ck0001683471-20211231
Roundhill BITKRAFT Esports & Digital
Entertainment ETF
(NERD)
Roundhill Sports Betting & iGaming
ETF
(BETZ)
Roundhill Ball Metaverse ETF
(METV)
Roundhill IO Digital Infrastructure
ETF (BYTE)
Roundhill MEME ETF (MEME)
Principal
U.S. Listing Exchange: NYSE Arca, Inc.
April 30,
2022
The
U.S. Securities and Exchange Commission (the “SEC”) has not approved or
disapproved of these securities or passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
TABLE
OF CONTENTS
Investment Objective
The Roundhill BITKRAFT Esports
& Digital Entertainment ETF (“Esports ETF” or the “Fund”) seeks to track the
total return performance, before fees and expenses, of the Roundhill BITKRAFT
Esports Index (the “Index”).
Fees and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
0.50% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.50% |
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Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year: |
$51 |
3
Years: |
$160 |
5
Years: |
$280 |
10
Years: |
$628 |
Portfolio Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal year ended December 31,
2021, the Fund’s portfolio turnover rate was 52% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund uses a “passive management” (or indexing) approach to seek to track the
total return performance, before fees and expenses, of the Index. The Index was
developed by Roundhill Financial Inc., the Fund’s investment adviser and index
provider (“Roundhill” or the “Adviser”), which tracks the performance of a
tiered weight portfolio of globally-listed equity securities of companies that
are actively involved in the esports and other digital entertainment
industries.
Roundhill
BITKRAFT Esports Index
The
Index tracks the performance of the common stock (or corresponding American
Depositary Receipts (“ADRs”) or Global Depositary Receipts (“GDRs”)) of
exchange-listed companies that earn revenue from electronic sports, or
esports-related business activities, including: (a) video game publishing, (b)
video game development, (c) video game streaming platforms, (d) organizing video
game tournaments and/or events, (e) operating and/or owning video game leagues,
(f) owning competitive video game teams, and (g) gaming hardware and technology
companies (collectively, the “Esports Industry”) or whose principal business
activity is classified as that of another digital entertainment business
activity, such as broadcasting, interactive home entertainment, interactive
media & services, technology hardware storage or technology hardware,
storage and peripherals. The companies in the Index are segregated into three
categories by a committee comprised of staff from Roundhill (the “Committee”),
specifically:
(i)“Pure-Play”
Companies - Companies whose primary business model and/or growth prospects are
directly linked to the Esports Industry. For these companies, continued growth
in the Esports Industry is expected to be critical to their economic success
going forward.
(ii)“Core”
Companies - Companies with substantial operations and/or growth prospects linked
to the Esports Industry. These companies have other digital entertainment
business units driving their economics, and thus are less affected by the growth
of Esports Industry than pure-play companies. In time, growth in the industry
and/or investments in their esports units may lead these companies to become
pure-play companies if their esports operations become a primary driver of
economic performance. In most cases, the esports related offerings of these
companies are core components of the Esports Industry.
(iii)“Non-Core”
Companies - Companies with operations and/or growth prospects linked to the
Esports Industry. These companies derive the majority of their revenue from
digital entertainment business lines not directly related to the Esports
Industry. In time, growth in the industry and/or investments in their esports
units may lead these companies to become “core” companies if their esports
operations become a relevant driver of economic performance. It is unlikely,
based on current information, that the esports related offerings of non-core
companies would become the primary driver of such economic performance going
forward.
The
composition of the Index is based on the following rules:
The
Index will consist of a minimum of 25 components upon each
rebalancing.
When
adding new constituents to the Index, an ADR or GDR is included in the Index in
lieu of the foreign security if the ADR or GDR has a higher six-month average
daily trading value than the foreign security. In the case of an existing
component security, the security will not be replaced in the event the
corresponding ADR, GDR or foreign security, as applicable, experiences a higher
six-month average daily trading value than the existing component security.
The
Index has a quarterly review in March, June, September, and December of each
year, at which times the Index is reconstituted and rebalanced by Roundhill.
Component changes resulting from reconstitutions are made after the market close
on the third Friday in each quarterly review month and become effective at the
market opening on the next trading day.
The
Committee is responsible for overseeing implementation of the Index methodology.
In overseeing the implementation of the methodology, the Committee will
generally follow criteria for the screening, classification, and weighting
process, but may adjust the inputs to or outputs from such criteria in instances
in which the Committee determines that due to extenuating circumstances or
unusual market conditions the results of the process do not result in an
appropriate representation of a company within the Index or would be contrary to
investor expectations for the Index. For example, the Committee may determine to
adjust a company’s weighting in the Index in the event that the information
obtained from a company’s public filing and used as part of the process to
calculate the company’s weighting in the Index was artificially inflated in the
calculation period due to an extraordinary event. In addition, the Committee may
determine, at a given rebalance, that a company which had previously been
classified as “non-core” and thus included in the Index, has since had a
material change to its overall business that justifies moving the company to
“N/A” and not including the company in the Index at that time. The Committee’s
goal in making these decisions is to maintain the Index’s representation of
pure-play companies involved in esports. Members of the Committee can recommend
changes to the methodology and submit them to the Committee for
approval.
As
of March 31, 2022, the Index had 33 constituents and significant portions of the
Index were comprised of companies located in China and the U.S., although this
may change from time to time.
The
Fund’s Investment Strategy
The
Fund invests, under normal circumstances, at least 80% of its net assets (plus
borrowings for investment purposes) in companies that are economically tied to
esports and other digital entertainment industries. For purposes of the
foregoing policy, a company is considered economically tied to the esports
industry if it earns revenue from the Esports Industry. A company is considered
economically tied to other digital entertainment industries if its principal
business activity is classified in one of the following sub-industries:
broadcasting, interactive home entertainment, interactive media & services,
technology hardware storage or technology hardware, storage and
peripherals.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund generally will invest in all of the component
securities of the Index in approximately the same proportions as in the Index.
However, the Fund may use a “representative sampling” strategy, meaning it may
invest in a sample of the securities in the Index whose risk, return, and other
characteristics closely resemble the risk, return, and other characteristics of
the Index as a whole, when Exchange Traded Concepts, LLC (the “Sub-Adviser”),
the Fund’s sub-adviser, believes it is in the best interests of the Fund
(e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund generally may invest up to 20% of its total assets (exclusive of any
collateral held from securities lending) in securities or other investments not
included in the Index, but which the Sub-Adviser believes will help the Fund
track the Index. For example, the Fund may invest in securities that are not
components of the Index to reflect various corporate actions and other changes
to the Index (such as reconstitutions, additions, and deletions).
To
the extent the Index concentrates (i.e.,
holds more than 25% of its total assets) in the securities of a particular
industry or group of related industries, the Fund will concentrate its
investments to approximately the same extent as the Index.
As of March 31, 2021, the Index was concentrated in one or more industries in
the communication services sector and information technology
sector.
The Fund is classified as a
“non-diversified” investment company under the Investment Company Act of 1940,
as amended (the “1940 Act”).
Principal Investment Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and/or ability to meet its
objective. The following risks could affect the value of your investment in
the Fund:
•Competitive
Esports Risk. Esports
companies face intense competition, both domestically and internationally, may
have limited product lines, markets, financial resources, or personnel, may have
products that face rapid obsolescence, and are heavily dependent on the
protection of patent and intellectual property rights. Such factors may
adversely affect the profitability and value of esports companies. These
companies also may be subject to increasing regulatory constraints, particularly
with respect to cybersecurity and privacy. In addition to the costs of complying
with such constraints, the unintended disclosure of confidential information,
whether because of an error or a cybersecurity event, could adversely affect the
reputation, profitability and value of these companies.
