The Pacer US Small Cap Cash Cows 100 ETF CALF was launched on 06/16/2017, and is a passively managed exchange traded fund designed to offer broad exposure to the Small Cap Value segment of the US equity market.

The fund is sponsored by Pacer Etfs. It has amassed assets over $8.38 billion, making it one of the largest ETFs attempting to match the Small Cap Value segment of the US equity market.

Why Small Cap Value

Small cap companies have market capitalization below $2 billion. They usually have higher potential than large and mid cap companies with stocks but higher risk.

Carrying lower than average price-to-earnings and price-to-book ratios, value stocks also have lower than average sales and earnings growth rates. Considering long-term performance, value stocks have outperformed growth stocks in almost all markets; however, they are more likely to underperform growth stocks in strong bull markets.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.59%, putting it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 1.19%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Consumer Discretionary sector--about 38.50% of the portfolio. Industrials and Energy round out the top three.

Looking at individual holdings, Meritage Homes Corp MTH accounts for about 2.39% of total assets, followed by Signet Jewelers Limited SIG and American Eagle Outfitters Inc Com AEO.

The top 10 holdings account for about 22.2% of total assets under management.

Performance and Risk

CALF seeks to match the performance of the Pacer US Small Cap Cash Cows Index before fees and expenses. The Pacer US Small Cap Cash Cows Index uses an objective, rules-based methodology to provide exposure to small-capitalization U.S. companies with high free cash flow yields.

The ETF has lost about -1.46% so far this year and was up about 22.43% in the last one year (as of 02/23/2024). In the past 52-week period, it has traded between $35.81 and $48.89.

The ETF has a beta of 1.25 and standard deviation of 25.46% for the trailing three-year period. With about 100 holdings, it effectively diversifies company-specific risk.

Alternatives

Pacer US Small Cap Cash Cows 100 ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, CALF is a good option for those seeking exposure to the Style Box - Small Cap Value area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell 2000 Value ETF IWN and the Vanguard Small-Cap Value ETF VBR track a similar index. While iShares Russell 2000 Value ETF has $11.84 billion in assets, Vanguard Small-Cap Value ETF has $26.96 billion. IWN has an expense ratio of 0.24% and VBR charges 0.07%.

Bottom-Line

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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