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Using a barbell to strengthen your portfolio? Think again.

The PACER PERSPECTIVE
August 2017

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Using a barbell to strengthen your portfolio? Think again.

- Michael Mack, Portfolio Manager

In an attempt to diversify their portfolio, many investors use a combination of large- and small-cap stocks. However, they may not realize this barbelling technique leaves out mid-cap companies which have historically outperformed large-cap companies and are historically less volatile than small-cap companies.

 

Source: Bloomberg
Large-cap, mid-cap and small-cap are represented by the S&P 500®, S&P MidCap 400®, and S&P SmallCap 600® respectively.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. YOU CANNOT INVEST IN AN INDEX.

 

Mid-cap stocks are often called the “sweet spot” of investing. Mid-sized companies are generally in the growth phase of the business life cycle. They are past the risky start-up phase of small-cap companies.

Mid-Cap Companies:

  • Tend to have higher cash flow and earnings growth rates than large-cap companies
  • Have historically outperformed large-cap stocks
  • Have been less volatile than small-cap stocks over time

 

 

Incorporating a mid-cap strategy can help diversify a portfolio and may lead to better returns over time. Using a trend following mid-cap investment allows you to invest in an asset class that is traditionally more volatile than large-cap with less concern about market movement. The Pacer Trendpilot 450 ETF (PTMC), a mid-cap trend following ETF, allows cautious investors to participate in the market. It uses a rules-based risk management strategy to alternate between equities and t-bills based on the benchmark index and its 200 day moving average.
 

Consider trading in the barbell and adding mid-cap companies to your portfolio. This may strengthen it more than using just large- and small-cap companies.

Pacer Trendpilot™ European Index ETF Pacer Trendpilot® 450 ETF

The Pacer Trendpilot 450 ETF (PTMC) implements the Trendpilot strategy with exposure to the Wilshire US Mid-Cap Index, aiming to participate in the market when it is trending up, maintain some exposure during short-term market declines and move to 3-month US T-Bills when it is trending down.

 

 

 

This document does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. Please consult with your financial advisor and tax advisor before investing.

This document is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. This document represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. The user of this information assumes the entire risk of any use made of the information provided herein. There is no guarantee this strategy will be successful.

Large-cap refers to a company with a market capitalization value of more than $10 billion.
Mid-cap refers to a company with a market capitalization value of $2 billion and $10 billion
Small-cap refers to companies with a relatively small market capitalization, generally between $300 million and $2 billion.
S&P 500® Index measures the performance of the large capitalization sector of the U.S. equity market and is considered one of the best representations of the domestic economy. Utilizing a market-cap weighting structure, this index invests in the 500 largest U.S. firms.
S&P MidCap 400® Index measures the performance of the mid capitalization sector of the U.S. equity market.
S&P SmallCap 600® Index measures the small-cap segment of the U.S. equity market.