When a fund with a concentrated portfolio makes the right call it can be like hitting the jackpot, but the opposite is true when the portfolio falls out of favor.
“Concentration risk always has to be of concern, though it’s what’s driving the performance right now so it’s a double-edged sword,” O’Hara says. “But people need to understand these aren’t broad-based funds but instead are filled with specific names tied to a specific part of the e-commerce and technology chain.”
And cost-conscious investors might balk at the expense ratio of 0.60% charged by both funds, which are very much on the high end among real estate ETFs. For example, the two largest funds in this category, the Vanguard Real Estate Index Fund (VNQ) and Schwab US REIT ETF (SCHH), charge fees of 0.12% and 0.07%, respectively. These have larger, more diversified portfolios covering different types of real estate.
But if you buy into the investment focus of SRVR and INDS, as well as Pacer’s argument that they’re plugged into business trends that are driving the modern economy and are a complementary way to play technology, then the fees charged by these two ETFs can be seen as comparable to other thematic and tech-focused ETFs.
At the very least, these two Pacer ETFs are different from the crowd. When compared to the five largest real estate ETFs—VNQ , SCHH, iShares U.S. Real Estate ETF (IYR), Real Estate Select Sector SPDR Fund (XLRE) and SPDR Dow Jones REIT ETF (RWR)—there’s not much overlap between them. Specifically, SRVR has an overlap by weight ranging from 4% to 34% with those five funds, depending on the fund, whereas INDS has an overlap ranging from 7% to 13%, according to ETF Research Center.
When comparing VNQ, by far the largest fund in this category with assets of $35.4 billion, with the next four largest funds, the overlap by weight ranges from 50% to 80%.
Both Pacer funds launched in May 2018 and are slowly building their respective asset bases. SRVR has assets of $76 million and INDS has $19.3 million. O’Hara says they’re finding an audience with financial advisors who use them in portfolios in one of two ways—either as part of the alternative investments sleeve, or in a thematic growth sleeve in the overall equity allocation.