Pacer Investment Fund
Annual Report 2014
Pacer Investment Fund
Annual Report 2014
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
Income Statement ………………………………………….
15
VII.
Investment Outlook ……………………………………………
16
VIII.
Acknowledgements ……………………………………………
20
2
Pacer Investment Fund
Annual Report 2014
Student Management Team
Marygrace Wilce
Student Director, Pacer Investment Fund
Manager, Financial Reporting, Prudential Trust Company
B.S. Accounting – Bloomsburg University, 1988
Michael Kondrat
Securities Manager, Pacer Investment Fund
PP&E Accountant, Marywood University
B.B.A. Accounting – Marywood University, 2012
Kimberly Sarro
Senior Investment Analyst, Pacer Investment Fund
Investment Set-up and Support Associate, Prudential Retirement
B.S. Finance and Management – West Chester University
Ken Doolittle
Senior Investment Analyst, Pacer Investment Fund
Graduate Assistant, Marywood University
B.S. Finance – Drexel University, 2014
Sara Stellatella
Senior Investment Analyst, Pacer Investment Fund
Executive Secretary, Tobyhanna Army Depot
B.S. Exercise Science – East Stroudsburg University, 2008
Amy Weinschenk
Senior Investment Analyst, Pacer Investment Fund
Full-Time Graduate Student, Marywood University
B.B.A. Accounting – Marywood University, 2014
Yuan Zhou
Senior Investment Analyst, Pacer Investment Fund
Full-Time Graduate Student, Marywood University
B.S. Administration Management – Shanghai University, 2005
3
Pacer Investment Fund
Annual Report 2014
Letter from Managing Director
Dear Pacer Fund Constituents,
After a memorable 2013 in the financial markets (with returns approaching 30%), perhaps this
past year may go down in the history books as somewhat forgettable. The market achieved a
return near its 75-year average with near-average risk levels as well. Ho-hum.
However, as an educator, I believe that there are always lessons to be learned, and perhaps
surprisingly, 2014 offered an abundance of such learning opportunities. For instance, what
happens after the market experiences a “great” year? Can the US economy perform well even
if the rest of the developed world seems to be struggling? And, relative to the internal
operations of the Pacer Fund, additional questions were raised – especially after a memorable
(in the wrong sense) April for the portfolio. How does the Fund recover after underperforming
the benchmarks by nearly 5% in that one month? Will the acceptance of more risk help in the
recovery? How much risk is “too much” risk?
These are challenging questions that offer tremendous learning experiences for the student
managers. Consequently, it is from this perspective that we must view the performance of
these student managers. As shown below, the Fund displayed a solid return – outpacing bonds
and other fixed income assets – but ultimately fell short of the benchmarks. Although the
Fund outperformed the benchmarks the same number of months that it underperformed, it was
that memorable April (although the managers wish it was “forgettable”) that hindered the
portfolio from achieving its performance goals.
Pacer Investment Fund vs. Benchmark Returns
Pacer Fund
S&P 500
Russell 3000
2014 Annual Return
5.7%
11.4%
10.4%
Std Dev of Returns
3.0%
2.4%
2.6%
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 2014
Letter from Student Director
Dear Pacer Investment Fund Constituents,
As history tends to repeat itself, good years often follow great years in the financial markets,
and 2014 was no exception. While the US stock market did not see the same stellar
performance as 2013, it did post solid returns in 2014. The S&P500 ended the year with an
11.4% gain and the Dow was up 7.5%. The Pacer Fund followed suit and managed a
respectable 5.7% return following an extraordinary return of 26.6% 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 started 2014 with a plan to fully invest idle
cash, expand into international stocks and smaller US firms, monitor sector performance and
allocations, and seek undervalued securities. Throughout 2014, the portfolio was actively
managed to achieve these objectives. Idle cash was invested, a new international sector was
created, small caps were purchased, and each sector was analyzed and rebalanced monthly.
Many of the securities held in 2013 were sold and stop-loss orders were triggered.
While the Pacer Fund’s overall performance lagged the benchmarks, it was relatively close
each month with the exception of April, at which time the Fund underperformed the
benchmark by over 4%. The Fund was not able to fully recoup this loss. Although the
managers investigated the reasons for this underperformance, an exact cause was not
pinpointed. But, going forward, areas of focus include: further analysis of stop-loss orders by
strategically setting sell-off limit prices and by selling portions as opposed to the entire
position; analyzing the impact of triggered sales on the strategy of the Fund; and more timely
buybacks of securities sold in a market dip.
