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Pacer Investment Fund

Annual Report 2014

Page

I. Student Management Team ………………………………….. 3

II. Letter from Managing Director ………………………………. 4

III. Letter from Student Director …….…………………………… 5

IV. Discussion

Fund Purpose & Organization ……………………………. 6

Fund Operations & Objectives ……………………………. 7

Investment Strategy & Return ……………………………. 8

The Year in Review ………………………………………. 9

Summary of Transactions ………………………………… 10

Sector Holdings …………………………………………… 12

VI. Financial Statements

Schedule of Investments ………………………………….. 13

Income Statement …………………………………………. 15

VII. Investment Outlook …………………………………………… 16

VIII. Acknowledgements …………………………………………… 20

Pacer Investment Fund Annual Report 2014

Table of Contents

2

Marygrace WilceStudent Director, Pacer Investment Fund

Manager, Financial Reporting, Prudential Trust CompanyB.S. Accounting – Bloomsburg University, 1988

Michael KondratSecurities Manager, Pacer Investment Fund

PP&E Accountant, Marywood UniversityB.B.A. Accounting – Marywood University, 2012

Kimberly SarroSenior Investment Analyst, Pacer Investment Fund

Investment Set-up and Support Associate, Prudential RetirementB.S. Finance and Management – West Chester University

Ken DoolittleSenior Investment Analyst, Pacer Investment Fund

Graduate Assistant, Marywood UniversityB.S. Finance – Drexel University, 2014

Sara StellatellaSenior Investment Analyst, Pacer Investment Fund

Executive Secretary, Tobyhanna Army DepotB.S. Exercise Science – East Stroudsburg University, 2008

Amy WeinschenkSenior Investment Analyst, Pacer Investment Fund

Full-Time Graduate Student, Marywood UniversityB.B.A. Accounting – Marywood University, 2014

Yuan ZhouSenior Investment Analyst, Pacer Investment Fund

Full-Time Graduate Student, Marywood UniversityB.S. Administration Management – Shanghai University, 2005


Student Management Team

3

http://www.mupacerfund.org/wp-content/uploads/2013/09/photo-e1378837707795.jpg

http://www.mupacerfund.org/wp-content/uploads/2013/09/photo-1-e1378837742345.jpg

Dear Pacer Fund Constituents,

After a memorable 2013 in the financial markets (with returns approaching 30%), perhaps this past year may go down in the history books as somewhat forgettable. The market achieved a return near its 75-year average with near-average risk levels as well. Ho-hum.

However, as an educator, I believe that there are always lessons to be learned, and perhaps surprisingly, 2014 offered an abundance of such learning opportunities. For instance, what happens after the market experiences a “great” year? Can the US economy perform well even if the rest of the developed world seems to be struggling? And, relative to the internal operations of the Pacer Fund, additional questions were raised – especially after a memorable (in the wrong sense) April for the portfolio. How does the Fund recover after underperforming the benchmarks by nearly 5% in that one month? Will the acceptance of more risk help in the recovery? How much risk is “too much” risk?

These are challenging questions that offer tremendous learning experiences for the student managers. Consequently, it is from this perspective that we must view the performance of these student managers. As shown below, the Fund displayed a solid return – outpacing bonds and other fixed income assets – but ultimately fell short of the benchmarks. Although the Fund outperformed the benchmarks the same number of months that it underperformed, it was that memorable April (although the managers wish it was “forgettable”) that hindered the portfolio from achieving its performance goals.

Pacer Investment Fund vs. Benchmark Returns2014 Annual Return Std Dev of Returns

Pacer Fund 5.7% 3.0%S&P 500 11.4% 2.4%Russell 3000 10.4% 2.6%

Sincerely,

Art Comstock, Ph.D.Managing Director, Pacer Investment Fund

Overall, the Fund continues to provide a truly unique educational environment that integrates hands-on research and decision-making experiences into the classroom and brings theory to application in managing a real investment fund. Witnessing the evolution of our students from first-time analysts struggling with the details of financial models to portfolio managers who make the tough decisions is a remarkable treat for me as an educator. I am confident that it is this progression that will make all of our donors proud of their investments in the Pacer Investment Fund.


Letter from Managing Director

4

Dear Pacer Investment Fund Constituents,

As history tends to repeat itself, good years often follow great years in the financial markets, and 2014 was no exception. While the US stock market did not see the same stellar performance as 2013, it did post solid returns in 2014. The S&P500 ended the year with an 11.4% gain and the Dow was up 7.5%. The Pacer Fund followed suit and managed a respectable 5.7% return following an extraordinary return of 26.6% in the prior year.

In addition to the core philosophies of long-term growth and investment in companies with sound fundamentals, the Pacer Fund managers started 2014 with a plan to fully invest idle cash, expand into international stocks and smaller US firms, monitor sector performance and allocations, and seek undervalued securities. Throughout 2014, the portfolio was actively managed to achieve these objectives. Idle cash was invested, a new international sector was created, small caps were purchased, and each sector was analyzed and rebalanced monthly. Many of the securities held in 2013 were sold and stop-loss orders were triggered.