•Communication
Services Sector Risk.
The Fund’s assets will have significant exposure to the communication services
sector, which means the Fund will be more affected by the performance of the
communication services sector than a fund that is more diversified. Market or
economic factors impacting communication services companies and companies that
rely heavily on technological advances could have a major effect on the value of
the Fund’s investments. The value of stocks of communication services companies
and companies that rely heavily on technology is particularly vulnerable to
research and development costs, substantial capital requirements, product and
services obsolescence, government regulation, and domestic and international
competition, including competition from foreign competitors with lower
production costs. Stocks of communication services companies and companies that
rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Additionally,
companies in the communication services sector may face dramatic and often
unpredictable changes in growth rates and competition for the services of
qualified personnel. While all companies may be susceptible to network security
breaches, certain companies in the communication services sector may be
particular targets of hacking and potential theft of proprietary or consumer
information or disruptions in service, which could have a material adverse
effect on their businesses.
◦Entertainment
Industry Risk.
As a result of the Fund’s concentration in the Entertainment Industry, the Fund
is subject to the risks associated with that Industry. The Entertainment
Industry is highly competitive and relies on consumer spending and the
availability of disposable income for success. The prices of the securities of
companies in the Entertainment Industry may fluctuate widely due to competitive
pressures, heavy expenses incurred for research and development of products,
problems related to bringing products to market, consumer preferences and rapid
obsolescence of products. Legislative or regulatory changes and increased
government supervision also may affect companies in the Entertainment Industry.
The Entertainment Industry is a separate industry within the Communication
Services Sector.
•Concentration
Risk.
Because the Fund’s assets will be concentrated in an industry or group of
industries to the extent the Index concentrates in a particular industry or
group of industries, the Fund is subject to loss due to adverse occurrences that
may affect that industry or group of industries.
•Currency
Exchange Rate Risk. The
Fund may invest in investments denominated in non-U.S. currencies or in
securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will affect the
value of the Fund’s investment and the value of your Shares. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the value of an investment in the Fund may change quickly and without
warning and you may lose money.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, the
Sub-Adviser and/or other service providers (including custodians and financial
intermediaries) to suffer data breaches or data corruption. Additionally,
cybersecurity failures or breaches of the electronic systems of the Fund, the
Adviser, the Sub-Adviser or the Fund’s other service providers, market makers,
Authorized Participants (“APs”) or the issuers of securities in which the Fund
invests have the ability to cause disruptions and negatively impact the Fund's
business operations, potentially resulting in financial losses to the Fund and
its shareholders.
•Depositary
Receipt Risk.
Depositary receipts, including ADRs, involve risks similar to those associated
with investments in foreign securities, such as changes in political or economic
conditions of other countries and changes in the exchange rates of foreign
currencies. Depositary receipts listed on U.S. exchanges are issued by banks or
trust companies, and entitle the holder to all dividends and capital gains that
are paid out on the underlying foreign shares (“Underlying Shares”). When the
Fund invests in depositary receipts as a substitute for an investment directly
in the Underlying Shares, the Fund is exposed to the risk that the depositary
receipts may not provide a return that corresponds precisely with that of the
Underlying Shares. Because the Underlying Shares trade on foreign exchanges that
may be closed when the Fund’s primary listing exchange is open, the Fund may
experience premiums and discounts greater than those of funds without exposure
to such Underlying Shares.
•Emerging
Markets Risk. The
Fund may invest in companies organized in emerging market nations. Investments
in securities and instruments traded in developing or emerging markets, or that
provide exposure to such securities or markets, can involve additional risks
relating to political, economic, or regulatory conditions not associated with
investments in U.S. securities and instruments or investments in more developed
international markets. Such conditions may impact the ability of the Fund to
buy, sell or otherwise transfer securities, adversely affect the trading market
and price for Fund shares and cause the Fund to decline in value.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
•ETF
Risks.
The Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the
business or significantly reduce their business activities and no other entities
step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums or discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares.
•Foreign
Securities Risk. Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. Investments in non-U.S. securities also may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. These and other factors
can make investments in the Fund more volatile and potentially less liquid than
other types of investments.
•Geographic
Investment Risk.
To the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
◦Risks
Related to Investing in China.
The
Chinese economy is generally considered an emerging market and can be
significantly affected by economic and political conditions and policy in China
and surrounding Asian countries. A relatively small number of Chinese companies
represent a large portion of China’s total market and thus may be more sensitive
to adverse political or economic circumstances and market movements. The economy
of China differs, often unfavorably, from the U.S. economy in such respects as
structure, general development, government involvement, wealth distribution,
rate of inflation, growth rate, allocation of resources and capital
reinvestment, among others. Under China’s political and economic system, the
central government has historically exercised substantial control over virtually
every sector of the Chinese economy through administrative regulation and/or
state ownership. In addition, expropriation, including nationalization,
confiscatory taxation, political, economic or social instability or other
developments could adversely affect and significantly diminish the values of the
Chinese companies in which the Fund invests. Additionally, from time to time,
China has experienced outbreaks of infectious illnesses, including the COVID-19
pandemic, and the country may be subject to other public health threats,
diseases or similar issues in the future. The Fund may invest in shares of
Chinese companies traded on stock markets in Mainland China or Hong Kong. These
stock markets have experienced high levels of volatility, which may continue in
the future. The Hong Kong stock market may behave differently from the Mainland
China stock market and there
may
be little to no correlation between the performance of the Hong Kong stock
market and the Mainland China stock market.
•Illiquidity
Risk.
Illiquidity risk exists when particular investments are difficult to purchase or
sell, possibly preventing the Fund from selling these illiquid investments at an
advantageous price or at the time desired. A lack of liquidity may also cause
the value of investments to decline. Illiquid investments may also be difficult
to value.
•Information
Technology Sector Risk.
The information technology sector includes companies engaged in internet
software and services, technology hardware and storage peripherals, electronic
equipment instruments and components, and semiconductors and semiconductor
equipment. Information technology companies face intense competition, both
domestically and internationally, which may have an adverse effect on profit
margins. Information technology companies may have limited product lines,
markets, financial resources or personnel. The products of information
technology companies may face rapid product obsolescence due to technological
developments and frequent new product introduction, unpredictable changes in
growth rates and competition for the services of qualified personnel. Failure to
introduce new products, develop and maintain a loyal customer base, or achieve
general market acceptance for their products could have a material adverse
effect on a company’s business. Companies in the information technology sector
are heavily dependent on intellectual property and the loss of patent, copyright
and trademark protections may adversely affect the profitability of these
companies.
◦Technology
Hardware, Storage and Peripherals Industry Risk.
Technology hardware, storage and peripherals companies can be significantly
affected by competitive pressures, aggressive pricing, technological
developments, changing domestic demand, the ability to attract and retain
skilled employees and availability and price of components. The market for
products produced by these companies is characterized by rapidly changing
technology, rapid product obsolescence, cyclical market patterns, evolving
industry standards and frequent new product introductions. The success of
technology hardware companies depends in substantial part on the timely and
successful introduction of new products. An unexpected change in one or more of
the technologies affecting an issuer’s products or in the market for products
based on a particular technology could have a material adverse effect on a
participant’s operating
results.