Heading into 2015, Pacer Fund managers remain optimistic. 2014 ended strong and the US
economy continues to show signs of strength. Unemployment is on a decline, and lower gas
prices and rising household wealth are expected to drive consumer spending. However, the
global economy remains unstable, with a notable disparity between US and non-US stocks.
Moving forward, the managers will continue to seek investments with strong fundamentals
while taking advantage of undervalued securities when compared to their true net worth.
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 hands-on experience of being
able to actively participate in real-world fund management, combined with classroom learning,
results in an invaluable opportunity for all students involved. Our continued development in
money management along with the experience we have gained will translate into positive
results in both our professional and personal lives.
Sincerely,
Marygrace Wilce
Student Director, Pacer Investment Fund
5
Pacer Investment Fund
Annual Report 2014
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 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 2014
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 2014
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.
2014 Return Data
Annual Return
Standard Deviation
5.7%
11.4%
10.4%
3.0%
2.4%
2.6%
PACER FUND
S&P 500
RUSSELL 3000
12.00%
10.00%
8.00%
YTD Return
6.00%
Standard Deviation
4.00%
2.00%
0.00%
PACER FUND
S&P 500
8
RUSSELL 3000
Pacer Investment Fund
Annual Report 2014
The Year in Review
“April Showers…”
During the past year, the Pacer Fund managers maintained their strategy of focusing on longterm investments with slightly higher-than-average 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 lows
while still showing potential for growth.
Overall, it was a tumultuous year, with returns swinging from positive to negative almost
every month. The Pacer Fund had a rocky start with Q1 yielding the Fund’s best and worst
months of the year, but the portfolio remained close to the benchmarks. Unfortunately, April’s
performance changed everything. Although the market did not do well, with the S&P 500 and
the Russell 3000 earning just 0.62% and 0.02% respectively, the Pacer Fund’s monthly return
was a dismal -4.48%. Some stocks were sold to prevent loss, as managers feared they would
continue to fall. Regrettably, the market bounced back faster than anticipated, and the Fund
was unable to recoup these losses by purchasing enough other stocks before they rebounded.
The managers performed detailed analysis on April’s underperformance. The results showed
that higher returns would have occurred if those stocks sold in April were held for one more
month. Managers continue to analyze these findings to determine how to apply them in future
situations.
In May and June, the Fund performed better than the benchmarks, but still ended Q2 down
approximately 6.5%. In Q3, the Pacer Fund outperformed the benchmarks each month. Since
the year-to-date returns were still well below the market, the managers decided to increase the
portfolio’s risk level, in hopes of increasing the reward. September’s beta reached 1.41, one of
the highest in the Fund’s history, helping the Fund beat the benchmarks by close to 2%
(typically, the Fund’s beta has ranged between 0.92 - 1.06). At this time, managers also
reassessed the sector allocations and increased the technology and consumer goods holdings.
Healthcare and the industrial/utility sectors were showing the highest returns, but they already
accounted for the highest percentages of the portfolio.
Based on a strong Q3 performance, managers decided to maintain the above-average risk level
in hopes of catching the benchmarks before year-end. Unfortunately, though, as the market
showed increases of approximately 2% in Q4, the Fund remained close but fell slightly short
of the two main benchmarks.
Overall, 2014 was a great learning year for the student managers. The first half of the year
reinforced the importance of not responding prematurely to market fluctuations. Additionally,
managers explored and analyzed risk more deeply this year, due to our firm resolution to gain
loss ground in the second half of the year. Through this process, managers witnessed both the
positive and negative aspects of increasing risk. Although the Fund finished behind the
benchmarks, it did experience a solid gain in a financial environment that changed drastically
from month to month.
9
Pacer Investment Fund
Annual Report 2014
Summary of Transactions
Sector
TECHNOLOGY
3D Systems
Dolby Laboratories
EMC Corp
EMC Corp
EMC Corp
iRobot
iRobot
iRobot
Google
Google
Google
Google Spin-Off
Google
F5 Networks
Apple
IND GOODS / UTIL
AO Smith Corp
Danaher Corp
ITC Holdings Corp
ITC Holdings Corp
ITC Holdings Corp
ITC Holdings Corp
NextEra Energy
NextEra Energy
NextEra Energy
Chemed Corp
Northrop Grumman
ABB Ltd.