While the Pacer Fund’s overall performance lagged the benchmarks, it was relatively close each month with the exception of April, at which time the Fund underperformed the benchmark by over 4%. The Fund was not able to fully recoup this loss. Although the managers investigated the reasons for this underperformance, an exact cause was not pinpointed. But, going forward, areas of focus include: further analysis of stop-loss orders by strategically setting sell-off limit prices and by selling portions as opposed to the entire position; analyzing the impact of triggered sales on the strategy of the Fund; and more timely buybacks of securities sold in a market dip.

Heading into 2015, Pacer Fund managers remain optimistic. 2014 ended strong and the US economy continues to show signs of strength. Unemployment is on a decline, and lower gas prices and rising household wealth are expected to drive consumer spending. However, the global economy remains unstable, with a notable disparity between US and non-US stocks. Moving forward, the managers will continue to seek investments with strong fundamentals while taking advantage of undervalued securities when compared to their true net worth. Lastly, the Fund managers and I would like to extend thanks to all of the individuals who have supported the Pacer Investment Fund throughout the years. The hands-on experience of being able to actively participate in real-world fund management, combined with classroom learning, results in an invaluable opportunity for all students involved. Our continued development in money management along with the experience we have gained will translate into positive results in both our professional and personal lives.

Sincerely,

Marygrace WilceStudent Director, Pacer Investment Fund


Letter from Student Director

5

Board of Managers

Student Director

Allocations Manager

SecuritiesManager

Sector Managersand Student Teams

Advisory Board

Fund Purpose

The purpose of the Pacer Investment Fund is to provide students in the School of Business & Global Innovation with an opportunity to gain experience in the management of an investment portfolio. The Fund is a student-managed fund created to enable students to gain exposure to the structure and operations of the financial services industry and to gain real-world experience in the management of an investment portfolio. The educational mission of the Fund is to offer students a thorough grounding in the modern process of analyzing the investment merits of individual securities, and of managing investment portfolios. The graduate concentration in Finance and Investments and the undergraduate Financial Planning major at Marywood University are designed by faculty to provide information on relevant financial theory and practice – including the qualitative and quantitative aspects of investment management. Student managers of the Pacer Investment Fund regularly meet with faculty and investment professionals, and they are required to file reports, make formal presentations, monitor and evaluate investment performance, and prepare periodic reports.

Fund Organizational Chart


Fund Purpose & Organization

6

Fund Operations

The management team of the Pacer Investment Fund consists of the Student Director, Allocations Manager, Securities Manager, and several Senior Investment Analysts grouped by industry sector. Within each sector, teams of undergraduate students perform security analysis in an effort to assist the decision-making process of the managers.

After reviewing the research, the Senior Investment Analysts make their recommendations to the Securities Manager who decides which securities have the most investment merit. The Allocations Manager evaluates the portfolio and makes recommendations to the Student Director regarding the proportional allocation of assets within the Fund. Upon receiving input from the Securities Manager and the Allocations Manager, the Student Director takes the final investment decisions to the Managing Director (and the Board of Managers). The Student Director also oversees the development of the financial statements and presentations.

The Investment Advisory Board consists of faculty members and industry professionals, and it is responsible for reviewing the fund’s financial and academic performance. They provide feedback and advice to the student teams and managers and are available for any questions the students may have.

The Board of Managers consists of three members: the Director of the Finance Program (currently Dr. Art Comstock), the Dean of the College of Liberal Arts & Sciences (currently Dr. Fran Zauhar), and the Vice President of Business Affairs (currently Mr. Joe Garvey). Their responsibilities are to review any decisions for approval or changes suggested by the student teams and managers and to provide general oversight of the Fund. The Managing Director (currently Dr. Comstock) is in charge of formulating the investment policies and strategies of the Fund and is the only individual that has the authority to contract for the Fund.

Fund Objectives

During our inaugural year, the Fund initiated the investment goal of “capital preservation with moderate growth.” In order to measure the success of achieving this goal, the managers established a general investment objective of an annual return within a range of +/-3% relative to the S&P500 return with a risk level similar to that of the overall market.

In order to build upon early successes and seek some higher potential returns, that goal was slightly altered in 2008 to “capital preservation with moderately aggressive growth”, and a somewhat higher level of risk was accepted in order to possibly achieve greater growth. However, in the more volatile recent years, stability was placed at a premium, successfully limiting losses in 2008 but also limiting some of the recovery gains in 2009. Since 2010, a conscious effort was made to return to the overall objective of “capital preservation with moderately aggressive growth” by adding some smaller, technology-oriented companies and other higher-beta businesses with greater growth potential. In general, this objective has been successfully implemented over the past few years, although the Fund managers consistently review the portfolio holdings in order to ensure compliance with this goal.


Fund Operations & Objectives

7

Investment Strategies

In order to achieve its objectives, the Pacer Investment Fund generally adheres to three research methods including Technical Analysis, Fundamental Analysis, and the Buffettology Approach.

In utilizing Technical Analysis, the student teams and Fund managers have engaged in several price trend identification models, including momentum and contrarian strategies, moving average, and break-out trading rules. This research represents the least relied upon method in the decision-making process, but the managers have attempted to balance the portfolio with a few securities that are supported by technical models.

