Pacer Investment Fund
Annual Report 2015
Pacer Investment Fund
Annual Report 2015
Table of Contents
Page
I.
Student Management Team …………………………………..
3
II.
Letter from Managing Director ……………………………….
4
III.
Letter from Student Director …….……………………………
5
IV.
Discussion
VI.
Fund Purpose & Organization …………………………….
6
Fund Operations & Objectives …………………………….
7
Investment Strategy & Return …………………………….
8
The Year in Review ……………………………………….
9
Summary of Transactions …………………………………
10
Sector Holdings ……………………………………………
12
Financial Statements
Schedule of Investments …………………………………..
13
Change in Net Asset Value (NAV) ………………………..
15
VII.
Investment Outlook ……………………………………………
16
VIII.
Acknowledgements ……………………………………………
21
2
Pacer Investment Fund
Annual Report 2015
Student Management Team
Ken Doolittle
Student Director, Pacer Investment Fund
Graduate Assistant, Marywood University
B.S. Finance – Duquesne University, 2014
Sara Stellatella
Securities Manager, Pacer Investment Fund
Executive Secretary, Tobyhanna Army Depot
B.S. Exercise Science – East Stroudsburg University, 2008
AJ Traettino
Allocations Manager, Pacer Investment Fund
Senior Investment Operations Associate, Prudential Retirement
B.S. Accounting – Kings College, 2008
Cheyanne Johnson
Senior Investment Analyst, Pacer Investment Fund
Full Time Student, Marywood University
B.S. Business – Penn State University 2013
Dan King
Senior Investment Analyst, Pacer Investment Fund
Retirement Contract Associate, Prudential Retirement
B.S. Real Estate – Penn State University, 2004
Alicia Smith
Senior Investment Analyst, Pacer Investment Fund
Relationship Specialist, Prudential Retirement
B.S. Marketing – Bloomsburg University 2011
Joseph Ward
Senior Investment Analyst, Pacer Investment Fund
Inventory Control Manager, ShopRite Supermarkets
B.S. Management/Marketing – Penn State University 2013
3
Pacer Investment Fund
Annual Report 2015
Letter from Managing Director
Dear Pacer Fund Constituents,
At the start of 2015, many of us made resolutions to get more exercise – perhaps to regularly
go to the gym and jog on the treadmill. For me, I would much rather run around a tennis or
basketball court than jog in place for exercise – at least I feel like I am running somewhere.
Apparently, though, 2015 became a year in which the market needed to spend some time on
the treadmill – running and working up a sweat, but basically finishing where it started.
However, even in such an environment, there are always buying opportunities in which some
companies will substantially outperform and others will falter greatly. Trying to identify a few
of those winners (and avoiding the losers) is the key to a successful investment performance.
So, as an educator, I believe that there are always lessons to be learned, and 2015 was no
different. Our student managers faced big-picture questions about global economic growth,
changing interest rates, historically low oil prices, and political unrest. And there were more
precise questions about which sector might outperform in such an environment, which tech
company might ultimately win out, which companies might offer a “bargain” purchase, and
which surging companies might continue to show strong prospects.
These are challenging questions that offer tremendous learning experiences for the student
managers. Consequently, it is from this educational perspective that we must view the
performance of these student managers. As shown below, overall the Fund finished just above
the breakeven point, while achieving its ultimate goals of outpacing the benchmarks and
maintaining a risk level slightly below those targets.
Pacer Investment Fund vs. Benchmark Returns
Pacer Fund
S&P 500
Russell 3000
2015 Annual Return
0.09%
-0.73%
-1.47%
Std Dev of Returns
3.7%
3.9%
3.8%
Overall, the Fund continues to provide a truly unique educational
environment that integrates hands-on research and decision-making
experiences into the classroom and brings theory to application in
managing a real investment fund. Witnessing the evolution of our
students from first-time analysts struggling with the details of
financial models to portfolio managers who make the tough
decisions is a remarkable treat for me as an educator. I am
confident that it is this progression that will make all of our donors
proud of their investments in the Pacer Investment Fund.
Sincerely,
Art Comstock, Ph.D.
Managing Director, Pacer Investment Fund
4
Pacer Investment Fund
Annual Report 2015
Letter from Student Director
Dear Pacer Investment Fund Constituents,
After an impressive 2013, the US stock market trailed off in 2014, posting an average return.
Continuing the declining trend, the market slowed down even more in 2015. After posting
double digit returns in 2013 and 2014, the S&P 500 showed negative returns this past year,
with a -0.73% loss while the Russell 3000 was down -1.47%. The Pacer Fund, however,
outperformed both indexes in 2015, posting a 0.09% return. This follows the Fund’s strong
return of 5.7% in the prior year.
In addition to the core philosophies of long-term growth and investment in companies with
sound fundamentals, the Pacer Fund managers used 2015 to realign the Fund’s allocations
throughout each sector, actively shifting funds into sectors the managers believed would
outperform. Funds were shifted from the Industrial/Utilities sector to the financial and retail
sectors, and the portfolio also expanded upon its International sector.
In 2015, the Pacer Fund outperformed the benchmarks. Although the Fund’s return for the
year was small, it was about 0.5% higher than that of the S&P 500 and nearly 1.5% higher
than the Russell 3000. This achievement was accomplished with a smaller standard deviation
than both of the benchmarks. Although the Fund beat the benchmarks, it was a very volatile
year in which the Fund trailed the benchmarks for most of the first half of 2015. Going
forward, areas of focus include: increasing the beta of each sector and the Fund as a whole;
consolidation of funds into a few top performers in each sector; and attempting to identify
stocks that have underperformed and are poised for a rebound.
