When Sean O’Hara, President at Pacer ETF Distributors, approached Nasdaq with a simple question—”Why isn’t there a Nasdaq 100 for international?”—he set in motion a collaboration that would fundamentally rethink how investors access global innovation. The result is the Pacer Nasdaq International Patent Leaders ETF (ticker: PATN), a fund built on the premise that intellectual property, not geography, defines the future of international equity investing.
For years, advisors allocating to international markets have confronted a familiar problem: broad-based indexes weighted heavily toward banks, materials companies, and industrials—sectors that rarely drive the kind of growth clients expect from their equity portfolios. PATN offers a different path, one that targets the 100 non-U.S. companies with the most valuable patent portfolios, effectively filtering international exposure through the lens of innovation rather than market capitalization alone.
Building a New Benchmark from Scratch
The origins of PATN reveal much about how the fund aims to solve structural challenges in international investing. O’Hara initially envisioned pairing U.S. companies with international counterparts based on similar business models and market positions.
“My original idea was to sort of find, you know how you have sister cities, there’s a European city that’s a sister city to the U.S.,” O’Hara explains. “So, I said, ‘Well, let’s just take the Nasdaq 100 and take each one of the holdings and find an international counterpart, if you will.’”
The approach proved unworkable given the compositional differences among markets, but Nasdaq returned with a more sophisticated framework. The index provider identified innovation as the defining characteristic of the Nasdaq 100’s success and proposed patent value as the measurable expression of innovation. “They think that’s the key,” O’Hara notes. “And they think what drives innovation is intellectual property and patents.”
Nasdaq partnered with a third-party patent valuation firm to assess not just the quantity of patents companies hold but their current economic relevance. The methodology aims to identify companies whose intellectual property generates ongoing competitive advantages rather than those sitting on expired or obsolete patents.
Consider a company holding outdated technology rights, O’Hara suggests, explaining how the screening process works. “If you had a company who had the patent on a buggy whip, they wouldn’t be in the portfolio because it’s not a very useful patent today,” he says. “So, they’re looking at the current usefulness of the patents and the library of patents that companies control. And we know from looking at lots of different things that that innovation, that patent technology, that research and development is a real driver for future growth.”
The resulting index diverges sharply from traditional international benchmarks in sector composition. Where the MSCI EAFE Index overweights financials, materials, and industrials, PATN redirects capital toward information technology, which represented 38% of the fund’s exposure as of December 31, 2025. Top holdings as of year-end included Taiwan Semiconductor Manufacturing, Samsung Electronics, and ASML Holding—companies operating at the technological frontier rather than legacy industries.
The Economic Structure Behind International Indexes
International equity investors often face a structural dilemma: most non-U.S. markets have evolved around economic models different from that of the United States, creating sector compositions misaligned with growth objectives. O’Hara points to the fundamental divide between how the American economy generates returns versus how international markets are structured.
“Here, we have a very innovative economy,” he observes. “It’s services based, it’s technology based, it’s communication services based. We have a big piece of it to financials, but what’s really driving returns are those first three sectors.”
International markets present a different composition, one shaped by industrial histories rather than the digital economy. Europe, in particular, reflects what O’Hara characterizes as “an old school economy,” resulting in allocations that favor heavy assets and slower-growing sectors. The implication for portfolio construction becomes clear: matching U.S. equity exposure with traditional international indexes creates a structural mismatch between high-growth domestic holdings and value-oriented foreign allocations.
PATN seeks to rebalance the equation by concentrating on international companies engaged in research and development, those building moats through intellectual property rather than scale or commodity production. The fund carries minimal exposure to financials, redirecting capital that would typically flow to banks toward technology companies instead.
“All that weight that would normally go to financials is actually going to technology internationally,” O’Hara explains, creating what he describes as “a much more growth-oriented way to invest internationally.”
The shift extends beyond sector tilts to fundamental business models. While traditional international indexes capture companies whose competitive advantages rest on regulatory franchises or resource extraction, PATN targets firms whose valuations depend on continuous innovation. Patent protection increasingly determines market leadership in semiconductors, biotechnology, and enterprise software—precisely the industries where PATN concentrates capital and where international companies compete most effectively against U.S. counterparts.