More heavily utilized, Fundamental Analysis involves the evaluation of a firm’s financial health and future prospects. The Fund’s objective is to invest in companies that have solid financial fundamentals in the areas of liquidity, asset management, debt management, and profitability, and whose price valuations offer room for growth within the framework of Benjamin Graham.

The investing philosophy of Warren Buffett (i.e., “Buffettology”) is also implemented by the Fund managers for identifying investment potential. Buffett is a value investor who chooses securities based on a set of guiding principles that represent what he considers to be strong “business economics”. These principles, in particular the long-term stability of earnings per share and a high return on equity, have greatly influenced the investment decisions of the managers and will likely continue to do so in the future.

2014 Return DataAnnual Return Standard Deviation

PACER FUND 5.7% 3.0%S&P 500 11.4% 2.4%

RUSSELL 3000 10.4% 2.6%

PACER FUND S&P 500 RUSSELL 30000.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

YTD ReturnStandard Deviation


Investment Strategy & Return

8

“April Showers…”

During the past year, the Pacer Fund managers maintained their strategy of focusing on long-term investments with slightly higher-than-average risk. Managers continued to utilize the Fund’s established proposal spreadsheets to present and discuss new stock fundamentals and market trends. This year, managers placed additional focus on stocks that were trading at lows while still showing potential for growth.

Overall, it was a tumultuous year, with returns swinging from positive to negative almost every month. The Pacer Fund had a rocky start with Q1 yielding the Fund’s best and worst months of the year, but the portfolio remained close to the benchmarks. Unfortunately, April’s performance changed everything. Although the market did not do well, with the S&P 500 and the Russell 3000 earning just 0.62% and 0.02% respectively, the Pacer Fund’s monthly return was a dismal -4.48%. Some stocks were sold to prevent loss, as managers feared they would continue to fall. Regrettably, the market bounced back faster than anticipated, and the Fund was unable to recoup these losses by purchasing enough other stocks before they rebounded.

The managers performed detailed analysis on April’s underperformance. The results showed that higher returns would have occurred if those stocks sold in April were held for one more month. Managers continue to analyze these findings to determine how to apply them in future situations.

In May and June, the Fund performed better than the benchmarks, but still ended Q2 down approximately 6.5%. In Q3, the Pacer Fund outperformed the benchmarks each month. Since the year-to-date returns were still well below the market, the managers decided to increase the portfolio’s risk level, in hopes of increasing the reward. September’s beta reached 1.41, one of the highest in the Fund’s history, helping the Fund beat the benchmarks by close to 2% (typically, the Fund’s beta has ranged between 0.92 - 1.06). At this time, managers also reassessed the sector allocations and increased the technology and consumer goods holdings. Healthcare and the industrial/utility sectors were showing the highest returns, but they already accounted for the highest percentages of the portfolio.

Based on a strong Q3 performance, managers decided to maintain the above-average risk level in hopes of catching the benchmarks before year-end. Unfortunately, though, as the market showed increases of approximately 2% in Q4, the Fund remained close but fell slightly short of the two main benchmarks.

Overall, 2014 was a great learning year for the student managers. The first half of the year reinforced the importance of not responding prematurely to market fluctuations. Additionally, managers explored and analyzed risk more deeply this year, due to our firm resolution to gain loss ground in the second half of the year. Through this process, managers witnessed both the positive and negative aspects of increasing risk. Although the Fund finished behind the benchmarks, it did experience a solid gain in a financial environment that changed drastically from month to month.


The Year in Review

9

Sector

Purchase Shares Price per Purchase Date of Shares Price per Sale Gain Date Purchased Share Value Sale Sold Share Value (Loss)