Many
of these companies rely on a combination of patents, copyrights, trademarks and
trade secret laws to establish and protect their proprietary rights in their
products and technologies. There can be no assurance that the steps taken by the
companies to protect their proprietary rights will be adequate to prevent
misappropriation of their technology or that competitors will not independently
develop technologies that are substantially equivalent or superior to such
companies’ technology.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. These developments as well as other events could result in
further market volatility and negatively affect financial asset prices, the
liquidity of certain securities and the normal operations of securities
exchanges and other markets. It is unknown how long circumstances related to the
pandemic will persist, whether they will reoccur in the future, whether efforts
to support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
•Non-Diversification
Risk. Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a lesser number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer or a lesser number of
issuers could cause the Fund’s overall value to decline to a greater degree than
if the Fund held a more diversified portfolio. This may increase the Fund’s
volatility and have a greater impact on the Fund’s
performance.
•Passive
Investment Risk.
The Fund is not actively managed and its Sub-Adviser would not sell shares of an
equity security due to current or projected underperformance of a security
industry or sector unless that security is removed from the Index or the selling
of shares of that security is otherwise required upon a rebalancing of the Index
as addressed in the Index methodology.
•Tracking
Error Risk. As with all index funds, the performance of
the Fund and its Index may differ from each other for a variety of reasons. For
example, the Fund incurs operating expenses and portfolio transaction costs not
incurred by the Index. In addition, the Fund may not be fully invested in the
securities of the Index at all times or may hold securities not included in the
Index.
Performance
The following
performance information indicates some of the risks of investing in the Fund.
The bar chart shows the Fund’s performance for calendar years ended December
31. The table illustrates how the Fund’s average annual returns
for the 1-year and since inception periods compare with those of a broad measure
of market performance and the Index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.roundhillinvestments.com.
Calendar Year Total
Returns
The calendar year-to-date total return of the
Fund as of March 31, 2022 was
-13.15%. During the period of time shown in the bar
chart, the highest quarterly return
was 48.75% for the quarter ended June 30, 2020, and the
lowest quarterly return was
-18.53% for the quarter ended September 30,
2021.
Average
Annual Total Returns
(for
periods ended December 31, 2021)
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Roundhill
BITKRAFT Esports & Digital Entertainment ETF |
1-Year |
Since
Inception
(6/3/2019) |
Return Before
Taxes |
-16.93% |
23.00% |
Return After Taxes on
Distributions |
-16.86% |
22.86% |
Return After Taxes on Distributions and
Sale of Shares |
-9.94% |
18.18% |
Roundhill
BITKRAFT Esports Index
(reflects no deduction for
fees, expenses, or taxes) |
-16.75% |
23.82% |
Solactive
GBS Developed Markets Large & Mid Cap USD
(reflects
no deduction for fees, expenses, or taxes) |
22.29% |
21.71% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts. In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Shares” may be
higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax deduction that benefits the
investor.
Portfolio
Management
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Adviser |
Roundhill
Financial Inc. |
Sub-Adviser |
Exchange
Traded Concepts, LLC |
Portfolio
Managers |
Andrew
Serowik, a portfolio manager for the Sub-Adviser, has been a portfolio
manager of the Fund since its inception in June 2019, and Todd Alberico
and Gabriel Tan, each a portfolio manager for the Sub-Adviser, have been
portfolio managers of the Fund since July
2021 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at
www.roundhillinvestments.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an IRA or other tax-advantaged account. Distributions on investments made
through tax-deferred arrangements may be taxed later upon withdrawal of assets
from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
Investment Objective
The Roundhill Sports Betting
& iGaming ETF (“Sports Betting ETF” or the “Fund”) seeks to track the total
return performance, before fees and expenses, of the Roundhill Sports Betting
& iGaming Index (the “Index”).
Fees and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
0.75% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.75% |
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Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year: |
$77 |
3
Years: |
$240 |
5
Years: |
$417 |
10
Years: |
$930 |
Portfolio Turnover
The Fund pays transaction costs,
such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal year ended December 31,
2021, the Fund’s portfolio turnover rate was 52% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund uses a “passive management” (or indexing) approach to seek to track the
total return performance, before fees and expenses, of the Index. The Index was
developed by Roundhill Financial Inc., the Fund’s investment adviser and index
provider (“Roundhill” or the “Adviser”), which tracks the performance of a
tiered-weight portfolio of globally-listed equity securities of companies that
are actively involved in the sports betting industry.
Roundhill
Sports Betting & iGaming Index
The
Index tracks the performance of the common stock (or corresponding American
Depositary Receipts (“ADRs”) or Global Depositary Receipts (“GDRs”)) of
exchange-listed companies that earn revenue from online gaming (“iGaming”).
iGaming is broadly defined as: the wagering of money or some other value on the
outcome of an event or a game, using the internet. The Index includes: (i)
companies that operate in-person and/or online/internet sports books; (ii)
companies that operate online/internet gambling platforms; and (iii) companies
that provide infrastructure or technology to such companies. The companies in
the Index are segregated into three categories by a committee comprised of staff
from Roundhill (the “Committee”), specifically:
(i)“Pure-Play”
Companies - iGaming companies whose primary business model and/or growth
prospects are directly linked to sports betting. For these companies, continued
growth in sports betting is expected to be critical to their economic success
going forward.
(ii)“Core”
Companies - iGaming companies with substantial operations and/or growth
prospects linked to sports betting. These companies have other iGaming
(non-sports betting) business units driving their economics, and thus are less
affected by the growth of sports betting than pure-play companies. In
time, growth in the industry and/or investments in their sports betting units
may lead these companies to become pure-play companies if their sports betting
operations become a primary driver of economic performance. In most cases, the
sports betting related offerings of these companies are core components of the
sports betting industry.
(iii)“Non-Core”
Companies - iGaming companies with some operations and/or growth prospects
linked to sports betting. These companies derive the majority of their revenue
from other gaming/gambling business lines not directly related to sports
betting. In time, growth in the industry and/or investments in their
sports betting units may lead these companies to become “core” companies if
their sports betting operations become a relevant driver of economic
performance. It is unlikely, based on current information, that the sports
betting offerings of non-core companies would become the primary driver of such
economic performance going forward.
The
composition of the Index is based on the following rules:
When
adding new constituents to the Index, an ADR or GDR is included in the Index in
lieu of the foreign security if the ADR or GDR has a higher six-month average
daily trading value than the foreign security.
The
Index has a quarterly review in January, April, July, and October of each year,
at which times the Index is reconstituted and rebalanced by Roundhill. Index
components are weighted on a tiered weight basis, whereby “pure-play” companies
receive 150% the initial weighting of “core” companies, which in turn receive
150% the initial weighting of “non-core” companies. These initial weights are
calculated based on the number of companies under each classification in the
Index upon each rebalancing, so as to ensure the total combined weight is 100%.
Component changes resulting from reconstitutions are made after the market close
on the third Friday in each quarterly review month and become effective at the
market opening on the next trading day.
The
Committee is responsible for overseeing implementation of the Index methodology.
In overseeing the implementation of the methodology, the Committee will
generally follow criteria for the screening, classification, and weighting
process, but may adjust the inputs to or outputs from such criteria in instances
in which the Committee determines that due to extenuating circumstances or
unusual market conditions the results of the process do not result in an
appropriate representation of a company within the Index or would be contrary to
investor expectations for the Index. For example, the Committee may determine to
adjust a company’s weighting in the Index in the event that the information
obtained from a company’s public filing and used as part of the process to in
calculate the company’s weighting in the Index was artificially inflated in the
calculation period due to an extraordinary event. In addition, the Committee may
determine, at a given rebalance, that a company which had previously been
classified as “non-core” and thus included in the Index, has since had a
material change to its overall business that justifies moving the company to
"N/A" and not including the company in the Index at that time. The Committee’s
goal in making these decisions is to maintain the Index’s representation of
pure-play companies involved in sports betting and/or iGaming. Members of the
Committee can recommend changes to the methodology and submit them to the
Committee for approval.
