Sean O’Hara, Pacer ETF Distributor’s President, is in typical expansionist style – not content with announcing that Pacer has just crossed the USD26 billion in assets milestone, an increase of over 25 per cent from the start of the year, but also keen to lay down the next target of USD35 billion by the end of this year.
“We are continuing to chug along,” O’Hara says, modestly, also noting that the second half of 2023 could see more business flow in making that USD35 billion goal possible.
Pacer ETFs was launched in 2015 and has over 45 strategic ETFs, but the big winners in their offerings have been the Cash Cow series, focused on companies with high free cash flow yield.
The market has helped their asset growth a little, as O’Hara notes, but he reports assets flowing in lots of different areas across 2023, with international versions of their products – even emerging market offerings – enjoying as much inflow as their US large cap based products.
On the heels of the company’s success with the Cows Series, which utilises Free Cash Flow Yield for its Value screen, Pacer is building out a series of Cows that target growth. Free Cash Flow Margin is the metric these new Growth ETFs will utilise, O’Hara explains, saying that most growth indexes place a high emphasis on sales growth which on its own, doesn’t create alpha. You need profitable sales growth, he says, which is what Free Cash Flow Margin measures.
Other products that are enjoying the market conditions offer a protection from downside risk, when the stock market is overvalued, while buffered strategies have also done well for the firm.
“Across the board the majority are nervous and cautious,”O’Hara says. “A small number of names are responsible for the vast majority of returns – just five or seven stocks in the S&P 500 are responsible for the vast majority of the return of the market. It doesn’t last so we start to see people who remain market cap-weighted and we revert back to the mean. It will hurt you as much as it helped you, so people are looking at free cash flow and for risk mitigation strategies and buffered products.”
O’Hara also sees another camp where people say whatever the Federal Reserve does, there is a lot of room to go still. “We have a large sales force who talk to a lot of people and there is a broad and diverse product line up – we have many flavours of ice cream – not just vanilla.”
Looking forward, O’Hara says that the firm will continue to expand the line-up and build out the growth side of the business. “I believe that we were right on the value side and it worked phenomenally well and we were just as right on the growth side if not more right,” he says.
The firm is looking internationally and may well build some product in that arena, O’Hara says, confirming that there are another four or five ETFs on the books for this year in what he describes as ‘thoughtfully positioned’ for their line-up, where they think they can gather assets.
The firm is also exploring a UCITS platform to service the needs of non-resident investors in the US and overseas.