TECHNOLOGY 3D Systems 2/7/2014 100 $64.99 $6,508.49 4/7/2014 100 $52.00 $5,189.96 ($1,318.53)Dolby Laboratories 3/21/2014 115 $44.63 $5,142.44 10/14/2014 115 $38.92 $4,465.71 ($676.73)EMC Corp 12/12/2013 440 $23.25 $10,240.00 EMC Corp 3/21/2014 175 $28.00 $4,909.99EMC Corp 10/17/2014 185 $27.12 $5,027.19iRobot 12/4/2012 160 $18.27 $2,933.19 iRobot 12/12/2013 170 $29.79 $5,074.29 4/24/2014 330 $35.00 $11,539.75 $3,532.27 iRobot 4/11/2014 160 $37.49 $6,008.33 9/30/2014 160 $30.00 $4,789.90 ($1,218.43) Google 11/25/2011 10 $565.00 $5,659.99 Google 4/9/2013 5 $775.50 $3,887.49 Google 10/3/2013 10 $886.98 $8,879.74 10/10/2014 25 $549.98 $13,739.20 N/AGoogle Spin-Off 4/3/2014 25 N/A N/A 10/13/2014 25 $549.80 $13,734.70 $9,046.68Google 10/17/2014 45 $526.53 $23,703.84 12/16/2014 45 $499.55 $22,479.80 ($1,224.04)F5 Networks 10/17/2014 90 $111.25 $10,022.49Apple 11/13/2014 90 $111.81 $10,072.89 IND GOODS / UTIL AO Smith Corp 11/7/2013 225 $52.61 $11,847.20 2/4/2014 225 $44.98 $10,109.59Danaher Corp 2/7/2014 135 $74.58 $10,078.28ITC Holdings Corp 8/26/2013 50 $87.00 $4,359.99ITC Holdings Corp 2/28/2014 50 N/A – Split N/A - SplitITC Holdings Corp 4/11/2014 135 $36.39 $4,922.51ITC Holdings Corp 5/9/2014 105 $37.27 $3,923.06NextEra Energy 10/26/2010 65 $54.70 $3,565.49 NextEra Energy 4/11/2014 50 $95.79 $4,799.49NextEra Energy 5/9/2014 40 $98.63 $3,955.16Chemed Corp 5/9/2014 70 $85.07 $5,964.88Northrop Grumman 6/6/2014 50 $124.11 $6,215.48 ABB Ltd. 2/7/2013 380 $21.17 $8,054.59 10/2/2014 380 $22.00 $8,349.82 $295.23 ConocoPhillips 4/9/2013 125 $59.51 $7,448.74 10/2/2014 125 $74.20 $9,264.80 $1,816.06 ConocoPhillips 12/12/2013 75 $69.22 $5,201.49 Honeywell Int’l Inc 10/17/2014 110 $89.48 $9,852.79Halliburton Company 12/4/2014 175 $40.46 $7,090.49CONS GOODS Procter & Gamble Co. 7/14/2009 50 $53.07 $2,663.49 Procter & Gamble Co. 10/26/2010 40 $63.13 $2,525.20 Procter & Gamble Co. 11/30/2010 25 $61.50 $1,537.50 1/31/2014 115 $75.87 $8,714.90 $1,988.71Procter & Gamble Co. 12/12/2013 55 $83.74 $4,615.69 4/11/2014 55 $81.00 $4,444.92 ($170.77)Mattel Inc 10/31/2011 150 $28.30 $4,254.99 Mattel Inc 10/2/2012 70 $35.32 $2,482.39 1/31/2014 200 $38.54 $7,697.88 $1,728.15Mattel Inc 11/7/2013 90 $45.14 $4,072.59 Mattel Inc 12/12/2013 110 $45.41 $5,005.09 4/11/2014 220 $37.65 $8,272.84 ($1,511.24) Nike 2/7/2014 110 $71.96 $7,925.59Nike 5/9/2014 65 $73.15 $4,764.73Annie’s Inc 7/10/2014 135 $33.15 $4,485.24 10/17/2014 135 $45.99 $6,198.52 $1,713.28Keurig Green Mtn 7/10/2014 35 $121.27 $4,254.44 10/17/2014 35 $138.82 $4,868.69 $614.25Lululemon Athletica 7/10/2014 125 $39.89 $4,996.24 10/17/2014 125 $40.27 $5,023.64 $27.40Vera Bradley, Inc 7/10/2014 350 $20.85 $7,307.49 9/30/2014 350 $21.00 $7,337.34 $29.85The Hershey Company 12/12/2013 110 $95.43 $10,507.30 7/31/2014 110 $89.83 $9,871.09 ($636.21)Amazon 10/17/2014 30 $306.82 $9,214.59Decker’s Outdoor 10/17/2014 110 $90.44 $9,958.39Netflix 10/17/2014 40 $359.95 $14,407.99WhiteWave Foods 10/17/2014 300 $33.68 $10,113.99 INTERNATIONAL


Summary of Transactions

10

Baidu, Inc. 2/7/2014 65 $156.44 $10,178.59Qihoo 360 Tech 4/11/2014 55 $87.00 $4,794.94 7/22/2014 55 $95.00 $5,214.89 $419.95HDFC Bank 7/10/2014 200 $47.01 $9,411.99Alibaba Group 11/13/2014 65 $115.00 $7,484.99

Sector Purchase Shares Price per Purchase Date of Shares Price per Sale Gain Date Purchased Share Value Sale Sold Share Value (Loss)