Heading into 2016, Pacer Fund managers remain optimistic. Another bull market in 2016
would mark seven in a row and investors would reap the benefits. The strength of the US
dollar, the rate hikes from the Federal Reserve, a strong housing market, and declined
unemployment are all potential headwinds in 2016. While the economy will probably not see
returns as high as it did in 2013, the Pacer Fund managers expect a stronger return than 2015.
International markets that look strong in 2016 are Mexico and China. The Pacer Fund may
look at some securities in these foreign markets to elevate the Fund’s return in 2016.
Lastly, the Fund managers and I would like to extend thanks to all of
the individuals who have supported the Pacer Investment Fund
throughout the years. The Fund has been a valuable experience for me,
as it allowed me to expand my knowledge of investments while
creating long term relationships with everyone else involved. I have
already and will continue to use skills I learned from managing the
Fund in my personal and professional life.
Sincerely,
Ken Doolittle
Student Director, Pacer Investment Fund
5
Pacer Investment Fund
Annual Report 2015
Fund Purpose & Organization
Fund Purpose
The purpose of the Pacer Investment Fund is to provide students in the School of Business &
Global Innovation with an opportunity to gain experience in the management of an investment
portfolio. The Fund is a student-managed fund created to enable students to gain exposure to
the structure and operations of the financial services industry and to gain real-world experience
in the management of an investment portfolio. The educational mission of the Fund is to offer
students a thorough grounding in the modern process of analyzing the investment merits of
individual securities, and of managing investment portfolios. The graduate MBA degree with a
concentration in Finance and Investments and the undergraduate Financial Planning major at
Marywood University are designed by faculty to provide information on relevant financial
theory and practice – including the qualitative and quantitative aspects of investment
management. Student managers of the Pacer Investment Fund regularly meet with faculty and
investment professionals, and they are required to file reports, make formal presentations,
monitor and evaluate investment performance, and prepare periodic reports.
Fund Organizational Chart
Board of Managers
Advisory
Board
Student Director
Allocations
Manager
Securities
Manager
Sector Managers
and Student Teams
6
Pacer Investment Fund
Annual Report 2015
Fund Operations & Objectives
Fund Operations
The management team of the Pacer Investment Fund consists of the Student Director,
Allocations Manager, Securities Manager, and several Senior Investment Analysts grouped by
industry sector. Within each sector, teams of undergraduate students perform security analysis
in an effort to assist the decision-making process of the managers.
After reviewing the research, the Senior Investment Analysts make their recommendations to
the Securities Manager who decides which securities have the most investment merit. The
Allocations Manager evaluates the portfolio and makes recommendations to the Student
Director regarding the proportional allocation of assets within the Fund. Upon receiving input
from the Securities Manager and the Allocations Manager, the Student Director takes the final
investment decisions to the Managing Director (and the Board of Managers). The Student
Director also oversees the development of the financial statements and presentations.
The Investment Advisory Board consists of faculty members and industry professionals, and it
is responsible for reviewing the fund’s financial and academic performance. They provide
feedback and advice to the student teams and managers and are available for any questions the
students may have.
The Board of Managers consists of three members: the Director of the Finance Program
(currently Dr. Art Comstock), the Dean of the College of Liberal Arts & Sciences (currently
Dr. Fran Zauhar), and the Vice President of Business Affairs (currently Mr. Joe Garvey).
Their responsibilities are to review any decisions for approval or changes suggested by the
student teams and managers and to provide general oversight of the Fund. The Managing
Director (currently Dr. Comstock) is in charge of formulating the investment policies and
strategies of the Fund and is the only individual that has the authority to contract for the Fund.
Fund Objectives
During our inaugural year, the Fund initiated the investment goal of “capital preservation
with moderate growth.” In order to measure the success of achieving this goal, the managers
established a general investment objective of an annual return within a range of +/-3% relative
to the S&P500 return with a risk level similar to that of the overall market.
In order to build upon early successes and seek some higher potential returns, that goal was
slightly altered in 2008 to “capital preservation with moderately aggressive growth”, and a
somewhat higher level of risk was accepted in order to possibly achieve greater growth.
However, in the more volatile recent years, stability was placed at a premium, successfully
limiting losses in 2008 but also limiting some of the recovery gains in 2009. Since 2010, a
conscious effort was made to return to the overall objective of “capital preservation with
moderately aggressive growth” by adding some smaller, technology-oriented companies and
other higher-beta businesses with greater growth potential. In general, this objective has been
successfully implemented over the past few years, although the Fund managers consistently
review the portfolio holdings in order to ensure compliance with this goal.
7
Pacer Investment Fund
Annual Report 2015
Investment Strategy & Return
Investment Strategies
In order to achieve its objectives, the Pacer Investment Fund generally adheres to three
research methods including Technical Analysis, Fundamental Analysis, and the Buffettology
Approach.
In utilizing Technical Analysis, the student teams and Fund managers have engaged in several
price trend identification models, including momentum and contrarian strategies, moving
average, and break-out trading rules. This research represents the least relied upon method in
the decision-making process, but the managers have attempted to balance the portfolio with a
few securities that are supported by technical models.
More heavily utilized, Fundamental Analysis involves the evaluation of a firm’s financial
health and future prospects. The Fund’s objective is to invest in companies that have solid
financial fundamentals in the areas of liquidity, asset management, debt management, and
profitability, and whose price valuations offer room for growth within the framework of
Benjamin Graham.
