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Turns out military-friendly companies are also good investments

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VETS ETF crushes the competition with a 33% gain this year.

As thematic investment strategies go, a fund that invests in companies that support military personnel and their families could seem like a stretch — until you check its performance.

The Pacer Military Times Best Employer ETF (VETS) is up more than 33% so far this year, which compares to the S&P 500 Index’s 23% gain over the same period.

The VETS exchange-traded fund, offered by Pacer ETFs Distributors, tracks an equally weighted index of U.S.-listed companies that support the employment of military veterans, service members and their families. It’s not much more complex than that, yet the proof of the strategy is indisputable.

“It’s a good product tied to rewarding companies that are doing right by veterans, but are also appealing high-quality stocks,” said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.

Pacer, which manages $5.2 billion across 21 ETFs, launched VETS a year ago with the promise of donating 10% of the management fees to support causes for veterans and military families.

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Despite its strong performance, the fund has only grown to just over $3 million. Ten percent of the fund’s 60-basis-point management fee this year would equate to less than $2,000 worth of donations.

But Pacer president Sean O’Hara said the company plans to donate the equivalent of 100% of the fund’s management fee to military-related charities this year.

“I don’t think you can do enough to support those military folks and their families,” he said. “We also felt like there were a lot of people out there, both in the military and with family members in the military, who would want to contribute in this way.”

Mr. O’Hara, who admits it’s a little bit of a riddle how such an obscure theme could produce such strong investment performance, said the fund’s results underscore the benefits of hiring and working with military veterans.

“The performance is difficult to explain and everyone wants to know why it does so well, but you can’t point to one thing,” he said. “We think companies that screen well and end up in the index do have a focus on hiring and training veterans, and when you think about veterans being responsible, dependable and respecting the chain of command, those things have a positive impact on companies.”

The companies making up the index are selected from the Military Times’ Best for Vets annual employer ranking, which is based on the results of a survey that measures qualities such as company culture, veteran policies and accommodations for members of the military reserves.

Companies who are ranked within the top 60% and who have made the list in each of the past three years are eligible to be included in the fund.

The fund’s top five holdings are General Electric, United Rentals, Vectrus, DaVita and Bank of America.