RETAIL PetSmart Inc. 8/4/2008 77 $23.55 $1,813.33 11/7/2013 65 $73.62 $4,775.22 $3,244.47 PetSmart Inc. 10/26/2010 70 $37.05 $2,593.50 PetSmart Inc. 11/22/2011 65 $46.78 $3,050.69 PetSmart Inc. 10/2/2012 58 $69.55 $4,043.89 1/13/2014 205 $67.00 $13,724.77 $3,754.09PetSmart Inc 6/6/2014 100 $58.98 $5,907.89 10/10/2014 100 $65.01 $6,490.46 $582.57BestBuy 2/7/2014 250 $23.81 $5,962.49BestBuy 4/11/2014 225 $25.34 $5,711.27Outerwall, Inc. 3/21/2014 75 $66.89 $5,026.74Outerwall, Inc. 4/11/2014 90 $66.05 $5,954.39 7/10/2014 165 $55.22 $9,101.10 ($1,880.03)Starbucks Corp 12/12/2013 130 $76.21 $9,917.29 4/11/2014 130 $70.00 $9,089.80 ($827.49)Lowe's 6/29/2010 100 $20.25 $2,025.00 Lowe's 10/26/2010 160 $21.73 $3,476.80 6/21/2013 225 $39.44 $8,864.08 $4,122.83 Lowe's 11/30/2010 65 $21.85 $1,420.25 Lowe's 10/2/2012 130 $30.39 $3,960.69 Lowe's 11/6/2012 95 $33.10 $3,154.49 Lowe’s 5/9/2014 110 $45.08 $4,968.75Tiffany's & Co 9/1/2011 75 $72.18 $5,423.40 10/1/2014 75 $94.62 $7,086.36 $1,662.96JC Penney, Inc. 10/3/2013 915 $8.67 $7,942.13 9/26/2014 915 $9.97 $9,113.27 $1,171.14 Gap, Inc. 11/7/2013 210 $38.13 $8,017.29 10/9/2014 210 $37.08 $7,775.32 ($241.97) FINANCIAL Paychex, Inc 8/19/2010 75 $25.00 $1,875.00 Paychex, Inc 10/26/2010 125 $27.87 $3,483.75 Paychex, Inc 10/2/2012 90 $32.88 $2,969.19 Paychex, Inc 4/9/2013 140 $35.24 $4,943.59 Paychex, Inc 4/11/2014 75 $40.22 $3,026.48 7/10/2014 505 $41.84 $21,118.74 $4,820.73First Cash Fin Serv 10/26/2010 90 $27.74 $2,496.60 First Cash Fin Serv 11/30/2010 150 $28.36 $4,254.00 1/28/2014 200 $50.00 $9,988.83 $4,372.63First Cash Fin Serv 11/22/2011 85 $35.52 $3,029.19 First Cash Fin Serv 10/2/2012 60 $47.08 $2,834.79 4/8/2014 185 $48.00 $8,869.81 $1,871.43Bank of America 9/1/2011 250 $8.05 $2,022.47 Bank of America 4/26/2012 360 $8.20 $2,961.99 Bank of America 10/2/2012 330 $9.09 $3,009.69 Bank of America 11/6/2012 210 $9.82 $2,072.19 Bank of America 3/21/2014 275 $18.00 $4,959.99Bank of America 7/10/2014 300 $15.32 $4,605.99Raymond James Fin 2/7/2014 160 $49.07 $7,861.03Raymond James Fin 4/11/2014 60 $49.85 $3,000.93 10/15/2014 220 $48.92 $10,751.17 ($110.79)Visa 2/7/2014 45 $220.40 $9,927.99 4/11/2014 45 $198.82 $8,936.86 ($991.13)Prosperity Bancshares 7/10/2014 100 $61.21 $6,130.99Encore Capital Group 10/17/2014 240 $42.00 $10,089.99Fed Nat’l Holding Co 12/4/2014 200 $23.94 $4,797.99HEALTHCARE Express Script, Inc 11/30/2010 75 $52.11 $3,908.25 Express Script, Inc 10/2/2012 85 $63.50 $5,407.49 Express Script, Inc 12/4/2012 40 $53.66 $2,156.39 4/30/2014 200 $64.80 $12,949.72 $1,477.59Express Script, Inc 4/11/2014 55 $71.17 $3,924.29 7/10/2014 55 $67.43 $3,698.57 ($225.72)United Health Group 5/12/2011 40 $49.50 $1,989.98 United Health Group 7/15/2011 50 $51.92 $2,605.98 United Health Group 11/22/2011 90 $44.34 $4,000.59 United Health Group 4/11/2014 50 $79.42 $3,980.94Johnson & Johnson, Inc. 12/12/2013 100 $92.86 $9,295.99 10/14/2014 100 $95.82 $9,571.80 $275.81


Summary of Transactions

11

Athenahealth, Inc. 7/10/2014 65 $118.38 $7,704.69 10/7/2014 65 $124.87 $8,106.45 $401.76Lakeland Industries 10/17/2014 240 $21.30 $5,121.99 12/4/2014 240 $11.04 $2,639.55 ($2,482.44)Biogen Inc 11/13/2014 25 $322.25 $8,066.24

Sector 12/31/13 Value % 12/31/14 Value % Avg BetaTechnology $50,557.85 18.4% $45,468.05 12.6% 1.53Industrial / Utilities $46,715.60 17.0% $81,633.35 22.6% 0.76Consumer Goods $44,518.60 16.2% $69,580.20 19.3% 1.59Retail $80,755.70 29.3% $48,424.00 13.4% 1.61Financial $61,291.80 22.3% $51,884.25 14.4% 1.45Healthcare $36,761.00 13.4% $31,736.95 8.8% 0.89International $0 0.0% $31,724.15 8.8% 1.70

