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New High Dividend ETF with Free Cash Flow Focus by Pacer (Revised)

With the global market being edgy since the start of this year, demand for value-oriented and high-yielding products is high now. Agreed, every storm ends sometime and risk-on sentiments will return to the market. But this year seems to be a little different with growth worries expected to remain in the marketplace for a longer time (read: Enjoy High Yield with These Low Beta EM Local Currency Bond ETFs).

This operating backdrop makes the launch of Pacer Global High Dividend ETF (PGHD) – launched by Pacer Funds Trust – extremely well timed. Let’s see how the fund is designed and what its prospects are.

PGHD in Focus

It is a strategy-driven, exchange-traded fund that looks to provide a steady stream of income and capital appreciation by picking companies with a high free cash flow (FCF) yield and an impressive dividend yield. The fund accomplishes its objective by tracking the Pacer Global Cash Cows Dividends 100 Index.

The index first tracks 1000 companies in the FTSE all-world developed large-cap index. From the initial universe, 300 companies with the highest trailing 12-month free cash flow yield are chosen. From this set, 100 companies having the highest trailing 12-month dividend yield are picked to form the underlying benchmark.
 
The fund currently holds 100 stocks. Currently, the U.S. is the top nation in the fund with over 35% weight followed by Switzerland (8.45%), the U.K. (7.14%) and Australia (6.77%). Sector-wise, Industrials (16.93%) and Consumer Staples (16.6%) dominate the fund with over 32% allocation, while Energy (5.8%) and Financials (0.82%) occupy the bottom two spots.

No stock in the fund accounts for more than 2.27% of the basket. Wal-Mart Stores, Altria Group and AT&T are the top three holdings of the fund. The fund charges 60 basis points in fees.
 
As the name suggests, the fund is rich in yields with the Pacer Global Cash Cows Dividends 100 Index offering 5.06% annual yield (as of January 29, 2016).

How Could it Fit in a Portfolio?
 
The fund could be a good choice for value investors with a global market focus. Against the present low-yield backdrop worldwide, the hunt for higher yield is common among investors. This, accompanied by the higher free-cash flow yield criteria, provides the portfolio a value quotient as these companies traditionally suffered less during the economic upheaval, per the factsheet (read: 3 Dividend ETF Winners Year to Date).

Also, the issuer went on explain that higher free cash flow generating companies are also great tools to tap growth opportunities as these in turn result in capital gains. Moreover, the fund’s exposure to numerous economies is expected to provide huge diversification benefits to investors (read: Growth ETFs Regain Momentum: Will This Last?).
    
However, investors should note that the ETF will be subject to severe currency risk. As such, the product is most suitable for long-term investors, willing to bear any currency volatility in the short run (read: Top and Flop Currency ETFs YTD).

ETF Competition

The high dividend yield space is chockablock with products. From that angle it wouldn’t be easy for the fund gain enough market share. So, the fund will have to sell the highest free-cash flow yield feature to hog investors’ attention.

This space is yet to be exploited. TrimTabs International Free-Cash-Flow ETF (FCFI) normally grabs the attention of investors interested in the free-cash flow related funds. FCFI looks to track the international companies with the highest free cash flow yields. But since FCFI yields only 1.21% annually (as of February 24, 2016) and charges 69 bps in fees, the newly launched PGHD has chances to score more, with increased yield and a lower expense ratio.

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(We are reissuing this article to correct a mistake. The original article, issued on February 29, 2016 which incorrectly mentioned that the fund is equal-weighted in nature, should no longer be relied upon.)

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TRIMT-INT FCF (FCFI): ETF Research Reports
 
PACR-GL HI DIV (PGHD): ETF Research Reports
 
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