As
of March 31, 2022, the Index had 44 constituents.
The
Fund’s Investment Strategy
The
Fund will generally invest all, or substantially all, of its assets in the
component securities that make up the Index and depositary receipts representing
Index components. Under normal circumstances, at least 80% of the Fund’s net
assets (plus borrowings for investment purposes) will be invested in securities
issued by Sports Betting and iGaming Companies.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund generally will invest in all of the component
securities of the Index in approximately the same proportions as in the Index.
However, the Fund may use a “representative sampling” strategy, meaning it may
invest in a sample of the securities in the Index whose risk, return, and other
characteristics closely resemble the risk, return, and other characteristics of
the Index as a whole, when Exchange Traded Concepts, LLC (the “Sub-Adviser”),
the Fund’s sub-adviser, believes it is in the best interests of the Fund
(e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund also may invest in securities or other investments not included in the
Index, but which the Sub-Adviser believes will help the Fund track the Index.
For example, the Fund may invest in securities that are not components of the
Index to reflect various corporate actions and other changes to the Index (such
as reconstitutions, additions, and deletions).
To
the extent the Index concentrates (i.e.,
holds more than 25% of its total assets) in the securities of a particular
industry or group of related industries, the Fund will concentrate its
investments to approximately the same extent as the Index.
As of March 31, 2022, the Index was concentrated in the casinos and gaming
sub-industry within the consumer discretionary
sector.
The Fund is classified as a
“non-diversified” investment company under the Investment Company Act of 1940,
as amended (the “1940 Act”).
Principal Investment Risks
The principal risks of investing
in the Fund are summarized below. The principal risks are presented in
alphabetical order to facilitate finding particular risks and comparing them
with those of other funds. Each risk summarized below is considered a “principal
risk” of investing in the Fund, regardless of the order in which it appears.
As with
any investment, there is a risk that you could lose all or a
portion of your investment in the
Fund. Some or all of these risks may adversely affect the
Fund’s net asset value (“NAV”), trading price, yield, total return and/or
ability to meet its objective. The following risks could affect the value
of your investment in the Fund:
•iGaming
and Sports Betting Companies Risk. The
iGaming and sports betting industry is characterized by an increasingly high
degree of competition among a large number of participants including from
participants performing illegal activities or unregulated companies. Expansion
of iGaming and sports betting in other jurisdictions (both regulated and
unregulated) could increase competition with traditional betting companies,
which could have an adverse impact on their financial condition, operations and
cash flows. In a broader sense, iGaming and sports betting companies face
competition from all manner of leisure and entertainment activities, including
shopping, athletic events, television and movies, concerts and travel. In
addition, established jurisdictions could award additional licenses or permit
the expansion or relocation of existing sports betting companies. These
companies also may be subject to increasing regulatory constraints, particularly
with respect to cybersecurity and privacy. In addition to the costs of complying
with such constraints, the unintended disclosure of confidential information,
whether because of an error or a cybersecurity event, could adversely affect the
reputation, profitability and value of these companies.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and in many cases unprecedented volatility and
severe losses due to the global pandemic caused by COVID‑19, a novel
coronavirus. The pandemic has resulted in a wide range of social and economic
disruptions. Some sectors of the economy and individual issuers, including
iGaming companies, have experienced particularly large losses. The shutdown
of all commercial sporting activity in the United States and other countries has
resulted in there being no sports betting online or otherwise. The continued
impact of these events or other epidemics or pandemics could have an impact on
the Fund.
•Concentration
Risk.
Because the Fund’s assets will be concentrated in an industry or group of
industries to the extent the Index concentrates in a particular industry or
group of industries, the Fund is subject to loss due to adverse occurrences that
may affect that industry or group of industries.
•Consumer
Discretionary Sector Risk.
Consumer discretionary companies are companies that provide non-essential goods
and services, such as retailers, media companies and consumer services. These
companies manufacture products and provide discretionary services directly to
the consumer, and the success of these companies tied closely to the performance
of the overall domestic and international economy, interest rates, competition
and consumer confidence.
•Currency
Exchange Rate Risk. The
Fund may invest in investments denominated in non-U.S. currencies or in
securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will affect the
value of the Fund’s investment and the value of your Shares. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the value of an investment in the Fund may change quickly and without
warning and you may lose money.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, the
Sub-Adviser and/or other service providers (including custodians and financial
intermediaries) to suffer data breaches or data corruption. Additionally,
cybersecurity failures or breaches of the electronic systems of the Fund, the
Adviser, the Sub-Adviser or the Fund’s other service providers, market makers,
Authorized Participants (“APs”) or the issuers of securities in which the Fund
invests have the ability to cause disruptions and negatively impact the Fund's
business operations, potentially resulting in financial losses to the Fund and
its shareholders.
•Depositary
Receipt Risk.
Depositary receipts, including ADRs, involve risks similar to those associated
with investments in foreign securities, such as changes in political or economic
conditions of other countries and changes in the exchange rates of foreign
currencies. Depositary receipts listed on U.S. exchanges are issued by banks or
trust companies, and entitle the holder to all dividends and capital gains that
are paid out on the underlying foreign shares (“Underlying Shares”). When the
Fund invests in depositary receipts as a substitute for an investment directly
in the Underlying Shares, the Fund is exposed to the risk that the depositary
receipts may not provide a return that corresponds precisely with that of the
Underlying Shares.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
•ETF
Risks.
The Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption
orders
and no other APs step forward to perform these services, or (ii) market
makers and/or liquidity providers exit the business or significantly reduce
their business activities and no other entities step forward to perform their
functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums or discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares.
•Foreign
Securities Risk. Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. Investments in non-U.S. securities also may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. These and other factors
can make investments in the Fund more volatile and potentially less liquid than
other types of investments.
•Geographic
Investment Risk.
To the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
•Illiquidity
Risk.
Illiquidity risk exists when particular investments are difficult to purchase or
sell, possibly preventing the Fund from selling these illiquid investments at an
advantageous price or at the time desired. A lack of liquidity may also cause
the value of investments to decline. Illiquid investments may also be difficult
to value.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. These developments as well as other events could result in
further market volatility and negatively affect financial asset prices, the
liquidity of certain securities and the normal operations of securities
exchanges and other markets. It is unknown how long circumstances related to the
pandemic will persist, whether they will reoccur in the future, whether efforts
to support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a lesser number of issuers than if it was a diversified fund. As a result,
the Fund may be more exposed to the risks associated with and developments
affecting an individual issuer or a lesser number of issuers than a fund that
invests more widely. This may increase the Fund’s volatility and cause the
performance of a relatively small number of issuers to have a greater impact on
the Fund’s performance.
•Passive
Investment Risk.
The Fund is not actively managed and its Sub-Adviser would not sell shares of an
equity security due to current or projected underperformance of a security
industry or sector unless that security is removed from the Index or the selling
of shares of that security is otherwise required upon a rebalancing of the Index
as addressed in the Index methodology.
•Tracking
Error Risk. As with all index funds, the performance of
the Fund and its Index may differ from each other for a variety of reasons. For
example, the Fund incurs operating expenses and portfolio transaction costs not
incurred by the Index. In addition, the Fund may not be fully invested in the
securities of the Index at all times or may hold securities not included in the
Index.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for the most
recent calendar year ended December 31. The table illustrates how the Fund’s
average annual returns for the 1-year and since inception periods compare with
those of a broad measure of market performance and the Index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.roundhillinvestments.com.