Total Equity Value $320,600.55 $360,450.95 1.33

Technology12.6%

Industrial/Utilities22.6%

Consumer Goods19.3%

Retail13.4%

Financial14.4%

Healthcare8.8%

International8.8%

Sector Holdings 12/31/14


Sector Holdings

12

STOCK UNREALIZED GAIN/LOSS

2014 ANNUAL INCOME

COST BASISSINCE

INCEPTION RETURN

Alibaba Group $ (728.89) $ - $ 7,484.99 -9.74%

Amazon.com, Inc. $ 95.91 $ - $ 9,214.59 1.04%

Apple, Inc. $ (138.69) $ 169.20 $ 10,072.89 -1.38%

Baidu, Inc. $ 4,639.46 $ - $ 10,178.59 45.58%

Bank of America $ 11,227.93 $ 345.00 $ 19,632.32 57.21%

Best Buy Co. $ 6,841.74 $ 361.00 $ 11,673.76 58.58%

Biogen Idec. $ 420.01 $ - $ 8,066.24 5.21%

Chemed Corp $ 1,432.02 $ 61.60 $ 5,964.88 24.01%

ConocoPhillips Corp $ (21.99) $ 219.00 $ 5,201.49 -0.42%

Danaher Corp $ 1,492.57 $ 54.00 $ 10,078.28 14.82%

Decekers Outdoor $ 56.01 $ - $ 9,958.39 0.56%

EMC Corp $ 3,614.83 $ 368.00 $ 20,177.17 17.92%

Encore Capital Group $ 556.01 $ - $ 10,089.99 5.61%

F5 Networks, Inc. $ 1,719.36 $ - $ 10,022.49 17.16%

Federated National Holdings $ 34.01 $ 32.00 $ 4,797.99 0.71%

Halliburton $ (207.74) $ 126.00 $ 7,090.49 -2.94%

HDFC Bank $ 738.01 $ 64.20 $ 9,411.99 7.84%

Honeywell International $ 1,138.41 $ 227.70 $ 9,852.79 11.56%

ITC Holdings Corp $ 2,562.14 $ 253.50 $ 13,205.56 19.40%

Keurig Green Mountain $ 144.52 $ 80.50 $ 9,123.13 8.91%

Lowes $ 6,172.43 $ 193.20 $ 8,275.57 109.63%

McDonalds Corp $ 5,997.64 $ 561.00 $ 9,462.86 63.38%

Netflix.com, Inc. $ (743.59) $ - $ 14,407.99 -5.16%

NextEra Energy $ 4,157.59 $ 449.50 $ 12,317.36 33.75%

Nike, Inc. $ 4,135.93 $ 196.00 $ 12,690.32 32.58%

Northrop Grumman $ 1,154.02 $ 140.00 $ 6,215.48 18.57%

Prosperity Bancshares $ (594.99) $ 109.00 $ 6,130.99 -9.70%

UnitedHealth Group $ 10,673.21 $ 345.00 $ 12,577.49 84.88%

Whitewave Foods $ 383.01 $ - $ 10,133.99 3.80%


Schedule of Investments

14

Alibaba GroupAmazon.com, Inc.

Apple, Inc.Baidu, Inc.

Bank of AmericaBest Buy Co.Biogen Idec.

Chemed CorpConocoPhillips Corp

Danaher CorpDecekers Outdoor

EMC CorpEncore Capital Group

F5 Networks, Inc.Federated National Holdings

HalliburtonHDFC Bank

Honeywell InternationalITC Holdings Corp

Keurig Green MountainLowes

McDonalds CorpNetflix.com, Inc.NextEra Energy

Nike, Inc.Northrop Grumman

Prosperity BancsharesUnitedHealth Group

Whitewave Foods

-40.00% -20.00% 0.00% 20.00% 40.00% 60.00% 80.00% 100.00%


YTD Return



15

FOR THE PERIOD ENDING:

INVESTMENT INCOME: Dec. 31, 2013 Dec. 31, 2014 Dividend Income $ 4,770.18 $ 4,806.83 Interest Income $ 5.77 $ 3.87 Other / Adjustment $ - $ (1,215.27)

NET REALIZED GAIN (LOSS) ON INVESTMENTS $ 28,538.76 $ (23,156.65)

NET UNREALIZED GAIN (LOSS) ON INVESTMENTS $ 45,916.66 $ 66,960.88

TOTAL INVESTMENT INCOME $ 79,231.37 $ 47,399.66

ADDITIONAL ENDOWMENT DEPOSITS $ - $ 25,000.00

EXPENSES: Commission Fees $ (589.41) $ (889.11) Registration Fees $ (6.24) $ (7.40)TOTAL EXPENSES $ (595.65) $ (896.51)

NET INCOME $ 78,635.72 $ 71,503.15

Beginning Portfolio Value $ 295,805.51 $ 374,441.23 Additional Deposit $ 25,000.00Ending Portfolio Value $ 374,441.23 $ 420,944.38 Difference $ 78,635.72 $ 71,503.15


Income Statement

16

General Economy

In 2015, economic growth looks to make a slow, gradual increase on last year’s performance. The consensus seems to be approximately 3% real GDP growth in the US. The International Monetary Fund predicts global economic growth of 3.2% in 2015. Most of Europe is still struggling to stabilize growth since the world economic recession in 2008, and the managers do not foresee any substantial changes in that region. Although Japan is in the midst of a recession, many economists forecast modest growth in 2015 due to their quantitative and qualitative monetary policies. China’s economic growth is expected to slow to about 7.1% down from last year’s 7.7%.

