Pacer Cash Cows Fund of Funds ETF (HERD)

“Quality with cash flow beats everything else over a long enough horizon.”

That philosophy underpins HERD, Pacer’s fund-of-funds wrapper around its cash-cows series. Instead of selecting individual stocks, HERD holds a basket of underlying Pacer Cash Cows ETFs, each of which screens equities for free cash flow yield — the amount of cash a company generates relative to its stock price.

The mechanics are straightforward at the fund level: HERD holds the component Cash Cows ETFs in weights that match the underlying index. The heavy lifting happens inside each satellite fund, where Pacer applies a proprietary methodology to rank and select companies. The screening is quantitative and rules-based: it looks for firms with high free cash flow generation relative to market price, then constructs equal-weight or weighted portfolios to capture that signal. The approach is agnostic to sector; if a telecom, an industrial, and a consumer staple all pass the cash-flow screen with strong scores, all three get in.

The fund-of-funds structure creates a natural double layer of fees. Investors pay the expense ratio of HERD itself, plus they are exposed to the internal expenses of each underlying Cash Cows ETF. This stacking is a real cost and compounds over decades. Pacer discloses the gross and net expense ratios, so investors can see the effect, but it remains a drag that a direct purchase of a single screened-equity fund would avoid.

The trade-off is diversification and theme flexibility. Instead of betting that one screening approach will outperform, HERD aggregates multiple. A Cash Cows ETF for U.S. large-cap free cash flow yields, one for mid-caps, and others for specific sectors or geographies — the fund-of-funds approach lets investors access them all in one holding. It also provides an easy on-ramp for investors who want the cash-flow philosophy but are unsure which specific Pacer fund suits them.

Free cash flow as a signal has long-term appeal: companies that generate lots of cash relative to their stock price often have durable competitive advantages, strong capital discipline, or both. But the screening approach is not magic. Market dislocations, accounting choices, one-time items, and genuine shifts in competitive position can make cash flow metrics misleading. The fund can hold companies that posted strong historical cash yields but are in the early stages of decline.

Investors drawn to HERD believe that quality — defined by free cash flow generation — compounds across decades. They accept the cost of the fund-of-funds wrapper in exchange for exposure to multiple cash-flow strategies and the rebalancing discipline that Pacer applies. The fund is best understood as a long-term holding, not a tactical trade. Prospective holders should read the prospectus to understand which underlying Cash Cows ETFs are included at any given time, monitor the expense ratio stacking, and track whether the composite free cash flow yield actually outpaces dividend yields or earnings yields from comparable broad equity indexes.