ETF Pulse Check Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF SZNE

The Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF (SZNE) offers a unique investment approach by tracking an equal-weighted index of large-cap stocks, guided by a seasonal rotation strategy. This strategy, based on CFRA's research, identifies specific sectors that typically outperform at certain times of the year. SZNE rotates its exposure semi-annually across six GICS sectors, with the intent of outperforming the S&P 500 over time. From November to April, the fund focuses on consumer discretionary, industrials, materials, and information technology sectors, while from May to October, it shifts to consumer staples and health care. By investing in individual stocks rather than funds, SZNE aims to maintain lower turnover. Given the current economic climate, characterized by heightened geopolitical tensions and potential interest rate cuts, SZNE's sector rotation strategy and focus on consumer staples make it particularly relevant.

Basic Information
The Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF, listed under the ticker SZNE, is issued by Pacer Advisors and has been available since July 23, 2018. With an expense ratio of 0.60%, the fund includes notable holdings such as Archer-Daniels-Midland (1.70%), The Estee Lauder (1.68%), and The J.M. Smucker (1.54%). Consumer staples represent the largest sector exposure at 20.44%, while consumer discretionary holds a lesser weight of 1.41%. Despite a 0.00% net flow ratio over the past 7 and 30 days, signaling limited investor interest, the fund has experienced average returns of -5.87% over six months, -0.48% over one year, and -0.23% over three years, with volatility measures at 2.46%, 6.07%, and 7.21% respectively.

News Summary
Recent headlines emphasize the consumer staples sector, with reports indicating mixed performance and outlooks. For instance, some consumer staples stocks, such as Walmart, have shown gains, while the broader sector remains subdued. Notably, concerns persist over the consumer sectors' unfavorable outlook, partly due to tariff-related uncertainties affecting shopper behavior. Additionally, analysts predict potential positive earnings surprises for certain consumer staples stocks like RH and Kimberly-Clark, highlighting opportunities within the sector. Meanwhile, macroeconomic factors, such as revised US payroll data and geopolitical tensions, could impact the sector's performance, underscoring the need for cautious monitoring.

Analyst Rating: Strong Sell
The Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF (SZNE) faces significant challenges, warranting a "Strong Sell" rating. The fund's expense ratio of 0.60% is above average, impacting its cost competitiveness. Moreover, the lack of investor interest is evident from the stagnant net flow ratios. The ETF's performance is particularly concerning, with negative average returns over recent time frames, indicating a struggle to deliver positive value to investors. Though volatility is relatively moderate, the negligible max drawdowns suggest potential liquidity issues. Despite a diversified top 15 holdings and sector concentration, the overall lack of return generation and investor interest undermines its investment appeal.

Backtest Scenario
During the 2020 economic downturn, the Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF (SZNE) was tested to evaluate its performance, particularly focusing on its heavy reliance on consumer staples. The backtest revealed that while the consumer staples sector provided some defensive advantages, the ETF's overall performance was hindered by broader market challenges, resulting in underperformance relative to benchmarks. This scenario underscores the importance of monitoring macroeconomic conditions and sector-specific factors when assessing SZNE's suitability in volatile markets.

Risk Outlook
The Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF (SZNE) is exposed to several forward-looking risks, primarily due to its significant allocation to the consumer staples sector, which accounts for 20.44% of its holdings. Geopolitical tensions and proposed US tariffs on China and India could disrupt trade and increase costs for key holdings like Archer-Daniels-Midland and Bunge. Additionally, supply chain disruptions at the Port of Long Beach pose logistical risks for companies such as Sysco and Dollar Tree. Macroeconomic factors, including potential Federal Reserve interest rate cuts, could impact consumer spending power, influencing retail-focused investments like Walmart and Pepsico. Political and economic uncertainties in Japan and Australia further contribute to potential volatility, necessitating vigilant monitoring of these developments.

Conclusion
The Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF (SZNE) appears to be more suited for investors with a conservative outlook, given its focus on traditionally stable sectors like consumer staples. However, the current geopolitical and macroeconomic environment presents substantial risks that could affect the ETF's performance. Investors should closely monitor these factors and the ETF's sector rotation strategy to determine its suitability within a broader investment portfolio.