ConocoPhillips
ConocoPhillips
Honeywell Int’l Inc
Halliburton Company
CONS GOODS
Procter & Gamble Co.
Procter & Gamble Co.
Procter & Gamble Co.
Procter & Gamble Co.
Mattel Inc
Mattel Inc
Mattel Inc
Mattel Inc
Nike
Nike
Annie’s Inc
Keurig Green Mtn
Lululemon Athletica
Vera Bradley, Inc
The Hershey Company
Amazon
Decker’s Outdoor
Netflix
WhiteWave Foods
INTERNATIONAL
Baidu, Inc.
Qihoo 360 Tech
HDFC Bank
Alibaba Group
Purchase
Date
Shares
Purchased
Price per
Share
2/7/2014
3/21/2014
12/12/2013
3/21/2014
10/17/2014
12/4/2012
12/12/2013
4/11/2014
11/25/2011
4/9/2013
10/3/2013
4/3/2014
10/17/2014
10/17/2014
11/13/2014
100
115
440
175
185
160
170
160
10
5
10
25
45
90
90
$64.99
$44.63
$23.25
$28.00
$27.12
$18.27
$29.79
$37.49
$565.00
$775.50
$886.98
N/A
$526.53
$111.25
$111.81
11/7/2013
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
2/7/2013
4/9/2013
12/12/2013
10/17/2014
12/4/2014
225
135
50
50
135
105
65
50
40
70
50
380
125
75
110
175
7/14/2009
10/26/2010
11/30/2010
12/12/2013
10/31/2011
10/2/2012
11/7/2013
12/12/2013
2/7/2014
5/9/2014
7/10/2014
7/10/2014
7/10/2014
7/10/2014
12/12/2013
10/17/2014
10/17/2014
10/17/2014
10/17/2014
2/7/2014
4/11/2014
7/10/2014
11/13/2014
Purchase
Value
Date of
Sale
Shares
Sold
$6,508.49
$5,142.44
$10,240.00
$4,909.99
$5,027.19
$2,933.19
$5,074.29
$6,008.33
$5,659.99
$3,887.49
$8,879.74
N/A
$23,703.84
$10,022.49
$10,072.89
4/7/2014
10/14/2014
100
115
$52.00
$38.92
$5,189.96
$4,465.71
($1,318.53)
($676.73)
4/24/2014
9/30/2014
330
160
$35.00
$30.00
$11,539.75
$4,789.90
$3,532.27
($1,218.43)
10/10/2014
10/13/2014
12/16/2014
25
25
45
$549.98
$549.80
$499.55
$13,739.20
$13,734.70
$22,479.80
N/A
$9,046.68
($1,224.04)
$52.61
$74.58
$87.00
N/A – Split
$36.39
$37.27
$54.70
$95.79
$98.63
$85.07
$124.11
$21.17
$59.51
$69.22
$89.48
$40.46
$11,847.20
$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
$8,054.59
$7,448.74
$5,201.49
$9,852.79
$7,090.49
2/4/2014
225
$44.98
$10,109.59
10/2/2014
10/2/2014
380
125
$22.00
$74.20
$8,349.82
$9,264.80
$295.23
$1,816.06
50
40
25
55
150
70
90
110
110
65
135
35
125
350
110
30
110
40
300
$53.07
$63.13
$61.50
$83.74
$28.30
$35.32
$45.14
$45.41
$71.96
$73.15
$33.15
$121.27
$39.89
$20.85
$95.43
$306.82
$90.44
$359.95
$33.68
$2,663.49
$2,525.20
$1,537.50
$4,615.69
$4,254.99
$2,482.39
$4,072.59
$5,005.09
$7,925.59
$4,764.73
$4,485.24
$4,254.44
$4,996.24
$7,307.49
$10,507.30
$9,214.59
$9,958.39
$14,407.99
$10,113.99
1/31/2014
4/11/2014
115
55
$75.87
$81.00
$8,714.90
$4,444.92
$1,988.71
($170.77)
1/31/2014
200
$38.54
$7,697.88
$1,728.15
4/11/2014
220
$37.65
$8,272.84
($1,511.24)
10/17/2014
10/17/2014
10/17/2014
9/30/2014
7/31/2014
135
35
125
350
110
$45.99
$138.82
$40.27
$21.00
$89.83
$6,198.52
$4,868.69
$5,023.64
$7,337.34
$9,871.09
$1,713.28
$614.25
$27.40
$29.85
($636.21)
65
55
200
65
$156.44
$87.00
$47.01
$115.00
$10,178.59
$4,794.94
$9,411.99
$7,484.99
7/22/2014
55
$95.00
$5,214.89
$419.95
10
Price per
Share
Sale
Value
Gain
(Loss)
Pacer Investment Fund
Annual Report 2014
Summary of Transactions
Sector
RETAIL
PetSmart Inc.