With the GOP taking control of both chambers of Congress, political turmoil seems to be likely in Washington. It will be interesting to see how the Obama Administration works with this new shift in political power. Another determining factor for the US economy will be whether the Federal Reserve finally begins to raise the federal funds rate, which it has locked at zero to 0.25% since the end of 2008. Although the Federal Reserve has ended “QE3”, Fed Chair Janet Yellen seems to be fine with holding key economic indicators such as the federal funds rate in their current position. Thus, the managers expect short-term interest rates to remain low for much of 2015 but long-term rates may slowly rise if the Fed decides to increase this key rate.

An important theme for 2015 will come from business investments spurred by innovations. Thanks to the oil boom, there is fast-rising demand for drilling and mining technology much of which is produced here in the US and shipped globally. Consumer spending should increase based on solid job growth and low unemployment. Unemployment levels have decreased over the last 12 months and should hover around 5.8% for most of 2015.

Financial

The financial sector is poised for another successful year in 2015. With technology and innovation presumably driving forward, the financial sector should see increased revenue streams and decreased risks in both established and emerging businesses. Lending standards look to remain similar to 2014, allowing the amount of loans being made to consumers and businesses to increase. However, interest rates may gradually increase in 2015, leading to businesses and consumers delaying purchases they might have otherwise made. Growth looks to be a universal priority in 2015, as banks look to invest in customer analytics and elevating the customer experience in both business and retail banking. There should also be an increase in focus on security and authentication in 2015, making retail banking safer and more appealing to investors.

Bank of America and Encore Capital Group both produced steady returns for the Fund in 2014. Going forward, we do not look to make many changes to our current financial sector holdings. The managers believe 2015 will produce a positive return for the financial sector.


Investment Outlook

17

Healthcare

Healthcare is a distinctive sector because it is affected by cyclical and secular trends. The sector is cyclical due to reliance upon regulation, policy, and government spending. However, it is also secular because it consists of companies who produce necessity medications regardless of the economy.

In 2015, the healthcare sector is expected to remain turbulent with further adjustments to the Affordable Care Act occurring as a result of lessons learned since the 2010 implementation and the transition to a Republican-controlled Congress. A positive effect on preventative care and specialty drug manufacturer and biotechnology companies is expected due to an increased demand in personalized healthcare and an increase in the insured and cost-conscious population. However, adverse impacts are anticipated with hospitals due to the continued consolidation of facilities and high treatment costs. As a result of the uncertainty surrounding the healthcare sector, the Fund will likely continue to invest in secular industries, particularly biotechnology companies that produce inelastic drugs that consumers need.

Industrial and Utilities

The utility sector indisputably plays a major role in development as the demand to produce abundant cheap energy and power within the US increases. The new energy within the next two decades will mainly be generated from natural gas and renewable sources. The EIA (US Energy Information Administration) reported that at least 29 states have enforced renewable portfolio standards or other renewable generation policies. Due to this demand, utilities are gradually shifting towards natural gas and alternative energy. Earnings for the utility sector are expected to increase by 10% to 4.9% for 2015. The EIA also reported that as the US works towards energy independence, by 2020 it will become a net exporter of natural gas. Similar to the utility sector, manufacturing production is expected to grow by 4% in 2015. Many expect manufacturing to grow faster than the overall economy. The reason for the expected fast industrial growth is due to the move in demand towards manufactured production such as energy infrastructure, transportation infrastructure, and medical care expansion.

During the first half of 2014, energy commodities were similar to 2013 with a relatively stable price range. However, within the last four months of 2014, petroleum and crude oil prices dropped dramatically. OPEC revenue declined in 2014, mainly due to the decrease in the amount of oil exports and lower oil prices. Due to similar future issues, OPEC revenues are expected to decline even more for 2015. With oil prices expected to continue to drop in the first part of 2015, this decline may provide an opportunity to purchase oil stocks at a low price in hopes of future improvement.


Investment Outlook

18

Technology

The technology sector posed a challenge for the Pacer Fund this year. Google, one of the largest Fund holdings, struggled all year and was sold twice during the year due to stop-loss executions. Will the sector rebound in the near future? The Fund managers decided to keep a 20% portfolio allocation within this sector hoping for a rebound. This allocation may be adjusted downward during 2015 to accommodate for other improved sectors.

The current sector holdings are Apple, EMC Corporation, and F5 Networks. Both EMC and F5 Networks have produced solid returns for the Fund in 2014 and are expected to deliver high returns in 2015 as well. Apple was a recent purchase the Fund made, and they offer a promising return resulting from their innovative products and loyal customers. Going forward, the Fund is looking to capitalize on the increased demand for cyber security. A possible future investment is FireEye, which specializes in products and services for detecting, preventing, and resolving advanced cyber-security threats. The technology sector should deliver a solid return for 2015. Many stock prices have been slashed, and many are currently trading near their 52-week lows. From a strictly contrarian point of view, this sector offers many exciting opportunities.

