Episode Transcript
Joe Thomson: It's really all about people. It's not about me, it's not about anybody. It's about putting everybody with a common belief that they can do it and they can win.
Steve Krieshman: Welcome to FTSE Russell Convenes. I'm Steve Kreichman and in this session we're talking about Pacer ETFs. With me today is Joe Thomson, the founder and CEO of Pacer Financial. Welcome Joe.
Joe Thomson:
Thank you Steve. It's pleasure to be here.
Steve Krieshman: Joe, Pacer ETFs is about to celebrate the 10th anniversary of the launch of your first ETF. Tell me a little bit about that launch and the evolution. The how, the why that you first started launching ETFs.
Joe Thomson: We've always been in the distribution business. At least I have and my partner has—that's Sean O'Hara. And we used to distribute for mutual funds and insurance companies and things like that. Annuity. We were big in the annuity business. But anyway, we started in 2015 and like you said, we're having our 10th anniversary and we had 3 or 4 products we started with, and I think we started with FTSE Russell at the end of 2015 with some international products and then we went to a product that was kind of different, and everybody, you know, for us to be successful against some of the big, big players, you have to be a little bit unique. You have to have something that's a good story that people are interested in and so what we did is, we didn't want to use market cap.
So we came to FTSE Russell and what you all allowed us to do was break apart the FTSE Russell 1000, and we pulled out the value part and started to study free cash flow. We were about $2 billion at the end of 2019 and then we got real serious about distributing this free cash flow idea and it's different and we rebalance it every quarter. It worked out really well and I think we went from 2 billion to about 40 billion in the last, you know, up until about 2024, 2025, somewhat. 2024 I think it was. But then the market hit us and so we've fallen off and we were using the cash flow idea on a small cap. And last year in 2024, small cap was not, you know, it was great for a while and then it started to fall off.
But we felt like, once people get a little older and they start to accumulate some money or have some money saved away, then what they want is they want somebody with experience to help them through the ups and downs and the cycles that exist. So that's why we have always worked through the advisors and I can honestly say we work through most all of them. The bigger the firm, it seems like we do most of our business. You know, it's kind of proportional to the firms that have the most people out there. And we have right now a number of wholesalers that work in different channels. Their speciality is going in and working with those offices to help them raise AUM. Again, I said earlier, I said we need something that's unique and different and so those stories turn out to be that way and as you know, market cap is kind of a popularity contest. So when all of the big indexes are buying the same thing and the market's going up, then that's great. But the flip side of that is when they're all buying the same thing and it's going down, it's not a very good show. So we try to help them with that, help in their design of portfolios and trying to show them where our product market fit compared to some of the other things they might have. And I'll finish up that statement by saying, you know, it's really all about people. It's not about me, it's not about anybody. It's about putting everybody with a common belief that they can do it and they can win.
Steve Kreichman: The growth of the firm has been a really great story. Talk a little bit about how you look to expand internationally. Now you have the Cash Cow growth series, but there's other suites of products that you have as well. So share with us a little bit more about the cash cows and some of your other product suites.
Joe Thomson: I mean, we've got a whole series of cash cows. Yeah. So we've got large cap, we've got small cap, we've got European, we've got international, and we've got a fund of funds kind of thing. But what I wanted to point out is that regardless of how many funds we have like that, it's all in kind of a silo. So if I can convince you that the strategy is good and you should use it, then I've got so many different ways to talk about it. A lot of people are going to Europe because the value is there versus U.S. stocks, which are a little bit overvalued, whereas if you go to Europe, they're undervalued. So there's a lot of money flowing that way and we're fortunate that we've cut some deals with you and we have product there that works for that. And so if you listen to what's going on and you don't try to tell everybody what you know, sometimes you'll pick up something. I think that's probably good advice for a lot of people. And when the guys in the field say this is happening and this seems to be getting a lot of flow, we watch for flows and see where this is going. And right now I think fixed income is a big item. And we have 3 or 4 products, but I think we need to look at that area to see what else we can do that might be different and where we might be able to raise some assets.
Steve Kreichman: One of the questions that I know at your annual national sales meetings, you like to ask the young distributors: If you couldn't sell cash cows, which product would you focus on with your clients? So which product would you focus on, Joe?
Joe Thomson: I like to think that when you're investing money, you shouldn't pay any attention to the headlines. I guess you could say you have to pay attention to other headlines. But where is the country going and what looks good down the line that you think they have to do? For example, I think that the companies that are in defence right now, they're going to kill it. And just recently the Ukraine sent a bunch of drones that were worth about $2,000 apiece to destroy $9 billion worth of aeroplanes. Now, to me, that's a pretty good return on investment. So when you find products that are like that, that's going to be good and nobody can deny that AI is not going to be a product of the future. It's going to help all companies. We have a small company, but we use AI a lot, and we'll use a lot more when we know more about it and how to use it and how to target different firms or target different products and look at different flow and see what we're spending money and where we shouldn't be spending money. But that's just one area everybody's going to be using. I think it's going to be good for our health. I think it's going to be good for business. It's going to be good for exploration. So you've got to look at things like that and we have some products that are there as well. And the companies that are included in that portfolio are AI oriented. So I think those things are really good—things that you think down the line have a big upside and that would interest people.
What you worry about, what I worry about is that when you get—you've heard of the one trick pony.
You just can't do that. You can't focus just on one thing or one area. You have to diversify. You have to have more than one thing that you're focusing on, say half a dozen things. So portfolio construction—a lot of people do it out there and most every advisor has some kind of model that he's working with. So our job really is to go in and help him look at that model and see where we might have product that would fit in there for him. So with 50 products, you've got to have something that works and with our wholesalers, we try to teach them how different products work for different folks.
There's a theory out there—the bucket theory—and the bucket theory is very simple. It's just you got to keep so much money in a bucket for emergencies. Then you've got an intermediate bucket. So things can be different there—somewhere between 3 and 10 years—and then you got some things that are ten years and beyond that you could be very aggressive about. So that's what—I think it's Warren Buffett that says one of the greatest creations on Earth is compound interest. So if you think about that and you can get an extra point or two in performance over time and compound that out for 15 or 20 years, it's going to make a lot of difference to you.
Steve Kreichman: Joe, it's been a great story. The ten year history now since the launch of the first ETF. What's the plan going forward? What's in the next ten years?
JOe Thomson: Next ten years? Well, I enjoy being at conventions like the ones you had, because it gets us exposure to the institutional side, which we have not done a very good job in yet.
When you look at the institutions that are out there today, they make it very complicated and I think that you'll find that they can get a whole lot of the same stuff through ETFs that can design strategies and have daily liquidity and they know what it's worth from hour to hour. So I think that's in our future. I think we should be looking at 401(k) as soon as the ETFs move into that in a big way. And really the one I like the best I think is this wealth management. There's not a firm on the street that doesn't have a lot of older people, a lot of baby boomers and the wealth management and helping these people accumulate money.
It used to be when you were 65, you lived about 15 years, to 80. So it wasn't a big deal. But today with people that are living right, have the right diet, stay away from the cigarettes and all that kind of stuff, there's a good chance that one or both in a couple will live to 30 years. So today we need to be able to help those people, educate them so that longevity won't be treated with poor living conditions. I think that's a giant one. And I think that we will spend a lot more time on it as we go forward.
Steve Kreichman: Well, thank you Joe. The history of Pacer ETFs is a great story. We at FTSE Russell greatly appreciate your partnership. Thank you for being with us today.
Joe Thomson: Thank you Steve, thanks for all your support. Appreciate it.
Thank you.