PetSmart Inc.
PetSmart Inc.
PetSmart Inc.
PetSmart Inc
BestBuy
BestBuy
Outerwall, Inc.
Outerwall, Inc.
Starbucks Corp
Lowe's
Lowe's
Lowe's
Lowe's
Lowe's
Lowe’s
Tiffany's & Co
JC Penney, Inc.
Gap, Inc.
FINANCIAL
Paychex, Inc
Paychex, Inc
Paychex, Inc
Paychex, Inc
Paychex, Inc
First Cash Fin Serv
First Cash Fin Serv
First Cash Fin Serv
First Cash Fin Serv
Bank of America
Bank of America
Bank of America
Bank of America
Bank of America
Bank of America
Raymond James Fin
Raymond James Fin
Visa
Prosperity Bancshares
Encore Capital Group
Fed Nat’l Holding Co
HEALTHCARE
Express Script, Inc
Express Script, Inc
Express Script, Inc
Express Script, Inc
United Health Group
United Health Group
United Health Group
United Health Group
Johnson & Johnson, Inc.
Athenahealth, Inc.
Lakeland Industries
Biogen Inc
Purchase
Date
Shares
Purchased
Price per
Share
Purchase
Value
8/4/2008
10/26/2010
11/22/2011
10/2/2012
6/6/2014
2/7/2014
4/11/2014
3/21/2014
4/11/2014
12/12/2013
6/29/2010
10/26/2010
11/30/2010
10/2/2012
11/6/2012
5/9/2014
9/1/2011
10/3/2013
11/7/2013
77
70
65
58
100
250
225
75
90
130
100
160
65
130
95
110
75
915
210
$23.55
$37.05
$46.78
$69.55
$58.98
$23.81
$25.34
$66.89
$66.05
$76.21
$20.25
$21.73
$21.85
$30.39
$33.10
$45.08
$72.18
$8.67
$38.13
$1,813.33
$2,593.50
$3,050.69
$4,043.89
$5,907.89
$5,962.49
$5,711.27
$5,026.74
$5,954.39
$9,917.29
$2,025.00
$3,476.80
$1,420.25
$3,960.69
$3,154.49
$4,968.75
$5,423.40
$7,942.13
$8,017.29
8/19/2010
10/26/2010
10/2/2012
4/9/2013
4/11/2014
10/26/2010
11/30/2010
11/22/2011
10/2/2012
9/1/2011
4/26/2012
10/2/2012
11/6/2012
3/21/2014
7/10/2014
2/7/2014
4/11/2014
2/7/2014
7/10/2014
10/17/2014
12/4/2014
75
125
90
140
75
90
150
85
60
250
360
330
210
275
300
160
60
45
100
240
200
$25.00
$27.87
$32.88
$35.24
$40.22
$27.74
$28.36
$35.52
$47.08
$8.05
$8.20
$9.09
$9.82
$18.00
$15.32
$49.07
$49.85
$220.40
$61.21
$42.00
$23.94
$1,875.00
$3,483.75
$2,969.19
$4,943.59
$3,026.48
$2,496.60
$4,254.00
$3,029.19
$2,834.79
$2,022.47
$2,961.99
$3,009.69
$2,072.19
$4,959.99
$4,605.99
$7,861.03
$3,000.93
$9,927.99
$6,130.99
$10,089.99
$4,797.99
11/30/2010
10/2/2012
12/4/2012
4/11/2014
5/12/2011
7/15/2011
11/22/2011
4/11/2014
12/12/2013
7/10/2014
10/17/2014
11/13/2014
75
85
40
55
40
50
90
50
100
65
240
25
$52.11
$63.50
$53.66
$71.17
$49.50
$51.92
$44.34
$79.42
$92.86
$118.38
$21.30
$322.25
$3,908.25