The investing philosophy of Warren Buffett (i.e., “Buffettology”) is also implemented by the
Fund managers for identifying investment potential. Buffett is a value investor who chooses
securities based on a set of guiding principles that represent what he considers to be strong
“business economics”. These principles, in particular the long-term stability of earnings per
share and a high return on equity, have greatly influenced the investment decisions of the
managers and will likely continue to do so in the future.
2015 Return Data
PACER FUND
S&P 500
RUSSELL 3000
Annual Return
Standard Deviation
0.09%
-0.73%
-1.47%
3.7%
3.9%
3.8%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%
PACER FUND
S&P 500
-2.00%
8
RUSSELL 3000
Pacer Investment Fund
Annual Report 2015
The Year in Review
A Tale of Two Markets
During the past year, the Pacer Fund managers maintained their strategy of focusing on longterm investments, while purchasing securities with slightly lower risk. Managers continued to
utilize the Fund’s established proposal spreadsheets to present and discuss new stock
fundamentals and market trends. This year, managers placed additional focus on stocks that
were trading at relative lows yet still had sound fundamentals.
Overall, the market displayed a below-average year with several months of negative returns.
The second half of the year proved most volatile for the Pacer Fund and the benchmarks.
August produced the lowest return of the year for the benchmarks and the Fund, with the S&P
losing -6.0%, the Russell 3000 down -6.24%, and the Pacer Fund down -7.36%. Although this
was the lowest month of the year, it was quickly followed up by a very successful October,
with returns of 8.3%, 7.8%, and 7.4% for the S&P 500, Russell 3000, and the Pacer Fund,
respectively.
As shown by the two “swing months”, the Fund did not deviate as much as the benchmarks. In
some months, such as October, this hindered our gains, but ultimately proved beneficial as the
Fund outperformed both benchmarks for the year, showing a positive return while the
benchmarks produced losses. The lower standard deviation of the Fund was intentional. One of
the goals heading into 2015 was to lower the Fund’s beta to reduce risk. This feat was
accomplished by reducing the Fund’s beta to 0.98 by year-end, a contrast from the Fund’s beta
of 1.33 at the end of 2014.
Although the final result was greater than both benchmarks, the Pacer Fund did not outperform
for the entire year. The Fund trailed the S&P 500 for 5 months and it trailed the Russell 3000
for 6 months. Q4 was the Fund’s best quarter relative to the benchmarks, as the Fund
outperformed the benchmarks in 3 of the final 4 months. A portion of the Fund’s year-end
success can be attributed to a bigger focus on technical analysis. In the later months of the
year, the managers created stock screens and identified securities that were attractively priced.
The managers also focused on sector reallocation throughout 2015 by decreasing funds in the
Industrial/Utilities sector, dropping it from 22.6% of total holdings at the end of 2014 to just
12.6% of total holdings by the end of 2015. These extra funds were reallocated into the sectors
that showed the most investment promise, such as Retail, International, and Financial. The
retail sector increased from 13% to 17% of total holdings throughout the year, while Financial
increased from 14.4% to 18.6% and International increased from 8.8% to 10.9% by year end.
Overall, 2015 was a successful year, as the Fund achieved its ultimate goal of outperforming
both benchmarks. It was also a great learning experience for the student managers. The
volatility in the market reinforced the idea of avoiding overreactions. Additionally, managers
explored and analyzed more technical analysis techniques this year. All of the diverse
techniques and strategies helped to guide the Fund to a positive return for 2015.
9
Pacer Investment Fund
Annual Report 2015
Summary of Transactions
Sector
TECHNOLOGY
EMC Corp
EMC Corp
EMC Corp
F5 Networks
Apple
Apple
Apple
Apple
Apple
Micron Technology
FireEye Inc
