Rating

Carlisle Companies

GoDaddy

Williams-Sonoma

EMCOR Group

Pure Storage

Reliance Steel & Aluminum

Lennox International

Owens Corning

Burlington Stores

Watsco

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 Trendpilot™ US Mid Cap ETF earns a Below Average Process Pillar rating. The process benefits from the parent firm's five-year risk-adjusted success ratio of 56%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. However, the rating is limited by the fund's unremarkable long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period. The parent firm's five-year retention rate of 52% also weakens the process.

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 Trendpilot US Mid Cap Index.  The fund invests at least 80% of its total assets (exclusive of collateral held from securities lending) in the component securities of the index. The index implements a systematic trend-following strategy that directs exposure (i) 100% to the S&P MidCap 400® Index, (ii) 50% to the S&P MidCap 400 and 50% to 3-Month U.S. Treasury bills, or (iii) 100% to 3-Month U.S. Treasury bills, and depending on the relative performance of the S&P MidCap 400 and its 200-business day historical simple moving average. 

 The portfolio has allocations in its top two sectors, real estate and consumer cyclical, that are similar to the category. The sectors with low exposure compared to category peers are technology and healthcare, with technology underweighting the average portfolio by 4.0 percentage points of assets and healthcare similar to the average. The strategy owns 402 securities and is diversified among those holdings. In its most recent portfolio, 6.7% of the portfolio's assets were concentrated in the top 10 fund holdings, as opposed to the category average's 16.1%.

Below Average

Process

Pacer’s team receives a Below Average People Pillar rating. The team is strengthened by its parent firm's five-year success ratio of 56%. 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 talent across its parent firm. The firm's asset-weighted manager tenure of seven years suggests it could do more to retain portfolio managers. The combined average five-year excess return of each manager also detracts from the team. It suggests that the funds they manage have trailed their respective category's average return.

People

Pacer has some investor-friendly attributes, but other attributes warrant caution, leading to an Average Parent Pillar rating. A strength of Pacer is that its product shelf of open-end and exchange-traded funds is, on average, offered at a minimal cost, suggesting that it considers what's best for its investor base. On average, fees for funds are in the second-lowest quintile of respective category peers. Pacer has showcased a durable product shelf. This is demonstrated by the firm's three-year risk-adjusted success ratio of 64%, meaning that 64% of its products have both survived and beaten their respective category median on a risk-adjusted basis. A high success ratio indicates good performance and provides insight into a firm’s discipline around investment strategy and product development. Pacer has had high portfolio management turnover over the past five years compared with peers, detracting from its rating, as long-term stability tends to go together with positive results.

Average

Parent

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