$5,407.49
$2,156.39
$3,924.29
$1,989.98
$2,605.98
$4,000.59
$3,980.94
$9,295.99
$7,704.69
$5,121.99
$8,066.24
11
Date of
Sale
Shares
Sold
Price per
Share
Sale
Value
Gain
(Loss)
11/7/2013
65
$73.62
$4,775.22
$3,244.47
1/13/2014
10/10/2014
205
100
$67.00
$65.01
$13,724.77
$6,490.46
$3,754.09
$582.57
7/10/2014
4/11/2014
165
130
$55.22
$70.00
$9,101.10
$9,089.80
($1,880.03)
($827.49)
6/21/2013
225
$39.44
$8,864.08
$4,122.83
10/1/2014
9/26/2014
10/9/2014
75
915
210
$94.62
$9.97
$37.08
$7,086.36
$9,113.27
$7,775.32
$1,662.96
$1,171.14
($241.97)
7/10/2014
505
$41.84
$21,118.74
$4,820.73
1/28/2014
200
$50.00
$9,988.83
$4,372.63
4/8/2014
185
$48.00
$8,869.81
$1,871.43
10/15/2014
4/11/2014
220
45
$48.92
$198.82
$10,751.17
$8,936.86
($110.79)
($991.13)
4/30/2014
7/10/2014
200
55
$64.80
$67.43
$12,949.72
$3,698.57
$1,477.59
($225.72)
10/14/2014
10/7/2014
12/4/2014
100
65
240
$95.82
$124.87
$11.04
$9,571.80
$8,106.45
$2,639.55
$275.81
$401.76
($2,482.44)
Pacer Investment Fund
Annual Report 2014
Sector Holdings
Sector
Technology
Industrial / Utilities
Consumer Goods
Retail
Financial
Healthcare
International
12/31/13 Value
$50,557.85
$46,715.60
$44,518.60
$80,755.70
$61,291.80
$36,761.00
$0
Total Equity Value
$320,600.55
%
18.4%
17.0%
16.2%
29.3%
22.3%
13.4%
0.0%
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
%
12.6%
22.6%
19.3%
13.4%
14.4%
8.8%
8.8%
$360,450.95
1.33
Sector Holdings 12/31/14
Healthcare
8.8%
International
8.8%
Technology
12.6%
Financial
14.4%
Industrial/Utilities
22.6%
Retail
13.4%
Consumer Goods
19.3%
12
Avg Beta
1.53
0.76
1.59
1.61
1.45
0.89
1.70
Pacer Investment Fund
Annual Report 2014
Schedule of Investments
UNREALIZED
GAIN/LOSS
2014
ANNUAL
INCOME
Alibaba Group
$
(728.89)
$
-
$
7,484.99
-9.74%
Amazon.com, Inc.
$
95.91
$
-
$
9,214.59
1.04%
Apple, Inc.
$
(138.69)
$ 169.20
$ 10,072.89
-1.38%
Baidu, Inc.
$
4,639.46
$
-
$ 10,178.59
45.58%
Bank of America
$ 11,227.93
$ 345.00
$ 19,632.32
57.21%
Best Buy Co.
$
6,841.74
$ 361.00
$ 11,673.76
58.58%
Biogen Idec.
$
420.01
$
-
$
8,066.24
5.21%
Chemed Corp
$
1,432.02
$
61.60
$
5,964.88
24.01%
ConocoPhillips Corp
$
(21.99)
$ 219.00
$
5,201.49
-0.42%
Danaher Corp
$
1,492.57
$
54.00
$ 10,078.28
14.82%
Decekers Outdoor
$
56.01
$
-
$
9,958.39
0.56%
EMC Corp
$
3,614.83
$ 368.00
$ 20,177.17
17.92%
Encore Capital Group
$
556.01
$
-
$ 10,089.99
5.61%
F5 Networks, Inc.