Positioning Within a Diversified International Allocation
O’Hara positions PATN as a complement to rather than replacement for traditional international exposure, reflecting Pacer’s broader philosophy of building satellite positions around core holdings. “At Pacer, our three big buzzwords are innovative, disruptive, and unique,” he emphasizes. “We build stuff that’s different, and this fits right in with what our core values are all about.”
The suggested allocation framework involves splitting traditional international exposure into thirds: maintaining broad-based index exposure while carving out separate allocations to growth-oriented strategies such as PATN and Pacer ETFs’ Cash Cows strategies (ICOW and GCOW). The approach recognizes that clients might need some exposure to value-oriented international sectors while concentrating growth capital in companies positioned to benefit from technological change. Most investors require some international allocation, O’Hara notes, but broad-based indexes come with inherent limitations. “This is just a different way to sort of compliment that position.”
Broad international indexes have historically lagged U.S. markets precisely because their constituent companies operate in industries with limited pricing power and slower earnings growth—sectors that may offer diversification benefits but rarely drive the kind of performance clients expect from growth allocations.
“If you want true innovation and true growth based on patent value, PATN becomes that solution,” O’Hara says.
The fund’s country breakdown as of December 31, 2025, showed Japan (25.96%), Taiwan (13.67%), and France (12.58%) as the largest allocations, reflecting concentrations of patent-intensive industries rather than GDP weightings. Germany, home to SAP and industrial automation leaders, accounted for 8.79%, while South Korea, dominated by Samsung and SK hynix, represented 10.21%. The geographic distribution follows innovation clusters rather than market capitalization.
Performance Through the Lens of Intellectual Property
PATN’s performance since its September 2024 inception demonstrates the potential advantages of innovation-focused international exposure. Through December 31, 2025, the fund’s index returned 29.06% compared to 20.45% for the MSCI ACWI ex USA Index, outperforming the broad international benchmark by more than 850 basis points. For the one-year period through December 2025, PATN’s index similarly bested the MSCI index, returning 40.08% against the wider market’s 32.39% gain.1
O’Hara attributes the outperformance to the strategy’s focus on companies whose competitive positions rest on intellectual property rather than operational scale. “What we’re looking for is that excess return,” he explains. “And we think what drives that excess return is patent value, which leads to innovation from these companies.”
The weighted-average market capitalization of $329.7 billion at year-end 2025 positions the fund in large- and mid-cap territory, avoiding the illiquidity concerns often associated with smaller international companies while maintaining exposure to growth-oriented businesses. The price-to-earnings ratio of 19.65 suggests reasonable valuations relative to growth potential, particularly when compared to the elevated multiples commanding U.S. technology leaders.
Beyond raw returns, the fund seeks to provide advisors with a mechanism for capturing international equity beta during periods when non-U.S. markets outperform while avoiding the sectors that typically drag on broad international indexes. The ETF’s 0.65% total expense ratio reflects the specialized index methodology and reconstitution process required to maintain focus on current patent valuations.
Secular Tailwinds Supporting International Innovation
O’Hara sees PATN as differentiated within broader market dynamics favoring international equities. International markets delivered strong performance in 2024, and momentum appears to be building for continued relative strength as capital rotates away from concentrated U.S. positions.
The observation aligns with several secular trends documented in Pacer’s June 2025 research highlighting valuation gaps, currency dynamics, and fiscal policy shifts supporting non-U.S. markets. Germany’s €500 billion ($567 billion) infrastructure and defense spending initiative, coupled with broader European efforts to build semiconductor and artificial intelligence capabilities, creates potential tailwinds for the technology-oriented companies PATN targets.
Japan’s structural transformation from deflationary stagnation toward wage-driven growth similarly benefits companies whose competitive advantages rest on innovation rather than cost reduction. The Bank of Japan’s monetary policy normalization, driven by persistent services inflation and sustained wage increases, provides a more favorable economic backdrop than the zero-rate environment that prevailed for decades.
The currency dimension adds another layer of potential return enhancement. When the dollar weakens, international equity returns for U.S. investors receive a boost from foreign currency appreciation. O’Hara’s enthusiasm about combining two strong themes—technology and international exposure—reflects recognition of how multiple factors can align to drive outperformance. PATN aims to provide access to patent-rich technology companies without the traditional baggage of international allocations, concentrating on businesses driving innovation rather than those managing commodity exposure or regulatory relationships.
