What is an
ETF?

An Exchange Traded Fund or ETF is an investment fund that trades on a stock exchange. It is like a mutual fund in that it is a large portfolio of securities and can include hundreds of stocks or other assets like bonds or commodities.

How Do ETFs Work?

Using the Pacer U.S. Cash Cows 100 ETF (COWZ), we can see how an ETF works in practice. COWZ is considered a passive strategy that attempts to replicate the performance of its Pacer index minus fees.

The strategy screens the Russell 1000, the largest companies in the U.S. equity market, for the top 100 companies based on free cash flow yield. Free cash flow yield indicates that a company produces more cash than needed to run its business, allowing for investment and growth opportunities. Screening for free cash flow yield gives investors access to high-quality companies whose stocks are trading at a discount.

Characteristics of an ETF

Using an ETF, such as COWZ, allows investors to take advantage of the five key characteristics of ETFs.

1. Low Cost – ETFs are generally lower cost than other investment vehicles.
2. Tax Efficiency – ETFs have built-in tax benefits.
3. Diversification – ETFs offer exposure to hundreds of securities in a single share with potentially lower risk than investing in individual securities. For example, COWZ is made up of 100 companies.
4. Transparency – You can view COWZ holdings daily.
5. Trading Flexibility and Liquidity – COWZ can be bought and sold throughout the day at intraday prices, so it can be easier and quicker to trade.

Knowing all of this, how can you get started? ETFs like stocks are traded through a brokerage account. Contact your financial advisor to see which Pacer ETFs are best for you.

Interested in the Pacer US Cash Cows 100 ETF? COWZ