Skyworks Solutions
Skyworks Solutions
Microsoft
Microsoft
Oracle
IND GOODS / UTIL
Danaher Corp
ITC Holdings Corp
ITC Holdings Corp
ITC Holdings Corp
ITC Holdings Corp
NextEra Energy
NextEra Energy
NextEra Energy
Chemed Corp
Northrop Grumman
Northrop Grumman
Northrop Grumman
ConocoPhillips
ConocoPhillips
Honeywell Int’l Inc
Halliburton Company
Chesapeake Energy
Consolidated Edison
Consolidated Edison
US Silica Holdings
Cummins Inc
CONS GOODS
Nike
Nike
Nike
Nike
Amazon
Amazon
Decker’s Outdoor
Netflix
Netflix
Netflix
Netflix
Netflix
WhiteWave Foods
WhiteWave Foods
Monster Beverage
VF Corp
GoPro Inc
GoPro Inc
Tyson Foods
Purchase
Date
Shares
Purchased
Price per
Share
Purchase
Value
12/12/2013
3/21/2014
10/17/2014
10/17/2014
11/13/2014
1/22/2015
6/15/2015
9/14/2015
11/10/2015
3/5/2015
3/10/2015
7/8/2015
9/14/2015
9/14/2015
12/9/2015
12/9/2015
440
175
185
90
90
40
30
85
25
200
120
50
60
230
175
250
$23.25
$28.00
$27.12
$111.25
$111.81
$120.05
$126.13
$116.51
$116.90
$29.59
$42.00
$97.22
$89.83
$43.43
$55.44
$38.62
$10,240.00
$4,909.99
$5,027.19
$10,022.49
$10,072.89
$4,811.99
$3,793.89
$9,913.34
$2,932.49
$5,927.99
$5,049.99
$4,870.99
$5,399.79
$9,998.89
$9,711.99
$9,664.99
2/7/2014
8/26/2013
2/28/2014
4/11/2014
5/9/2014
10/26/2010
4/11/2014
5/9/2014
5/9/2014
6/6/2014
9/14/2015
12/9/2015
12/12/2013
2/5/2015
10/17/2014
6/15/2015
3/5/2015
7/8/2015
9/14/2015
7/8/2015
12/9/2015
135
50
100
135
105
65
50
40
70
50
30
25
75
80
110
260
390
135
80
300
70
$74.58
$87.00
N/A – Split
$36.39
$37.27
$54.70
$95.79
$98.63
$85.07
$124.11
$168.42
$187.16
$69.22
$67.22
$89.48
$42.21
$15.42
$61.00
$62.41
$25.76
$89.65
$10,078.28
$4,359.99
N/A - Split
$4,922.51
$3,923.06
$3,565.49
$4,799.49
$3,955.16
$5,964.88
$6,215.48
$5,062.59
$4,688.99
$5,201.49
$5,387.59
$9,852.79
$10,963.72
$6,023.79
$8,244.99
$5,002.79
$7,737.99
$6,285.49
2/7/2014
5/9/2014
9/14/2015
12/23.2015
10/17/2014
2/5/2015
10/17/2014
10/17/2014
4/1/2015
6/15/2015
7/14/2015
9/14/2015
10/17/2014
10/20/2015
6/8/2015
7/8/2015
11/10/2015
12/9/2015
12/9/2015
110
65
45
130
30
15
110
40
25
5
180
100
300
125
55
70
150
165
85
$71.96
$73.15
$111.51
N/A - Split
$306.82
$365.90
$90.44
$359.95
$422.00
$646.64
N/A - Split
$96.85
$33.68
$40.00
$125.00
$71.09
$25.90
$17.67
$52.32
$7,925.59
$4,764.73
$5,027.94
N/A - Split
$9,214.59
$5,498.49
$9,958.39
$14,407.99
$10,569.98
$3,243.19
N/A - Split
$9,694.99
$10,113.99
$5,009.99
$6,884.99
$4,986.29
$3,894.99
$2,925.54
$4,457.19
10
Date of
Sale
Shares
Sold
Price per
Share
Sale
Value
Gain
(Loss)
12/9/2015
1/22/2015
8/21/2015
800
90
80
$25.86
$108.60
$108.13
$20,677.62
$9,763.80
$8,640.56
$500.44
($258.69)
($294.25)
7/8/2015
11/10/2015
200
120
$17.96
$23.59
$3,581.94
$2,820.75
($2,346.05)
($2,229.24)
7/8/2015
390
$33.29
$12,972.87
($232.69)
3/5/2015
155
$101.83
$15,773.36
$3,453.22
6/15/2015
12/9/2015
7/8/2015
7/8/2015
155
110
260
390
$63.28
$102.10
$41.34
$11.22
$9,798.24
$11,220.80
$10,738.21
$4,365.72
($790.84)
$1,368.01
($225.51)
($1,658.07)
9/14/2015
300
$17.61
$5,272.91
($2,465.08)
8/24/2015
90
$99.15
$8,913.34
$2,446.93
1/12/2015
30
$289.85
$8,685.31
($529.28)
1/15/2015
3/6/2015
110
40
$85.99
$445.00
$9,448.70
$17,781.10
($509.69)
$3,373.11
8/24/2015
105
$85.53
$8,968.87
$2,062.29
8/24/2015
12/9/2015
150
100
$38.38
$37.64
$5,746.90
$3,753.94
$689.91
$395.93
12/9/2015
70
$63.80
$4,455.92
($530.37)
Pacer Investment Fund
Annual Report 2015
Summary of Transactions
Sector
INTERNATIONAL
Baidu, Inc.
Baidu, Inc
Baidu, Inc
HDFC Bank
HDFC Bank
HDFC Bank
HDFC Bank
Alibaba Group
Caeserstone
Nice Systems
Nice Systems
RETAIL
McDonald's Corp.
McDonald's Corp.
McDonald's Corp.
BestBuy
BestBuy
Lowe's
Lowe's
Lowe's
Lowe's
Lowe's
Lowe’s
Lowe’s
Lowe’s
Walmart
Target
Target
Ulta Salon
Ulta Salon
Chipotle
Bed Bath and Beyond
FINANCIAL
Prosperity Bancshares
Encore Capital Group
Fed Nat’l Holding Co
Fed Nat’l Holding Co
MasterCard
MasterCard
MasterCard
MasterCard
Digital Realty Trust
Digital Realty Trust
Westpac Banking Corp
HEALTHCARE
United Health Group
United Health Group
United Health Group
United Health Group
Biogen Inc
MannKind Corp
Abbott Laboratories
Charles River Lab
Purchase
Date
Shares