Calendar Year Total
Return
The calendar year-to-date total return of the
Fund as of March 31, 2022 was
-19.11%. During the period of time shown in the bar
chart, the highest quarterly return
was 18.79% for the quarter ended March 31, 2021, and the
lowest quarterly return was
-18.02% for the quarter ended December 31,
2021.
Average
Annual Total Returns
(for
periods ended December 31, 2021)
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Roundhill
Sports Betting & iGaming ETF |
1-Year |
Since
Inception
(6/3/2020) |
Return Before
Taxes |
-3.78% |
35.71% |
Return After Taxes on
Distributions |
-3.78% |
35.67% |
Return After Taxes on Distributions and
Sale of Shares |
-2.24% |
27.77% |
Roundhill
Sports Betting & iGaming Index
(reflects no deduction for
fees, expenses, or taxes) |
-3.40% |
35.58% |
Solactive
GBS Developed Markets Large & Mid Cap USD
(reflects
no deduction for fees, expenses, or taxes) |
22.29% |
28.98% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts. In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Shares” may be
higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax deduction that benefits the
investor.
Portfolio
Management
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Adviser |
Roundhill
Financial Inc. |
Sub-Adviser |
Exchange
Traded Concepts, LLC |
Portfolio
Managers |
Andrew
Serowik, a portfolio manager for the Sub-Adviser, has been a portfolio
manager of the Fund since its inception in June 2020, and Todd Alberico
and Gabriel Tan, each a portfolio manager for the Sub-Adviser, have been
portfolio managers of the Fund since July
2021 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at
www.roundhillinvestments.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an IRA or other tax-advantaged account. Distributions on investments made
through tax-deferred arrangements may be taxed later upon withdrawal of assets
from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
Investment Objective
The Roundhill Ball Metaverse
ETF (“Metaverse ETF” or the “Fund”) seeks to track the performance, before fees
and expenses, of the Ball Metaverse Index (the “Index”).
Fees and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee* |
0.59% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.59% |
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*
Restated to reflect
current fees. Effective February 4, 2022, the Board of Trustees (the “Board”) of
Listed Funds Trust (the “Trust”) approved a reduction in the unified management
fee from 0.75% to 0.59% to be paid by the Fund to Roundhill Financial Inc. (the
“Adviser”), the Fund’s investment
adviser.
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year: |
$60 |
3
Years: |
$189 |
5
Years: |
$329 |
10
Years: |
$738 |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal period June 29,
2021 (commencement of operations) through December 31, 2021, the Fund’s
portfolio turnover rate was 41% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund uses a “passive management” (or indexing) approach to track the
performance, before fees and expenses, of the Index. The Index seeks to track
the performance of globally-listed equity securities of companies that engage in
activities or provide products, services, technologies, or technological
capabilities to enable the Metaverse, and benefit from its generated revenues
(“Metaverse Companies”). “Metaverse” is a term used to refer to a future
iteration of the Internet. Users will primarily engage with the Metaverse
through persistent, simultaneous, and shared three-dimensional virtual
simulations and spaces. The Metaverse will also connect to physical spaces,
two-dimensional Internet experiences (e.g.,
standard apps, webpages), and finite simulations (e.g.,
a game). The Metaverse will be supported by a wide range of technologies, tools,
and standards that enable high volumes of concurrent users, a rich virtual-only
economy of labor, goods, and services, and wide ranging interoperability of
data, digital assets, and content. The Index was developed and is owned by Ball
Metaverse Research Partners LLC.
Ball
Metaverse Index
The
Index includes globally-listed companies with a market capitalization of at
least $250 million and with at least $2 million average daily traded value over
the trailing 6-month period. If 6-month trading volume is unavailable, volume
since initial listing date will be used. Existing Index components must maintain
a minimum market capitalization of $200 million. A committee comprised of
representatives from Ball Metaverse Research Partners LLC and external subject
matter experts (the “Index Committee”) analyzes companies for their current and
future potential to experience profits or earn revenue from their activities or
provision of products, services, technologies, or technological capabilities to
enable the Metaverse, and benefit from its generated revenues. The Metaverse
Companies selected for inclusion in the Index are companies engaged in
activities that fall into one or more categories identified by
the
Index Committee and described below. These categories, which may change over
time as technology and consumer behavior evolves, are determined through
analyses by the Index Committee, using information from corporate announcements
and filings, patent filings, third-party industry assessments, third-party usage
data and metrics, scientific and technology updates, executive presentations and
consumer interviews. Currently, the seven categories and their descriptions are
as follows:
•Hardware
–
The
sale and support of physical technologies and devices used to access, interact
with or develop the Metaverse. This includes, but is not limited to,
consumer-facing hardware, such as virtual reality headsets, mobile phones, and
haptic gloves, as well as enterprise hardware such as those used to operate or
create virtual or augmented reality-based environments, such as industrial
cameras, projection and tracking systems, and scanning sensors. This category
does not include compute-specific hardware, such as graphic processing unit
chips and servers, or networking-specific hardware, such as fiber optic cabling
or wireless chipsets.
•Compute
–
The
enablement and supply of computing power to support the Metaverse, supporting
such diverse and demanding functions as physics calculation, rendering, data
reconciliation and synchronization, artificial intelligence, projection, motion
capture and translation.
•Networking
–
The
provision of persistent, real-time connections, high bandwidth, and
decentralized data transmission by backbone providers (i.e.,
companies that provide access to high-speed data transmission networks), the
networks, exchange centers, and services that route amongst them, as well as
those managing “last mile” (i.e.,
the function of connecting telecommunication services directly to end-users,
both businesses and residential customers, usually in a dense area) data to
consumers.
•Virtual
Platforms –
The
development and operation of immersive digital and often three-dimensional
simulations, environments and worlds wherein users and businesses can explore,
create, socialize and participate in a wide variety of experiences (e.g.,
race a car, paint a painting, attend a class, listen to music), and engage in
economic activity. These businesses are differentiated from traditional online
experiences and multiplayer video games by the existence of a large ecosystem of
developers and content creators which generate the majority of content on and/or
collect the majority of revenues built on top of the underlying platform.
•Interchange
Standards –
The
tools, protocols, formats, services, and engines which serve as actual or de
facto standards for interoperability, and enable the creation, operation and
ongoing improvements to the Metaverse. These standards support activities such
as rendering, physics and artificial intelligence, as well as asset formats and
their import/export from experience to experience, forward compatibility
management and updating, tooling and authoring activities, and information
management.
•Payments
–
The
support of digital payment processes, platforms, and operations, which includes
companies that are fiat on-ramps to digital currencies (a form of digital
currency exchange) and financial services.
•Content,
Assets and Identity Services –
The
design/creation, sale, re-sale, storage, secure protection and financial
management of digital assets, such as virtual goods and currencies, as connected
to user data and identity. This contains all business and services “built on top
of” and/or which “service” the Metaverse, and which are not vertically
integrated into a virtual platform by the platform owner, including content
which is built specifically for the Metaverse, independent of virtual platforms.
Once
identified and allocated to one or more categories, Metaverse Companies are
further ranked within the category as follows:
•“Pure-Play”
Companies
– Companies whose primary business models and/or growth prospects are directly
linked to the Metaverse. For these companies, continued growth in the Metaverse
is expected to be critical to their economic success going forward.
•“Core”
Companies
– Companies with substantial operations and/or growth prospects linked to the
Metaverse. These companies have other business units driving their economics,
and thus are less affected by the growth of Metaverse than pure-play companies.