The Competitive Moat of Regulatory Protection
A final distinguishing feature of PATN’s approach involves the nature of competitive advantages created by patent protection. O’Hara highlights the difference between patents and other forms of intellectual property, noting the fund’s deliberate focus on companies whose value stems from protected technological capabilities. The portfolio excludes luxury goods providers relying on brand recognition or companies whose competitive positions rest primarily on trademarks and copyrights. Instead, PATN concentrates on businesses competing through technological capability—companies building products and services protected by patent rights.
Patents represent government-granted monopolies on specific technologies, creating barriers to entry unavailable through brand recognition or operational efficiency alone. Companies holding valuable patent portfolios can price products above commodity levels, defend market share against new entrants, and generate licensing revenue from competitors seeking to use protected technologies. The economic value stems from legal exclusivity rather than marketing effectiveness or consumer sentiment.
The focus on “real businesses”—those competing on technological capability rather than marketing prowess—aims to provide exposure to durable competitive advantages rather than temporary market enthusiasm. Pacer offers a separate international fund (GLBL) for advisors seeking exposure to brand-driven companies, but O’Hara positions PATN as potentially capturing a different source of alpha: the returns generated by research and development spending materialized into protected intellectual property.
As international markets potentially enter a new phase of relative outperformance, PATN seeks to provide advisors with a mechanism for tilting exposure toward companies whose growth depends on innovation rather than operational leverage. The strategy doesn’t eliminate the need for broad international exposure but seeks to address the structural challenge of matching U.S. equity growth with international holdings weighted toward industries unlikely to keep pace. For portfolios requiring international diversification without sacrificing growth characteristics, the patent-focused approach can provide a framework grounded in measurable intellectual property rather than sector preferences or market timing.
1 Past performance is not indicative of future results. You can not invest in an index.
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Additional Resources
- Contact Pacer ETFs
- PATN Fact Sheet
- PATN Summary Prospectus
- International Equities in Focus: A Tactical and Strategic Relocation Opportunity
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Disclosures
Before investing you should carefully consider the Fund’s investment objectives, risks, charges, and expenses. This and other information is in the prospectus. A copy may be obtained by visiting www.paceretfs.com or calling 1-877-337-0500. Please read the prospectus carefully before investing.
An investment in the Funds is subject to investment risk, including the possible loss of principal. Pacer ETF shares may be bought and sold on an exchange through a brokerage account. Brokerage commissions and ETF expenses will reduce investment returns. There can be no assurance that an active trading market for ETF shares will be developed or maintained. The risks associated with this fund are detailed in the prospectus and could include factors such as calculation methodology risk, currency exchange rate risk, equity market risk, ETF risks, foreign securities risk, geographic concentration risk, international operations risk, large- and mid- capitalization risk, limited operating history risk, non-diversification risk, passive investment risk, sector risk, tracking error risk, and/or special risks of exchange traded funds.
Nasdaq®, Nasdaq International Patent Leaders™; NQIPL™ are trademarks of Nasdaq, Inc. and its licensors (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Pacer Advisors. The Product(s) have not been passed on by the Corporations as to their legality or suitability. The Product(s) are not issued, endorsed, sold, or promoted by the Corporations. The Corporations make no warranties and bear no liability with respect to the product(s).
Nasdaq International Patent Leaders Index is designed to track the performance of companies from the Nasdaq Global Ex United States Large Mid Cap™ Index (NQGXUSLMTM) with the most valuable patent portfolios.
MSCI ACWI ex USA Index The MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 24 Emerging Markets (EM) countries.
Weighted average market cap is the sum of each company’s weight multiplied by its market cap.
P/E ratio a fundamental measure commonly used to determine if an investment is valued appropriately. Each holding’s P/E is the latest closing price divided by the latest fiscal year’s earnings per share.
Not FDIC Insured | Not Bank Guaranteed | May Lose Value
Distributor: Pacer Financial, Inc., member FINRA, SIPC, an affiliate of Pacer Advisors, Inc.