$
1,719.36
$
-
$ 10,022.49
17.16%
Federated National Holdings
$
34.01
$
32.00
$
4,797.99
0.71%
Halliburton
$
(207.74)
$ 126.00
$
7,090.49
-2.94%
HDFC Bank
$
738.01
$
64.20
$
9,411.99
7.84%
Honeywell International
$
1,138.41
$ 227.70
$
9,852.79
11.56%
ITC Holdings Corp
$
2,562.14
$ 253.50
$ 13,205.56
19.40%
Keurig Green Mountain
$
144.52
$
80.50
$
9,123.13
8.91%
Lowes
$
6,172.43
$ 193.20
$
8,275.57
109.63%
McDonalds Corp
$
5,997.64
$ 561.00
$
9,462.86
63.38%
Netflix.com, Inc.
$
(743.59)
$
-
$ 14,407.99
-5.16%
NextEra Energy
$
4,157.59
$ 449.50
$ 12,317.36
33.75%
Nike, Inc.
$
4,135.93
$ 196.00
$ 12,690.32
32.58%
Northrop Grumman
$
1,154.02
$ 140.00
$
6,215.48
18.57%
Prosperity Bancshares
$
(594.99)
$ 109.00
$
6,130.99
-9.70%
UnitedHealth Group
$ 10,673.21
$ 345.00
$ 12,577.49
84.88%
Whitewave Foods
$
$
$ 10,133.99
3.80%
STOCK
383.01
13
-
COST BASIS
SINCE
INCEPTION
RETURN
Pacer Investment Fund
Annual Report 2014
Schedule of Investments
Schedule of Investments
Whitewave Foods
UnitedHealth Group
Prosperity Bancshares
Northrop Grumman
Nike, Inc.
NextEra Energy
Netflix.com, Inc.
McDonalds Corp
Lowes
Keurig Green Mountain
ITC Holdings Corp
Honeywell International
HDFC Bank
Halliburton
Federated National Holdings
F5 Networks, Inc.
Encore Capital Group
EMC Corp
Decekers Outdoor
Danaher Corp
ConocoPhillips Corp
Chemed Corp
Biogen Idec.
Best Buy Co.
Bank of America
Baidu, Inc.
Apple, Inc.
Amazon.com, Inc.
Alibaba Group
-40.00%
-20.00%
0.00%
20.00%
YTD Return
14
40.00%
60.00%
80.00%
100.00%
Pacer Investment Fund
Annual Report 2014
Income Statement
FOR THE PERIOD ENDING:
INVESTMENT INCOME:
Dividend Income
Interest Income
Other / Adjustment
Dec. 31, 2013
Dec. 31, 2014
$
$
$
4,770.18
5.77
-
$ 4,806.83
$
3.87
$ (1,215.27)
NET REALIZED GAIN (LOSS) ON INVESTMENTS
$
28,538.76
$ (23,156.65)
NET UNREALIZED GAIN (LOSS) ON INVESTMENTS
$ 45,916.66
$ 66,960.88
TOTAL INVESTMENT INCOME
$
$
ADDITIONAL ENDOWMENT DEPOSITS
$
EXPENSES:
Commission Fees
Registration Fees
TOTAL EXPENSES
$
$
$
NET INCOME
$
Beginning Portfolio Value
Additional Deposit
Ending Portfolio Value
Difference
$ 295,805.51
79,231.37
-
(589.41)
(6.24)
(595.65)
78,635.72
$ 374,441.23
$ 78,635.72
15
47,399.66
$ 25,000.00
$
$
$
(889.11)
(7.40)
(896.51)
$
71,503.15
$ 374,441.23
$ 25,000.00
$ 420,944.38
$ 71,503.15
Pacer Investment Fund
Annual Report 2014
Investment Outlook
General Economy
In 2015, economic growth looks to make a slow, gradual increase on last year’s performance.
The consensus seems to be approximately 3% real GDP growth in the US. The International
Monetary Fund predicts global economic growth of 3.2% in 2015. 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. Although Japan is in the midst of a
recession, many economists forecast modest growth in 2015 due to their quantitative and
qualitative monetary policies. China’s economic growth is expected to slow to about 7.1%
down from last year’s 7.7%.
With the GOP taking control of both chambers of Congress, political turmoil seems to be
likely in Washington. It will be interesting to see how the Obama Administration works with
this new shift in political power. Another determining factor for the US economy will be
whether the Federal Reserve finally begins to raise the federal funds rate, which it has locked
at zero to 0.25% since the end of 2008. Although the Federal Reserve has ended “QE3”, Fed
Chair Janet Yellen seems to be fine with holding key economic indicators such as the federal
funds rate in their current position. Thus, the managers expect short-term interest rates to
remain low for much of 2015 but long-term rates may slowly rise if the Fed decides to increase
this key rate.