In time, growth in the industry and/or investments in their Metaverse-specific
units may lead these companies to become pure-play companies if their Metaverse
operations become a primary driver of economic performance. In most cases, the
Metaverse-specific offerings of these companies are core components of the
Metaverse.
•“Non-Core”
Companies
– Companies with operations and/or growth prospects linked to the Metaverse.
These companies derive the majority of their revenue from business lines not
directly related to the Metaverse. In time, growth in the industry and/or
investments in their Metaverse-specific units may lead these companies to become
“core” companies if their Metaverse operations become a relevant driver of
economic performance. It is unlikely, based on current information, that the
Metaverse-specific offerings of non-core companies would become the primary
driver of such economic performance going forward.
Category
companies are weighted on a tiered basis whereby “pure-play” companies receive
two and a half times the initial weighting of “core” companies or five times the
initial weighting of “non-core” companies, while “core” companies” receive two
times the initial
weighting
of “non-core” companies. These initial weights are calculated based on the
number of companies under each category in the Index upon each rebalancing, so
as to ensure the total combined weight of each category totals 100%.
A
category may have any number of “pure-play,” “core” or “non-core” companies, or
none. Single categories are capped at 25% of the total Index upon rebalance.
These initial weights are calculated based on the number of companies under each
category in the Index upon each rebalancing, so as to ensure the total combined
weight for each category is equal to the category’s initial weighting.
Single
company weightings are capped at 8%. Any weighting in excess of 8% from a single
company will be pro-rated across the remaining Index components, subject to the
25% category cap.
Index
component changes resulting from reconstitutions are made after the market close
on the third Friday in March, June, September and December and become effective
at the market opening on the next trading day. Depending on eligible Metaverse
Companies, the components of the Index, and therefore the holdings of the Fund,
may range at times from 25 to 100.
The
Fund’s Investment Strategy
Under
normal circumstances, at least 80% of the Fund’s net assets (plus any borrowings
for investment purposes) will be invested in Metaverse Companies, which may
include investments in American Depository Receipts (“ADRs”) or special purpose
acquisition companies (“SPACs”). The Fund expects that, over time, the
correlation between the Fund’s performance and that of the Index, before fees
and expenses, will be 95% or better. The Fund may also have indirect exposure to
cryptocurrency, such as bitcoin, through holdings of publicly traded securities
of companies engaged in cryptocurrency-related businesses and activities. The
Fund will not directly invest in cryptocurrency.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning it generally will invest in all of the component securities
of the Index in approximately the same proportions as in the Index. However, the
Fund may use a “representative sampling” strategy, meaning it may invest in a
sample of the securities in the Index whose risk, return and other
characteristics closely resemble the risk, return and other characteristics of
the Index as a whole, when Exchange Traded Concepts, LLC (the “Sub-Adviser”),
the Fund’s sub-adviser, believes it is in the best interests of the Fund
(e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund also may invest in securities or other investments not included in the
Index, but which the Sub-Adviser believes will help the Fund track the Index.
For example, the Fund may invest in securities that are not components of the
Index to reflect various corporate actions and other changes to the Index (such
as reconstitutions, additions, and deletions).
To
the extent the Index concentrates (i.e., holds more than 25% of its total assets)
in the securities of a particular industry or group of related industries, the
Fund will concentrate its investments to approximately the same extent as the
Index. As of March 31, 2022, the Index was concentrated in one or more
industries in the information technology and communication services
sectors.
The Fund is classified as a
“non-diversified” investment company under the Investment Company Act of 1940,
as amended (the “1940 Act”).
Principal Investment Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and/or ability to meet its
objective. The following risks could affect the value of your investment in
the Fund:
•Communication
Services Sector Risk. The
Fund will be more affected by the performance of the communications sector than
a fund with less exposure to such sector. Communication companies are
particularly vulnerable to the potential obsolescence of products and services
due to technological advancement and the innovation of competitors. Companies in
the communications sector may also be affected by other competitive pressures,
such as pricing competition, as well as research and development costs,
substantial capital requirements and government regulation. Additionally,
fluctuating domestic and international demand, shifting demographics and often
unpredictable changes in consumer tastes can drastically affect a communication
company’s profitability. While all companies may be susceptible to network
security breaches, certain companies in the communications sector may be
particular targets of hacking and potential theft of proprietary or consumer
information or disruptions in service, which could have a material adverse
effect on their businesses.
•Concentration
Risk.
Because the Fund’s assets will be concentrated in an industry or group of
industries to the extent the Index concentrates in a particular industry or
group of industries, the Fund is subject to loss due to adverse occurrences that
may affect that industry or group of industries.
•Consumer
Discretionary Sector Risk.
Consumer discretionary companies are companies that provide non-essential goods
and services, such as retailers, media companies and consumer services. These
companies manufacture products and provide discretionary services directly to
the consumer, and the success of these companies tied closely to the performance
of the overall domestic and international economy, interest rates, competition
and consumer confidence.
•Currency
Exchange Rate Risk. The
Fund may invest in investments denominated in non-U.S. currencies or in
securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will affect the
value of the Fund’s investment and the value of your Shares. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the value of an investment in the Fund may change quickly and without
warning and you may lose money.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets, customer data (including private shareholder information), or
proprietary information, or cause the Fund, the Adviser, the Sub-Adviser and/or
other service providers (including custodians, transfer agents and financial
intermediaries) to suffer data breaches or data corruption. Additionally,
cybersecurity failures or breaches of the electronic systems of the Fund, the
Adviser, the Sub-Adviser or the Fund's other service providers, market makers,
Authorized Participants or the issuers of securities in which the Fund invests
have the ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. In an extreme case, a shareholder’s ability to redeem Fund shares
may be affected.
•Depositary
Receipt Risk.
Depositary receipts, including ADRs, involve risks similar to those associated
with investments in foreign securities, such as changes in political or economic
conditions of other countries and changes in the exchange rates of foreign
currencies. Depositary receipts listed on U.S. exchanges are issued by banks or
trust companies, and entitle the holder to all dividends and capital gains that
are paid out on the underlying foreign shares (“Underlying Shares”). When the
Fund invests in depositary receipts as a substitute for an investment directly
in the Underlying Shares, the Fund is exposed to the risk that the depositary
receipts may not provide a return that corresponds precisely with that of the
Underlying Shares. Because the Underlying Shares trade on foreign exchanges that
may be closed when the Fund’s primary listing exchange is open, the Fund may
experience premiums and discounts greater than those of funds without exposure
to such Underlying Shares.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
•ETF
Risks.
The Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the
business or significantly reduce their business activities and no other entities
step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums or discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares.
•Foreign
Securities Risk. Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. Investments in non-U.S. securities also may
be subject to withholding or other taxes and may be
subject
to additional trading, settlement, custodial, and operational risks. These and
other factors can make investments in the Fund more volatile and potentially
less liquid than other types of investments.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. The Adviser relies upon the Index Provider and its agents to
compile, determine, construct, reconstitute, rebalance, compose, calculate (or
arrange for an agent to calculate), and disseminate the Index accurately. Any
losses or costs associated with errors made by the Index Provider or its agents
generally will be borne by the Fund and its shareholders.
•Information
Technology Sector Risk.
The information technology sector includes companies engaged in internet
software and services, technology hardware and storage peripherals, electronic
equipment instruments and components, and semiconductors and semiconductor
equipment. Information technology companies face intense competition, both
domestically and internationally, which may have an adverse effect on profit
margins. Information technology companies may have limited product lines,
markets, financial resources or personnel. The products of information
technology companies may face rapid product obsolescence due to technological
developments and frequent new product introduction, unpredictable changes in
growth rates and competition for the services of qualified personnel. Failure to
introduce new products, develop and maintain a loyal customer base, or achieve
general market acceptance for their products could have a material adverse
effect on a company’s business. Companies in the information technology sector
are heavily dependent on intellectual property and the loss of patent, copyright
and trademark protections may adversely affect the profitability of these
companies.
