Pacer US Small Cap Cash Cows Growth Leaders ETF (CAFG US) – Portfolio Construction Methodology

The underlying Pacer US Small Cap Cash Cows Growth Leaders Index targets US small-cap equities with strong free cash flow margins and positive growth expectations. The universe consists of S&P SmallCap 600 constituents, a committee-selected group that typically represents US companies between the 93rd and 99th percentiles of domestic equity market cap. From this universe, financial and real estate companies are excluded, then remaining stocks are screened on average projected free cash flows and earnings over the next two fiscal years; names with negative projections are removed. Survivors are ranked by trailing-twelve-month free cash flow margin, defined as free cash flow divided by sales, and the top 100 are selected. Constituents are then weighted by a six-month price-momentum score, with individual weights capped at 5% and excess redistributed pro rata. The index is reconstituted and rebalanced quarterly on the third Friday of March, June, September and December.

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