An important theme for 2015 will come from business investments spurred by innovations.
Thanks to the oil boom, there is fast-rising demand for drilling and mining technology much of
which is produced here in the US and shipped globally. Consumer spending should increase
based on solid job growth and low unemployment. Unemployment levels have decreased over
the last 12 months and should hover around 5.8% for most of 2015.
Financial
The financial sector is poised for another successful year in 2015. With technology and
innovation presumably driving forward, the financial sector should see increased revenue
streams and decreased risks in both established and emerging businesses. Lending standards
look to remain similar to 2014, allowing the amount of loans being made to consumers and
businesses to increase. However, interest rates may gradually increase in 2015, leading to
businesses and consumers delaying purchases they might have otherwise made. Growth looks
to be a universal priority in 2015, as banks look to invest in customer analytics and elevating
the customer experience in both business and retail banking. There should also be an increase
in focus on security and authentication in 2015, making retail banking safer and more
appealing to investors.
Bank of America and Encore Capital Group both produced steady returns for the Fund in
2014. Going forward, we do not look to make many changes to our current financial sector
holdings. The managers believe 2015 will produce a positive return for the financial sector.
16
Pacer Investment Fund
Annual Report 2014
Investment Outlook
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.
In 2015, the healthcare sector is expected to remain turbulent with further adjustments to the
Affordable Care Act occurring as a result of lessons learned since the 2010 implementation
and the transition to a Republican-controlled Congress. A positive effect on preventative care
and specialty drug manufacturer and biotechnology companies is expected due to an increased
demand in personalized healthcare and an increase in the insured and cost-conscious
population. However, adverse impacts are anticipated with hospitals due to the continued
consolidation of facilities and high treatment costs. As a result of the uncertainty surrounding
the healthcare sector, the Fund will likely continue to invest in secular industries, particularly
biotechnology companies that produce inelastic drugs that consumers need.
Industrial and Utilities
The utility sector indisputably plays a major role in development as the demand to produce
abundant cheap energy and power within the US increases. The new energy within the next
two decades will mainly be generated from natural gas and renewable sources. The EIA (US
Energy Information Administration) reported that at least 29 states have enforced renewable
portfolio standards or other renewable generation policies. Due to this demand, utilities are
gradually shifting towards natural gas and alternative energy. Earnings for the utility sector are
expected to increase by 10% to 4.9% for 2015. The EIA also reported that as the US works
towards energy independence, by 2020 it will become a net exporter of natural gas. Similar to
the utility sector, manufacturing production is expected to grow by 4% in 2015. Many expect
manufacturing to grow faster than the overall economy. The reason for the expected fast
industrial growth is due to the move in demand towards manufactured production such as
energy infrastructure, transportation infrastructure, and medical care expansion.
During the first half of 2014, energy commodities were similar to 2013 with a relatively stable
price range. However, within the last four months of 2014, petroleum and crude oil prices
dropped dramatically. OPEC revenue declined in 2014, mainly due to the decrease in the
amount of oil exports and lower oil prices. Due to similar future issues, OPEC revenues are
expected to decline even more for 2015. With oil prices expected to continue to drop in the
first part of 2015, this decline may provide an opportunity to purchase oil stocks at a low price
in hopes of future improvement.
17
Pacer Investment Fund
Annual Report 2014
Investment Outlook
Technology
The technology sector posed a challenge for the Pacer Fund this year. Google, one of the
largest Fund holdings, struggled all year and was sold twice during the year due to stop-loss
executions. Will the sector rebound in the near future? The Fund managers decided to keep a
20% portfolio allocation within this sector hoping for a rebound. This allocation may be
adjusted downward during 2015 to accommodate for other improved sectors.
The current sector holdings are Apple, EMC Corporation, and F5 Networks. Both EMC and
F5 Networks have produced solid returns for the Fund in 2014 and are expected to deliver high
returns in 2015 as well. Apple was a recent purchase the Fund made, and they offer a
promising return resulting from their innovative products and loyal customers. Going forward,
the Fund is looking to capitalize on the increased demand for cyber security. A possible future
investment is FireEye, which specializes in products and services for detecting, preventing,
and resolving advanced cyber-security threats. The technology sector should deliver a solid
return for 2015. Many stock prices have been slashed, and many are currently trading near
their 52-week lows. From a strictly contrarian point of view, this sector offers many exciting
opportunities.