◦Internet
Company Risk.
Many Internet-related companies have incurred large losses since their inception
and may continue to incur large losses in the hope of capturing market share and
generating future revenues. Accordingly, many such companies expect to incur
significant operating losses for the foreseeable future, and may never be
profitable. The markets in which many Internet companies compete face rapidly
evolving industry standards, frequent new service and product announcements,
introductions and enhancements, and changing customer demands. The failure of an
Internet company to adapt to such changes could have a material adverse effect
on the company’s business. Additionally, the widespread adoption of new
Internet, networking, telecommunications technologies, or other technological
changes could require substantial expenditures by an Internet company to modify
or adapt its services or infrastructure, which could have a material adverse
effect on an Internet company’s business.
◦Semiconductor
Company Risk.
Competitive pressures may have a significant effect on the financial condition
of semiconductor companies and, as product cycles shorten and manufacturing
capacity increases, these companies may become increasingly subject to
aggressive pricing, which hampers profitability. Reduced demand for end-user
products, under-utilization of manufacturing capacity, and other factors could
adversely impact the operating results of companies in the semiconductor sector.
Semiconductor companies typically face high capital costs and may be heavily
dependent on intellectual property rights. The semiconductor sector is highly
cyclical, which may cause the operating results of many semiconductor companies
to vary significantly. The stock prices of companies in the semiconductor sector
have been and likely will continue to be extremely volatile.
◦Software
Industry Risk.
The software industry can be significantly affected by intense competition,
aggressive pricing, technological innovations, and product obsolescence.
Companies in the software industry are subject to significant competitive
pressures, such as aggressive pricing, new market entrants, competition for
market share, short product cycles due to an accelerated rate of technological
developments and the potential for limited earnings and/or falling profit
margins. These companies also face the risks that new services, equipment or
technologies will not be accepted by consumers and businesses or will become
rapidly obsolete. These factors can affect the profitability of these companies
and, as a result, the value of their securities. Also, patent protection is
integral to the success of many companies in this industry, and profitability
can be affected materially by, among other things, the cost of obtaining (or
failing to obtain) patent approvals, the cost of litigating patent infringement
and the loss of patent protection for products (which significantly increases
pricing pressures and can materially reduce profitability with respect to such
products). In addition, many software companies have limited operating
histories. Prices of these companies’ securities historically have been more
volatile than other securities, especially over the short term.
•IPO
Risk. The
Fund may invest in securities issued in initial public offerings. The market
value of IPO shares will fluctuate considerably due to factors such as the
absence of a prior public market, unseasoned trading, the small number of shares
available for trading and limited information about the issuer. The purchase of
IPO shares may involve high transaction costs. IPO shares are subject to market
risk and liquidity risk.
•Issuer
Risk.
Because the Fund may invest in a limited number of issuers, it is subject to the
risk that the value of the Fund’s portfolio may decline due to a decline in
value of the equity securities of particular issuers. The value of an issuer’s
equity securities may decline for reasons directly related to the issuer, such
as management performance and reduced demand for the issuer’s goods or
services.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. These developments as well as other events could result in
further market volatility and negatively affect financial asset prices, the
liquidity of certain securities and the normal operations of securities
exchanges and other markets. It is unknown how long circumstances related to the
pandemic will persist, whether they will reoccur in the future, whether efforts
to support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Models
and Data Risk. The
composition of the Index is heavily dependent on proprietary quantitative models
as well as information and data supplied by third parties (“Models and Data”).
When Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon may lead to the inclusion or exclusion of securities from the
Index universe that would have been excluded or included had the Models and Data
been correct and complete. If the composition of the Index reflects such errors,
the Fund’s portfolio can be expected to also reflect the errors.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a lesser number of issuers than if it was a diversified fund. As a result,
the Fund may be more exposed to the risks associated with and developments
affecting an individual issuer or a lesser number of issuers than a fund that
invests more widely. This may increase the Fund’s volatility and cause the
performance of a relatively small number of issuers to have a greater impact on
the Fund’s performance.
•Passive
Investment Risk.
The Fund is not actively managed and its Sub-Adviser would not sell shares of an
equity security due to current or projected underperformance of a security
industry or sector unless that security is removed from the Index or the selling
of shares of that security is otherwise required upon a rebalancing of the Index
as addressed in the Index methodology.
•SPAC
Investment Risk.
The Fund invests in equity securities of SPACs, which raise assets to seek
potential acquisition opportunities. Unless and until an acquisition is
completed, a SPAC generally invests its assets in U.S. government securities,
money market securities, and cash. Because SPACs have no operating history or
ongoing business other than seeking acquisitions, the value of their securities
is particularly dependent on the ability of the entity’s management to identify
and complete a profitable acquisition. There is no guarantee that the SPACs in
which the Fund invests will complete an acquisition or that any acquisitions
that are completed will be profitable. Public stockholders of SPACs may not be
afforded a meaningful opportunity to vote on a proposed initial business
combination because certain stockholders, including stockholders affiliated with
the management of the SPAC, may have sufficient voting power, and a financial
incentive, to approve such a transaction without support from public
stockholders. As a result, a SPAC may complete a business combination even
though a majority of its public stockholders do not support such a combination.
Some SPACs may pursue acquisitions only within certain industries or regions,
which may increase the volatility of their prices.
•Tax
Risk. Investment
in SPACs introduces complexities beyond typical equity investments and may
introduce tax risks to the Fund. In particular, certain non-U.S. SPACs may be
treated as a “passive foreign investment company” (“PFIC”) under the
Internal
Revenue Code of 1986, as amended (the “Code”), thereby causing the Fund to be
subject to special tax rules. If a SPAC is classified as a PFIC, the Fund may be
subject to U.S. federal income tax on a portion of any “excess distribution” or
gain from the disposition of shares in the PFIC even if such income is
distributed as a taxable dividend by the Fund to its shareholders. Additional
charges in the nature of interest may be imposed on the Fund in respect of
deferred taxes arising from such distributions or gains unless the Fund makes
certain elections. See “Federal Income Taxes—Foreign Investments” in the SAI for
additional information.
•Tracking
Error Risk. As
with all index funds, the performance of the Fund and its Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Performance
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance
information for the Fund will be presented in this section. Updated performance
information is available on the Fund’s website at www.roundhillinvestments.com.
Portfolio
Management
|
|
|
|
|
|
Adviser |
Roundhill
Financial Inc. |
Sub-Adviser |
Exchange
Traded Concepts, LLC |
Portfolio
Managers |
Andrew
Serowik, Todd Albrecio, and Gabriel Tan, each a portfolio manager for the
Sub-Adviser, have been portfolio managers of the Fund since its inception
in June 2021 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.roundhillinvestments.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
Investment Objective
The Roundhill IO Digital
Infrastructure ETF (“Digital Infrastructure ETF” or the “Fund”) seeks to track
the performance, before fees and expenses, of the IO Digital Infrastructure
Index (the “Index”).
Fees and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
0.75% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses* |
0.01% |
Total
Annual Fund Operating Expenses |
0.76% |
|
*
Estimated for the current
fiscal year.