Purchased
Price per
Share
Purchase
Value
2/7/2014
2/5/2015
12/9/2015
7/10/2014
3/5/2015
4/13/2015
9/14/2015
11/13/2014
9/14/2015
10/14/2015
12/9/2015
65
20
15
200
80
85
90
65
250
90
40
$156.44
$217.35
$204.00
$47.01
$62.49
$58.33
$57.22
$115.00
$40.00
$55.55
$58.30
$10,178.59
$4,356.99
$3,069.99
$9,411.99
$5,009.19
$4,968.04
$5,159.79
$7,484.99
$10,009.99
$5,009.49
$2,341.99
2/5/2007
11/19/2007
11/30/2010
2/7/2014
4/11/2014
6/29/2010
10/26/2010
11/30/2010
10/2/2012
11/6/2012
5/9/2014
2/5/2015
6/15/2015
3/5/2015
7/8/2015
9/14/2015
7/8/2015
9/14/2015
10/14/2015
11/10/2015
45
100
20
250
225
100
160
65
130
95
110
70
55
60
60
60
40
60
20
150
$44.76
$58.84
$77.73
$23.81
$25.34
$20.25
$21.73
$21.85
$30.39
$33.10
$45.08
$70.75
$68.83
$83.29
$83.68
$77.65
$158.01
$164.77
$733.50
$59.93
$2,014.29
$5,883.98
$1,554.60
$5,962.49
$5,711.27
$2,025.00
$3,476.80
$1,420.25
$3,960.69
$3,154.49
$4,968.75
$4,962.49
$3,795.56
$5,007.39
$5,030.79
$4,668.99
$6,330.39
$9,896.19
$14,689.98
$8,999.49
7/10/2014
10/17/2014
12/4/2014
2/5/2015
3/5/2015
6/15/2015
9/14/2015
11/10/2015
7/8/2015
11/10/2015
9/14/2015
100
240
200
165
55
160
110
50
75
80
455
$61.21
$42.00
$23.94
$30.35
$92.00
$92.37
$91.28
$99.97
$68.56
$71.86
$21.95
$6,130.99
$10,089.99
$4,797.99
$5,017.74
$5,069.99
$14,788.87
$10,050.79
$5,008.49
$5,151.90
$5,758.79
$9,997.24
5/12/2011
7/15/2011
11/22/2011
4/11/2014
11/13/2014
2/5/2015
3/5/2015
9/14/2015
40
50
90
50
25
700
105
75
$49.50
$51.92
$44.34
$79.42
$322.25
$6.95
$46.96
$70.87
$1,989.98
$2,605.98
$4,000.59
$3,980.94
$8,066.24
$4,874.99
$4,940.79
$5,325.24
11
Date of
Sale
Shares
Sold
8/12/2015
40
$160.00
$6,389.89
$142.28
1/15/2015
200
$55.00
$10,989.76
$1,577.77
12/9/2015
65
$84.37
$5,473.95
($2,011.04)
8/24/2015
80
$90.00
$7,189.87
$3,106.19
7/8/2015
475
$33.54
$15,921.21
$4,247.45
6/21/2013
225
$39.44
$8,864.08
$4,122.83
7/8/2015
60
$73.20
$4,381.92
($625.47)
11/10/2015
120
$76.42
$9,160.24
($539.54)
4/13/2015
6/15/2015
100
240
$52.16
$41.85
$5,205.91
$10,034.18
($925.08)
($55.81)
11/10/2015
365
$30.90
$11,268.30
$1,452.57
8/24/2015
110
$83.87
$9,215.54
($944.79)
120
$95.00
$11,389.80
$5,453.65
25
$375.00
$9364.83
$1,298.59
8/24/2015
4/28/2015
Price per
Share
Sale
Value
Gain
(Loss)
Pacer Investment Fund
Annual Report 2015
Sector Holdings
Sector
Technology
Industrial / Utilities
Consumer Goods
Retail
Financial
Healthcare
International
12/31/14 Value
$45,468.05
$81,633.35
$69,580.20
$48,424.00
$51,884.25
$31,736.95
$31,724.15
Total Equity Value
$360,450.95
%
12.6%
22.6%
19.3%
13.4%
14.4%
8.8%
8.8%
12/31/15 Value
$60,052.60
$52,342.60
$75,044.50
$70,849.80
$77,577.90
$35,186.20
$45,337.00
%
14.4%
12.6%
18.0%
17.0%
18.6%
8.5%
10.9%
$416,390.60
0.96
Sector Holdings 12/31/15
International, 10.9%
Technology, 14.4%
Healthcare, 8.5%
Industrial/Utilities,
12.6%
Financial, 18.6%
Consumer Goods,
18.0%
Retail, 17.0%
12
Avg Beta
0.89
0.75
0.99
0.75
0.93
1.41
1.65
Pacer Investment Fund
Annual Report 2015
Schedule of Investments
UNREALIZED
GAIN/LOSS
2015
ANNUAL
INCOME
Abbott Laboratories
$
(225.24)
$ 109.20
$
4,940.79
-4.6%
Amazon.com, Inc.
$
4,375.22
$
$
5,763.13
75.9%
Apple, Inc.
$
(2,884.64)
$ 395.20
$ 22,884.24
-12.9%
Baidu, Inc.
$
0.58
$
-
$ 11,341.82
2.8%
Bank of America
$
9,399.43
$ 345.00
$ 19,632.32
47.9%
Bed Bath & Beyond Inc
$
(1,761.99)
$
-
$
-19.6%
Caesarstone
$
825.01
$
-
$ 10,009.99
8.2%
Charles River Laboratories
$
704.01
$
-
$
5,325.24
13.2%
Chemed Corp
$
4,521.12
$
67.20
$
5,964.88
75.8%
Chipotle Mexican Grill
$
(5,092.98)
$
-
$ 14,689.98
-34.7%
Consolidated Edison Co
$
570.27
$ 559.00
$ 13,247.78
4.3%
Cummins Inc
$
(124.79)
$ 273.00
$
6,285.49
-2.0%
Danaher Corp
$
2,460.52
$
72.90
$ 10,078.28
24.4%
Digital Realty Trust
$
810.32
$ 527.00
$ 10,910.78
10.1%
GoPro Inc
$
(1,147.38)
$
-
$
-30.7%
HDFC Bank
$
570.98
$
90.53
$ 15,137.02
3.8%
Lowes
$
8,439.78
$ 375.20
$ 17,033.62
49.5%
MannKind Corp
$
(3,959.99)
$
$
4,874.99
-79.2%
MasterCard Inc
$
97.80
$ 201.40
$ 25,702.60
1.15%
McDonalds Corp
$
4,652.72
$ 302.60
$
5,389.18
86.3%
Microsoft Corp
$
2,758.52
$ 583.20
$ 19,710.88
27.6%
Monster Beverage
$
1,307.81
$
-
$
6,884.99
19.0%
Netflix.com, Inc.
