VettaFi’s vice chairman Tom Lydon discussed the Pacer Industrials and Logistics ETF (SHPP) on this week’s “ETF of the Week” podcast with Chuck Jaffe of “Money Life.”
Despite supply-side struggles, demand for goods has not only remained elevated but has actually increased in the last year, providing steady demand pressures for global supply chains.
“What this means is those companies that are involved in supplying the infrastructure, operations, logistics, there aren’t as many that are out there,” Lydon explained. “For these companies that are serving that area of the marketplace, business is good; profitability is great as well.”
It’s a new fund to come to market, but in a challenging market environment of rising rates and inflation, it’s an opportunity to invest in an area of the market that likely will continue to have positive performance pressures. The supply chain issues are expected to continue, particularly given the larger global macro environment and issues.
“For example, when you look at Apple, Apple continues to have strong demand, but you’ve got different companies across the globe that affect each piece that then has to be transported from A to B to make this whole thing work,” Lydon said.
Strong demand means that if a company such as Apple encounters issues in receiving a product, they are going to be more willing to pay higher prices to ensure they have the parts delivered that are necessary for their products.
The index that the fund seeks to track, the Pacer Global Supply Chain Infrastructure Index, is a rules-based index, something that Jaffe believes lends credence to the ability to invest in the fund right from the start. Additionally, the fund also offers dividend potential, with the dividend yield currently over 3%.
“What that says is these companies that are part of the supply chain infrastructure are profitable, and with those profits, they’re kicking off higher dividends to their shareholders,” Lydon said.
Over half of the index is comprised of cargo transportation and infrastructure services, industries that are not expected to experience slowing anytime soon, with prices on the rise that can be passed on to consumers.
“I think if you look at the S&P 500, and now that we’ve touched on bear market territory, you’re going to see more and more of these shifts in areas of the market that, at least in the short-term, seem to be more stable,” Lydon explained.
