Pacer rolls out ETF that invests in veteran-friendly employers

Vets still have a higher unemployment rate than the general population.

Apr 10, 2018 @ 12:55 pm

By John Waggoner

Pacer ETFs has launched an exchange-traded fund that invests in companies with the best hiring records for veterans — a first for environmental, social and governance funds.

The Pacer Military Times Best Employers ETF (VETS) selects publicly traded funds from the annual Military Times Best for Vets Employers list. To qualify for the list, companies have to answer a 90-question survey from Military Times detailing their policies and track records on hiring veterans. The survey also asks about policies toward reservists, recruiting military job candidates and policies toward military families.

The company that was ranked best for vets last year was First Data Corp. (FDC), followed by BAE Systems (BA—London), Booz Allen Hamilton (BAH) and General Motors Corp. (GM).

The ETF doesn't just buy the stocks of the companies that are ranked best for veterans in a single year, however: It requires companies to have been on the list for the previous three years. The ETF only buys companies with a market capitalization of at least $200 million, and companies must meet a liquidity threshold as well.

The ETF's holdings are equally weighted, rather than ranked according to their vet-friendliness. The current top holding is Amazon.com Inc. (AMZN), followed by United Rentals Inc. (URI) and Progressive Corp. (PGR). The ETF rebalances annually.

The Pacer Military Times Best Employers ETF's prospectus gives only a three-month track record for the Pacer Military Times Best for Vets index. It has lost 2.08% over the past three months, versus a 0.76% loss for the Standard & Poor's 500 stock index. The dividend yield is 2%, and the ETF's average price-to-earnings ratio is 16.1%.

Average expenses are relatively high at 0.60%, although the fund pledges to donate 10% of the management fee to veteran-related charities.

"While the fund's investment merits are to be determined, the greater appeal is that you're investing with your heart and are less focused on performance," said Todd Rosenbluth, senior director of ETF and mutual fund research for CFRA. "What we've seen with [ESG] mutual funds is that that money is relatively stable versus other actively managed funds — investors are not going to jump ship as long as the fund's criteria are being adhered to."

The fund may also unwittingly owe a debt to USAA, which has long served the military, Mr. Rosenbluth added.

The unemployment rate for post-9/11 veterans was 5% in March, versus 4.1% for the general population. But vets have plenty of earnings potential: Payscale.com ranks the U.S. Military Academy at West Point fifth in salary potential among U.S. colleges, with the U.S. Naval Academy at Annapolis in sixth place.

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