$
6,324.73
$
-
$ 17,123,17
36.9%
Nice Systems
$
100.12
$
85.15
$
7,351.48
3.0%
Nike Inc.
$
5,016.31
$ 166.40
$ 11,233.69
44.7%
Northrop Grumman
$
3,857.99
$ 336.00
$ 15,967.06
33.9%
Oracle Corp
$
(532.49)
$ 150.00
$
9,664.99
-5.5%
Skyworks Solutions
$
(1,819.48)
$ 114.40
$ 10,270.78
-17.7%
Tyson Foods
$
75.86
$
51.00
$
Ulta Salon
$
2,273.42
$
-
UnitedHealth Group
$
6,292.40
Westpac Banking Corp
$
1,027.41
Whitewave Foods
$
113.60
STOCK
13
-
-
COST BASIS
8,999.49
6,820.53
SINCE
INCEPTION
RETURN
4,457.19
1.7%
$ 16,226.58
14.0%
$ 220.00
$
6,648.00
94.6%
$ 622.90
$
9,997.24
10.3%
$
$
6,695.65
15.4%
-
Pacer Investment Fund
Annual Report 2015
Schedule of Investments
Schedule of Investments
Whitewave Foods Company
Westpac Banking Corporation
United Healthcare
Ulta Salon
Tyson Foods Inc.
Skyworks Solutions
Oracle Corporation
Northrop Grumman Corp
Nike, Inc
Nice Systems
Netflix.com Inc
Monster Beverage
Microsoft
McDonalds Corp
Mastercard Inc.
MannKind Corporation
Lowe's
HDFC Bank
GoPro, Inc.
Digital Reality Trust
Danaher Corp.
Cummins Inc.
Consolation Edison
Chipotle Mexican Grill
Chemed Corp.
Charles River Laboratories
Caesarstone
Bed Bath & Beyond, Inc.
Bank of America
Baidu, Inc
Apple, Inc.
Amazon
Abbott Labs
-100.0%
-50.0%
0.0%
50.0%
Year-to-Date Return
14
100.0%
150.0%
Pacer Investment Fund
Annual Report 2015
Change in NAV
CHANGE IN MONEY MARKET / CASH
Investment Income
Dividend Income
Interest Income
Expenses
Commission Fees
Registration Fees / Taxes Withheld
Net Income
Deposit
Securities Purchased
Securities Sold
NET CHANGE IN MONEY MARKET / CASH
FOR THE PERIOD ENDING:
Dec. 31, 2014
Dec. 31, 2015
$
$
4,806.83
3.87
$
$
5,124.63
6.82
$
(889.11)
$
(7.40)
$
3,914.19
$
25,000.00
$ (359,096.75)
$ 335,940.10
$
5,757.54
$
(969.03)
$
(12.24)
$
4,150.18
$ 49,392.03
$ (365,869.03)
$ 305,182.59
$
(7,144.23)
CHANGE IN STOCK PORTFOLIO VALUE
$
40,745.61
$
56,914.64
CHANGE IN NET ASSET VALUE (NAV)
$
46,503.15
$
49,770.41
Beginning Balance
Ending Balance
Difference
$ 374,441.23
$ 420,944.38
$ 46,503.15
15
$ 420,944.38
$ 470,714.79
$ 49,770.41
Pacer Investment Fund
Annual Report 2015
Investment Outlook
General Economy
In 2016, economic growth looks to be stronger than the previous year. The consensus seems to
be approximately 2.5% real GDP growth in the US. The International Monetary Fund predicts
global economic growth of 3.8% in 2016. Most of Europe is still struggling to stabilize growth
since the world economic recession in 2008, and the managers do not foresee any substantial
changes in that region. The United Kingdom is a region that may be volatile in 2016 and
managers may look to other international markets. Mexican and Chinese markets look to be
strong in 2016. China’s economic growth is expected to be about 6% in 2016.
One of the biggest impacts on the market this year will be interest rates. The rate has been
locked between 0% and 0.25% since 2008. The managers expect short-term and long-term
interest rates to increase in 2016, which should have a positive impact on the financial sector.
Minimum wage is also expected to increase drastically in 2016. This wage hike may hinder
some retail and restaurant companies who are forced into these higher wages and in turn
thinner bottom lines. This increase could also spur increases in inflation and unemployment.
Another key investment factor in 2016 is the upcoming presidential election. Regardless of the
winning candidate, recessions and bear markets tend to start in the first half of presidential
terms. The managers will pay attention to the outcome of this year’s election to see how the
new president’s personal beliefs and policies will impact the market – especially relative to
healthcare and business innovation.
Financial
The financial sector is poised for another successful year in 2016, with some of the highest
sector returns expected throughout the year. A major factor for the financial sector in 2016 is
the potentially increasing Federal Funds Rate. Based on historical data, financials have been a
top performer during the initial 12 months following a rate hike. Another point of interest is
that although regulations have been tough on the financial sector, these regulations should not
get worse in 2016, which would be an improvement from previous years. These facts coupled
with banks and consumers having healthy balance sheets should allow lending to increase,
proving beneficial to the financial sector and the overall economy.
The financial sector of the Fund took on some new holdings in 2015 while maintaining one of
its long-term holdings. Digital Reality Trust and Westpac Banking Corporation both provided
the Fund with double-digit returns. MasterCard also provided a positive return for the fund in
2015 while Bank of America showed a small loss. Going forward, we may look to put
additional funds into the best holdings from this sector or even expand with additional
securities. The managers believe 2016 will be a strong year for the financial sector.