Retail and Restaurant
The outlook for the retail sector remains stable with modest sales growth of 3-4% in 2015
expected. Sales growth will be supported by increased US employment rates, increased
household wealth, and lower gas prices. These factors result in discretionary income that
consumers will have available for spending. While online sales represent approximately 13%
of US retail sales, they accounted for 50% of the retail sales growth in 2014 and continued
growth is predicted for the next several years. Retail will continue to face challenges because
of online competition and reduced foot traffic in brick and mortar stores. As retailers continue
to battle for market share, expect to see an intense promotional environment become the norm
in this environment.
Sales trends are expected to rise in the US restaurant industry in 2015. Same store sales are
predicted to average 2-3%, which is an improvement over 2014. Some of the factors
contributing to this growth include higher wages and reduced gas prices, resulting in additional
disposable income that can be used for food-away-from home spending. A potential threat to
the restaurant industry is the increasing labor costs associated with the minimum wage hike.
Additionally, multinational chains may be impacted by the weakened economies in Europe
and Asia. Areas of focus for 2015 will include food quality, value, and an increased use of
customer-facing technology.
18
Pacer Investment Fund
Annual Report 2014
Investment Outlook
Consumer Goods
As the unemployment rate continues to decline and gasoline prices drop, consumers have more
discretionary income than in recent years. Economists also anticipate that food prices will
realign, after steep increases in 2014. GDP is projected to continue its steady increase, while
inflation is expected to remain under 2% again in 2015. All of these factors are strong signs
for the consumer goods sector. Therefore, economists are expecting consumer spending to rise
more rapidly in 2015 than in 2014, especially in auto sales.
However, a lot of uncertainty lies in the continually troubled global markets. It is unclear how
international sales will be affected by slowing European and Asian economies. As the dollar
strengthens, US consumer goods exports are likely to suffer. Additionally, interest rates are
expected to rise by the end of the year, which may decrease large Q3 and Q4 purchases.
Future Directions
The overall outlook for stocks in 2015 remains optimistic, although the market will face
uncertainties and increasing volatility. Indexes are expected to rise but will be more erratic
than usual. There are many positives carrying into this year, including lower oil prices and a
strong US dollar, both of which tend to hold down inflation. Additionally, jobs growth, an
increase in wages, and lower gas prices should support stronger consumer spending. The
current bull market is entering its sixth year and is the fourth longest in 80 years. Analysts are
predicting an 11% total return for the S&P500. But, the market can still be challenged by the
impact of the Fed’s actions, as the bond buying has ended and short-term interest rates are
expected to rise in the second half of 2015. The potential for a market correction also exists.
The global economy is struggling as Europe is in stagnation while China faces slower growth.
But, there are signs of potential improvement as central bank stimulus and supportive fiscal
policy should provide a much needed boost for the countries. Lower US oil prices typically
bolster global economic growth in the short term. As US stocks are priced higher, there may
be opportunity in the emerging markets arena where securities are attractively valued.
For 2015, the Pacer Fund managers will seek out investments by identifying fundamentally
sound companies with strong business economics. Once identified, the focus will shift to the
technical aspect to determine if the securities are priced right to buy. Beta will be another area
the managers will monitor throughout 2015. In past years, the managers set out to increase the
beta of the Fund with the hopes of achieving a higher return, and at the end of 2014 the Fund’s
beta was 1.33. This higher beta led to more volatility for the Pacer Fund than the rest of the
market. Since the markets are expected to be erratic in 2015, managers may consider reducing
the Fund’s beta. More in-depth analysis will also occur when using stop-loss and limit-to-buy
orders. The managers feel strongly that sectors poised for growth include financial, healthcare,
and consumer goods. The Pacer Fund managers remain confident that our commitment to
research and detailed financial analysis will continue to help maintain capital growth
throughout 2015.
19
Pacer Investment Fund
Annual Report 2014
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,
Marygrace Wilce, and the rest of the student management team, as well as his Graduate
Assistant Ken Doolittle, for their tireless efforts and selfless service to the success of the Pacer
Investment Fund.
20