What is HERD? (Pros, Cons, and Strategies)

Investors seeking diversified exposure to income-focused strategies may find the HERD ETF an intriguing option. The HERD ETF, also known as the Pacer Cash Cows Fund of Funds ETF, aims to provide a unique investment approach by focusing on other ETFs that prioritize cash-rich companies. Whether for long-term retirement planning or enhancing dividend income, HERD offers a diversified and innovative pathway. In this blog, we'll dive into what HERD is, its benefits and drawbacks, and some strategies to consider.

What is HERD?

HERD is a diversified ETF that provides investors exposure to a range of income-generating strategies through a fund of funds structure.

HERD stands for Pacer Cash Cows Fund of Funds ETF. It primarily invests in other ETFs that focus on companies with strong free cash flow and high cash yield, providing a diversified way to pursue dividend income and potential growth.

Key Features of HERD

• Fund of Funds Structure: HERD invests in a basket of other ETFs that focus on high cash yield and free cash flow.
• Diversification: By investing in multiple ETFs, HERD aims to diversify risk and enhance return potential.
• Cash Cow Focus: Emphasis on companies demonstrating robust free cash flow, which can lead to consistent dividend payments and capital appreciation over time.

HERD Composition

HERD includes a variety of ETFs with a cash cow strategy. These underlying ETFs may focus on different sectors or regions but share the common characteristic of targeting companies with strong free cash flow dynamics. This approach aims to balance growth potential with income-generating capabilities.

Pros of HERD

Diversified Income Stream

With HERD, investors gain diversified exposure to multiple ETFs, each employing its strategies to target cash-rich companies. This diversification aims to reduce single-security risk and provide a more stable income stream drawn from various sectors and regions.

Stability and Growth

Investing in companies with high free cash flow typically leads to more stable and predictable dividend payments. Companies that generate significant free cash flow are often more resilient during economic downturns, providing a more stable foundation for long-term growth.

Simplified Investment Process

HERD simplifies the investment process by pooling multiple ETFs that focus on free cash flow and high cash yields. Instead of managing multiple investments, investors can access a broad spectrum of income-focused strategies through a single ETF, making portfolio management easier and more efficient.

Low Expense Ratio

HERD offers a cost-effective way to access a multi-ETF strategy due to its competitive expense ratio. Lower costs are crucial in maximizing long-term net returns, especially in a diversified, income-focused strategy.

Cons of HERD

Relatively Low Dividend Yield

While HERD focuses on cash-rich companies, its dividend yield might still be lower compared to specialized high-yield dividend ETFs. Investors solely seeking the highest immediate income might find other options more attractive.

Limited Growth Potential

HERD's emphasis on income over capital appreciation may result in limited growth potential compared to more aggressive growth-oriented ETFs. This could be a drawback for investors looking for substantial value growth.

Complexity of Fund of Funds

While HERD simplifies the investment process by pooling multiple ETFs, the fund of funds structure may be difficult for some investors to understand thoroughly. Transparency regarding the underlying ETFs and their individual performances might not be as apparent as with single-ETF investments.

HERD Investment Strategies

HERD provides a unique opportunity for diverse income-focused investment, but aligning the strategy with your financial goals is vital.

Long-term Investment Strategy

HERD is ideally suited for those with a long-term investment horizon, especially for retirement planning. The diverse exposure to cash-rich companies can provide both steady income and the potential for growth over an extended period. Investors planning for a balanced approach to income and growth will benefit from maintaining HERD in their portfolios for at least 10 years.

Dividend Reinvestment

Reinvesting dividends received from HERD can amplify the compound growth effect. Over time, reinvested dividends can significantly increase the investment's value and income potential, making this strategy suitable for investors aiming to grow their wealth steadily.

Income Maximization

Investors focused on maximizing their income stream might consider supplementing HERD with higher-yield dividend ETFs. This approach can help balance the relatively lower yield of HERD with higher income sources, creating a well-rounded portfolio catering to immediate income needs and long-term growth.

Portfolio Diversification

HERD can serve as a core holding within a diversified portfolio. Given its broad exposure across various sectors and regions, HERD can provide consistent income while reducing the overall portfolio risk. Including HERD within a broader investment strategy can lead to enhanced stability and balanced risk.

In conclusion, HERD presents an appealing investment option for those seeking diversified exposure to income-generating strategies. While it offers stability, diversification, and cost efficiency, investors must consider their specific income needs and growth goals when integrating HERD into their portfolios. Whether for long-term retirement planning or enhancing an income-focused strategy, HERD provides a versatile and innovative investment solution.