16
Pacer Investment Fund
Annual Report 2015
Investment Outlook
Retail and Restaurant
The outlook for the retail sector remains stable with sales projected to increase 2.4% in 2016.
Sales growth will occur due to a potential decrease in the US unemployment rates, higher
wages, and an increase in disposable income. Although the Federal Reserve is expected to
increase interest rates, the retail sector should not be greatly affected by any such change. The
rise in interest rates indicates that there is a potential uptick in economic growth and consumer
confidence which should create a strong sense of job security and, ultimately, more consumer
spending within the sector.
Sales trends are expected to continue to rise in the US restaurant industry in 2016. Some of the
factors resulting in this growth include potentially lower US unemployment rates resulting in
higher disposable income that can be spent for dining away from home. In order for the
restaurant industry to continue to grow, it is important for restaurants to focus on food quality
and technology, including app-only services. Many such establishments are already offering
restaurant-quality food with delivery, thus pressuring their brick-and-mortar counterparts.
Industrial and Utilities
According to the Federal Reserve Board of Governors’ Industrial Production and Capacity
Utilization Report, industrial production in the US declined slightly in October and November
2015. Also, unusual high winter temperatures for much of the US, has kept heating costs
relatively low thus lowering the utilities index by 4.3% compared to last year. Another major
factor contributing to the lowered utilities index is the oversupply of crude oil worldwide and
in the US. OPEC has vowed to keep current production levels high but has hinted at revisions
to their strategy by slowing output at a measured pace. Due to these higher levels of oil
production since late 2014, pressures have been put on US oil and gas companies, especially
smaller operations, to remain profitable.
2016 may hold a bottoming-out period for oil commodity pricing. It is unknown when OPEC
will actually start to temper oil production, but when it does occur, oil prices will rise steadily
and have a rising domino effect on other energy prices. Due to the depressed market for
energy pricing, some companies have become extremely efficient with their recovery and
servicing operations. In a future environment when prices do rise, this could lead to potential
high profits for these companies. Generally, utilities are expected to remain steady or slightly
decline for 2016 due to “energy conservation efforts and a tepid economic recovery” according
to Moody’s Investor Service.
Overall for 2016, the US economy will have steady, but slow growth for industrial
conglomerate companies as well as defense companies. Strong dollar pressures will continue
to hamper international profits and US growth opportunities will remain flat or slightly higher
than 2015. All companies in the Industrial and Utilities sector should be looked at with long
term hold strategies. With OPEC recently suggesting its oil estimates for the year 2020 are at
$90+ per barrel, 2016 may be a good opportunity to purchase oil industry stocks for long-term
holdings.
17
Pacer Investment Fund
Annual Report 2015
Investment Outlook
Technology
During 2015, the Technology sector of the Pacer Fund showed frequent turnover as managers
hunted for the most innovative and expanding companies. The only security that remained for
the entire year is Apple (purchased in early 2015). The three stocks sold due to subpar results
and diminishing prospects were FireEye Inc, EMC Corp, and Micron Technology.
The securities replacing them were Oracle Corp, Skyworks Solutions, and Microsoft. These
three companies all have strong financials that should continue to drive their stock price
upward through the next several quarters. Oracle manufactures and sells a long line of
database software and other systems to companies across the world. It has shown strong
financials over the past 5 years and has had its stock price increase over that time. Skyworks
Solutions manufactures and markets semiconductors worldwide, and like Oracle, they have
also shown strong financials over the past five years. Many of the products by Skyworks are
items included within smart phones and tablets. The final tech stock added to the Pacer Fund
was Microsoft. In addition to their famous Windows operating system, Mircosoft has also
experienced substantial successes with their game console Xbox. Microsoft has consistently
maintained strong financials and is a good long-term hold in an uncertain market.
Overall, the technology sector performed solidly throughout the year until December. The
market as a whole took a big hit during this month, and that loss in confidence affected the
tech sector more than others. Going forward, the technology sector should continue to have an
upward trend in 2016 although it will depend greatly on investor confidence and business
investment throughout the entire market.
Healthcare
Healthcare is a distinctive sector because it is affected by cyclical and secular trends. The
sector is cyclical due to reliance upon regulation, policy, and government spending. However,
it is also secular because it consists of companies who produce necessity medications
regardless of the economy (i.e., highly inelastic demand).
Analysts suggest that long-term growth is essential to positive healthcare industry performance
and they caution investors against short-term “fad” stocks. In 2016, the healthcare sector is
expected to remain turbulent with further sector defragmentation and the consolidation and
realignment of healthcare providers, the expanding global market, and the US political
environment. The industry is also in transition toward a practice of Value-Based Care (VBC),
a focus on the quality and personalization of care demanded by an increasing cost-conscious
population. VBC includes industry features such as telehealth and telemedicine, electronic
patient records, and wearables. The healthcare sector continues to see positive influence from
the enrollment of healthcare coverage – approximately six million people have enrolled in
coverage for 2016 on the federal exchanges; the government anticipates more than ten million
people will enroll by year end. The Fund will continue to invest in secular industries within
the healthcare sector during 2016 and focus on maintaining a balanced portfolio by
capitalizing on defragmentation, personalized healthcare, and increased insurance enrollment.