Retail and Restaurant

The outlook for the retail sector remains stable with modest sales growth of 3-4% in 2015 expected. Sales growth will be supported by increased US employment rates, increased household wealth, and lower gas prices. These factors result in discretionary income that consumers will have available for spending. While online sales represent approximately 13% of US retail sales, they accounted for 50% of the retail sales growth in 2014 and continued growth is predicted for the next several years. Retail will continue to face challenges because of online competition and reduced foot traffic in brick and mortar stores. As retailers continue to battle for market share, expect to see an intense promotional environment become the norm in this environment.

Sales trends are expected to rise in the US restaurant industry in 2015. Same store sales are predicted to average 2-3%, which is an improvement over 2014. Some of the factors contributing to this growth include higher wages and reduced gas prices, resulting in additional disposable income that can be used for food-away-from home spending. A potential threat to the restaurant industry is the increasing labor costs associated with the minimum wage hike. Additionally, multinational chains may be impacted by the weakened economies in Europe and Asia. Areas of focus for 2015 will include food quality, value, and an increased use of customer-facing technology.


Investment Outlook

19

Consumer Goods

As the unemployment rate continues to decline and gasoline prices drop, consumers have more discretionary income than in recent years. Economists also anticipate that food prices will realign, after steep increases in 2014. GDP is projected to continue its steady increase, while inflation is expected to remain under 2% again in 2015. All of these factors are strong signs for the consumer goods sector. Therefore, economists are expecting consumer spending to rise more rapidly in 2015 than in 2014, especially in auto sales.

However, a lot of uncertainty lies in the continually troubled global markets. It is unclear how international sales will be affected by slowing European and Asian economies. As the dollar strengthens, US consumer goods exports are likely to suffer. Additionally, interest rates are expected to rise by the end of the year, which may decrease large Q3 and Q4 purchases.

Future Directions

The overall outlook for stocks in 2015 remains optimistic, although the market will face uncertainties and increasing volatility. Indexes are expected to rise but will be more erratic than usual. There are many positives carrying into this year, including lower oil prices and a strong US dollar, both of which tend to hold down inflation. Additionally, jobs growth, an increase in wages, and lower gas prices should support stronger consumer spending. The current bull market is entering its sixth year and is the fourth longest in 80 years. Analysts are predicting an 11% total return for the S&P500. But, the market can still be challenged by the impact of the Fed’s actions, as the bond buying has ended and short-term interest rates are expected to rise in the second half of 2015. The potential for a market correction also exists.

The global economy is struggling as Europe is in stagnation while China faces slower growth. But, there are signs of potential improvement as central bank stimulus and supportive fiscal policy should provide a much needed boost for the countries. Lower US oil prices typically bolster global economic growth in the short term. As US stocks are priced higher, there may be opportunity in the emerging markets arena where securities are attractively valued.

For 2015, the Pacer Fund managers will seek out investments by identifying fundamentally sound companies with strong business economics. Once identified, the focus will shift to the technical aspect to determine if the securities are priced right to buy. Beta will be another area the managers will monitor throughout 2015. In past years, the managers set out to increase the beta of the Fund with the hopes of achieving a higher return, and at the end of 2014 the Fund’s beta was 1.33. This higher beta led to more volatility for the Pacer Fund than the rest of the market. Since the markets are expected to be erratic in 2015, managers may consider reducing the Fund’s beta. More in-depth analysis will also occur when using stop-loss and limit-to-buy orders. The managers feel strongly that sectors poised for growth include financial, healthcare, and consumer goods. The Pacer Fund managers remain confident that our commitment to research and detailed financial analysis will continue to help maintain capital growth throughout 2015.


Investment Outlook

20

From the Student Managers:

The student managers of the Pacer investment Fund would like to again acknowledge the kind generosity of the Fund donors, Mr. Michael Murray, Mr. Michael Insalaco, and Ms. Pia Ferrario. Without their vision and financial commitment, the hands-on experiences that the managers have received over the past several years would not have been possible.

The student managers would also like to recognize the knowledgeable instruction and guidance that they have received from the Managing Director, Dr. Art Comstock, and all of the School of Business & Global Innovation professors while matriculating within the MBA Program at Marywood University. Their enthusiasm and dedication to ensuring student success is inspiring.

From the Managing Director:

The Managing Director of the Pacer Investment Fund, Dr. Art Comstock, would like to extend a sincere message of appreciation for the support of numerous key individuals that have helped to transform this vision into a reality. Fund donors, Mr. Michael Murray, Mr. Michael Insalaco, and Ms. Pia Ferrario cannot be thanked enough for their exceptional generosity in establishing the endowment and supporting the educational opportunities available to our Business students. Dr. Clay Pheasant, former Vice President of University Advancement, and Ms. Renee Zehel, current Vice President of University Advancement, have also been instrumental in support of this academic initiative from its earliest stages through its current growth.

The Managing Director would also like to thank the Board of Managers, including Mr. Joe Garvey and Dr. Fran Zauhar, as well as several other staff members and School of Business & Global Innovation colleagues, for their support and service to the Fund. And, most importantly, Dr. Comstock wishes to extend sincere appreciation to the Student Director, Marygrace Wilce, and the rest of the student management team, as well as his Graduate Assistant Ken Doolittle, for their tireless efforts and selfless service to the success of the Pacer Investment Fund.


Acknowledgements

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