18
Pacer Investment Fund
Annual Report 2015
Investment Outlook
Consumer Goods
The 2016 outlook for the consumer goods sector is slightly optimistic. Coming off a strong
performance in 2015, it can be expected that opportunities for growth still remain. Some of the
driving factors that helped push the sector during the past year were low commodity prices,
inflation, interest, and unemployment rates. Leading into 2016, consumers are still presented
with additional discretionary income as a result of a slight upswing in the economy over the
second half of 2015. It can be assumed that if commodity prices remain low, consumer
spending will continue to boost the sector.
Although we remain optimistic, factors such as rising interest rates and global uncertainty
cannot be overlooked. Reviewing historical data of business cycles and sector performance
during periods of economic recovery, consumer goods have performed strong initially but fell
during latter stages of the cycle. At this point, economists believe that we are nearing the
midpoint of the cycle, therefore indicating a potential downturn in this sector.
International
As a whole, the global market this coming year will be largely dependent on China, the United
States, and Europe. Most experts are predicting a disappointing year overall with only 3.6%
global growth. There is still a great feeling of uncertainty and volatility with China’s continued
economic slowdown. Questions remain about how much their growth will slow, with current
growth hovering around 5%. However, China still does have the ability to decrease their
interest rates along with implementing more fiscal policy measures to help improve their
economy.
The incremental interest rate increases in the United States could also impact emerging
markets that have their debt in dollars, with the dollar remaining high against their falling
currency values. However, the positive side for these countries is that the strong dollar will
make international exports (i.e., US imports) cheaper and thus more attractive. The slowing of
global trade will continue to hurt the economies that heavily rely on raw material prices. Oil
prices are continuing to stay historically low, and with no production agreement in sight, it is
expected that they will continue to stay low for the foreseeable future which could benefit the
global economy. The countries in the Eurozone will continue to struggle throughout 2016 but
will continue to use quantitative easing to improve conditions.
Although international stocks may appear to be more volatile this year, overall they are still a
strong investment offering above-average potential returns. Consequently, the Fund managers
will continue to closely monitor opportunities, and the sector should continue to see increasing
allocations within the Pacer Investment Fund.
19
Pacer Investment Fund
Annual Report 2015
Investment Outlook
Future Directions
The outlook for the stock market in 2016 is mixed, with guarded optimism for some sectors
and concern for others. In 2016, the Fund will look to take advantage of expected growth in
the financial, technology, and healthcare sectors. 2015 saw a decline in the percentage of the
Fund allotted to the Healthcare sector, and the managers will look to add to this sector in 2016.
Oil prices are expected to remain low throughout 2016 and thus the Fund managers will limit
investments in the industrial/utilities sector and instead invest funds in more promising sectors.
Additionally, job growth and an increase in wages should continue to positively impact
consumer spending. The housing market also looks to carry its momentum from 2015
throughout the current year, namely due to millennials coming of age and stimulating the
housing market. If the growth trend continues, the bull market will turn seven this year,
making it the third longest in 80 years.
The global economy may struggle in 2016, but the managers believe that international markets
such as Mexico and China will prosper. The managers also expect the price of oil to remain
low in 2016 which typically bolsters global economic growth in the short term.
For 2016, the Pacer Fund managers will attempt to identify more potential holdings using
specific fundamental criteria within stock screeners, with an increasing emphasis on the
technical analysis of such securities. Beta will be another area that the managers will monitor
closely throughout 2016. In 2015, the managers’ goal was to decrease the Fund’s beta in order
to reduce some volatility during the expected uncertain market environment. At the end of
2015, the Fund’s beta, was 0.98, significantly lower than the beta at the end of 2014 (1.33). In
the upcoming year, the managers will look to gradually increase beta and take advantage of
higher expected returns. The managers will also continue to analyze stop-loss and limit-to-buy
orders in order to minimize losses and purchase securities at attractive prices during “off”
weeks. The managers feel strongly that sectors poised for growth include financial, healthcare,
and technology, and they remain confident that our commitment to research and detailed
financial analysis will continue to help maintain capital preservation with moderately
aggressive growth throughout 2016.
20
Pacer Investment Fund
Annual Report 2015
Acknowledgements
From the Student Managers:
The student managers of the Pacer investment Fund would like to again acknowledge the kind
generosity of the Fund donors, Mr. Michael Murray, Mr. Michael Insalaco, and Ms. Pia
Ferrario. Without their vision and financial commitment, the hands-on experiences that the
managers have received over the past several years would not have been possible.
The student managers would also like to recognize the knowledgeable instruction and
guidance that they have received from the Managing Director, Dr. Art Comstock, and all of the
School of Business & Global Innovation professors while matriculating within the MBA
Program at Marywood University. Their enthusiasm and dedication to ensuring student
success is inspiring.
From the Managing Director:
The Managing Director of the Pacer Investment Fund, Dr. Art Comstock, would like to extend
a sincere message of appreciation for the support of numerous key individuals that have helped
to transform this vision into a reality. Fund donors, Mr. Michael Murray, Mr. Michael
Insalaco, and Ms. Pia Ferrario cannot be thanked enough for their exceptional generosity in
establishing the endowment and supporting the educational opportunities available to our
Business students. Dr. Clay Pheasant, former Vice President of University Advancement,
and Ms. Renee Zehel, current Vice President of University Advancement, have also been
instrumental in support of this academic initiative from its earliest stages through its current
growth.
The Managing Director would also like to thank the Board of Managers, including Mr. Joe
Garvey and Dr. Fran Zauhar, as well as several other staff members and School of Business
& Global Innovation colleagues, for their support and service to the Fund. And, most
importantly, Dr. Comstock wishes to extend sincere appreciation to the Student Director (and
his Graduate Assistant), Ken Doolittle, and the rest of the student management team, for their
tireless efforts and selfless service to the success of the Pacer Investment Fund.
21