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year: |
$78 |
3
Years: |
$243 |
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Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal period October
27, 2021 (commencement of operations) through December 31, 2021, the Fund’s
portfolio turnover rate was 3% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund uses a “passive management” (or “indexing”) approach to track the
performance, before fees and expenses, of the IO Digital Infrastructure Index,
which tracks the performance of digital infrastructure companies. IO Digital
Index Partners acts as the Index Provider, and the Index is calculated by
Solactive AG.
IO
Digital Infrastructure Index
Modern
society is built on an omnipresent internet that depends on digital
infrastructure to enable and support its presence and functions. Digital
infrastructure is comprised of the high-tech physical assets that support the
efficient storage and transmission of data, powering the internet. “Digital
infrastructure assets” include fixed-line, high-speed data transmission
technology and hardware (such as fiberoptic cable and certain “last-mile”
technologies that bring data to and from the end-user); data centers; mobile
towers and related infrastructure; and other long-lived physical infrastructure
assets, which can be characterized as any of the physical resources that are
necessary to enable the use of data, computerized devices, methods, systems and
processes (e.g.,
customer premise equipment, such as a cable box; real estate housing or on which
digital infrastructure assets are fixed; or TV, radio, and other communication
antennas). The Index is designed to track the performance of infrastructure
assets.
A
committee composed of IO Digital Index Partners (“Index Committee”) is
responsible for decisions regarding composition of the Index. The Index is
comprised of the common stock of 40 U.S. and foreign exchange-listed companies
that earn a majority of their revenues from digital infrastructure assets
(“Digital Infrastructure Companies”). To qualify for the Index universe,
companies must maintain a minimum market capitalization of $250 million USD and
a minimum 1-month trailing average daily traded value of $1 million USD on the
Selection Day (defined below). On Selection Day, the Index will be constructed
using specific geographic criteria, based on the Index Committee’s assessment of
the location of a company’s headquarters or its primary business operations, if
located
in
a different region. The respective minimums and maximums may be changed over
time at the Index Committee’s discretion, however, initially:
•a
minimum of 65% of the Index will be comprised of U.S. companies;
•a
maximum of 15% of the Index will be comprised of emerging markets companies
(i.e.,
those markets designated as either “Emerging” or “Frontier” in the Dow Jones
S&P Country Classification, except for Guernsey and Malta, which the Index
Provider considers developed markets); and
•a
maximum of 35% of the Index will be comprised of companies organized and
primarily operating in non-U.S. developed market countries, as defined by the
S&P Dow Jones Country Classification methodology. Currently, developed
market countries are those countries that meet all of the global equity index
series eligibility and emerging market criteria and have a nominal Gross
Domestic Product per capita, at Purchasing Power Parity (PPP), of greater than
US$ 15,000.
In
addition, each company is ranked based upon the Index Provider’s proprietary
ranking methodology utilizing three fundamental factors: Growth, Value, and
Soundness (“GVS”). In assigning a GVS rank, the Index Committee seeks to
optimize the Index for a combination of gross revenue and profitability growth
(Growth), attractive purchase prices based on fundamental analysis (Value), and
businesses with strong financial health (Soundness). When assessing a company’s
financial health, the Index Committee may consider a combination of factors,
including the company’s scale (measured by its sales during the preceding 12
months), cash generation (cash flow growth), profitability, operating leverage,
and indebtedness.
Growth,
Value, and Soundness are interrelated and overlapping factors. Each GVS factor
is weighted according to the Index’s proprietary ranking methodology, which
utilizes specific metrics, including: last twelve months (“LTM”) sales; two-year
growth in cash flows from operations per share; two-year percentage change in
earnings before interest, tax, depreciation and amortization (“EBITDA”) margin,
LTM EBITDA less capital expenditure margin; enterprise value/EBITDA; and net
debt/EBITDA. These metrics are interrelated and may be applicable to one or more
of the GVS factors. The metrics and their weightings with respect to each GVS
factor may be adjusted by the Index Committee over time. However, attributing
those metrics to the factor with which they are currently most strongly
associated, the Index Committee anticipates the following initial GVS factor
weighting: 40% Growth, 10% Value, and 50% Soundness.
The
Index is systematically constructed by first selecting eligible U.S. companies
until the U.S. geographic threshold (i.e.,
65% of the Index) is met. Once the U.S. threshold is achieved, the Index is
further constructed by selecting the highest GVS-ranked companies from around
the world, with emerging markets and non-U.S. developed markets each subject to
its respective geographic maximum threshold. All constituent position sizes are
prescribed according to the Index Provider’s proprietary GVS ranking methodology
until at least 85% of the Index has been allocated. Once at least 85% has been
allocated, the remaining allocation is evenly weighted until a total of 40
constituents have been selected (subject to the geographic maximum thresholds).
The
Index will be rebalanced and reconstituted semi-annually on the third Friday of
March and September. Selections will be made the Monday prior to the third
Friday of March and September (“Selection Day”).
When
selecting the Index universe, the Index Committee may also consider factors such
as the scale of a company’s business operations (including its total revenue and
geographic footprint) and the amount of a company’s revenue generated from the
portion of its business operations that the Index Committee considers to be
digital infrastructure.
The
Fund’s Investment Strategy
Under
normal circumstances, at least 80% of the Fund’s net assets (plus any borrowings
for investment purposes) will be invested in Digital Infrastructure Companies,
which may include investments in common stock, American Depository Receipts
(“ADRs”), Global Depository Receipts (“GDRs”), or equity real estate investment
trusts (“REITs”). The Fund expects that, over time, the correlation between the
Fund’s performance and that of the Index, before fees and expenses, will be 95%
or better.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning it generally will invest in all of the component securities
of the Index in approximately the same proportions as in the Index. However, the
Fund may use a “representative sampling” strategy, meaning it may invest in a
sample of the securities in the Index whose risk, return and other
characteristics closely resemble the risk, return and other characteristics of
the Index as a whole, when Exchange Traded Concepts, LLC (the “Sub-Adviser”),
the Fund’s sub-adviser, believes it is in the best interests of the Fund
(e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund also may invest in securities or other investments not included in the
Index, but which the Sub-Adviser believes will help the Fund track the Index.
For example, the Fund may invest in securities that are not components of the
Index to reflect various corporate actions and other changes to the Index (such
as reconstitutions, additions, and deletions).
To
the extent the Index concentrates (i.e., holds more than 25% of its total assets)
in the securities of a particular industry or group of related industries, the
Fund will concentrate its investments to approximately the same extent as the
Index. As of March 31, 2022, the Index was concentrated in one or more
industries in the communication services sector.
The Fund is classified as a
“non-diversified” investment company under the Investment Company Act of 1940,
as amended (the “1940 Act”).
Principal Investment Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and/or ability to meet its
objective. The following risks could affect the value of your investment in
the Fund:
•Communication
Services Sector Risk.
The Fund’s assets will have significant exposure to the communication services
sector, which means the Fund will be more affected by the performance of the
communication services sector than a fund that is more diversified. Market or
economic factors impacting communication services companies and companies that
rely heavily on technological advances could have a major effect on the value of
the Fund’s investments. The value of stocks of communication services companies
and companies that rely heavily on technology is particularly vulnerable to
research and development costs, substantial capital requirements, product and
services obsolescence, government regulation, and domestic and international
competition, including competition from foreign competitors with lower
production costs. Stocks of communication services companies and companies that
rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Additionally,
companies in the communication services sector may face dramatic and often
unpredictable changes in growth rates and competition for the services of
qualified personnel. While all companies may be susceptible to network security
breaches, certain companies in the communication services sector may be
particular targets of hacking and potential theft of proprietary or consumer
information or disruptions in service, which could have a material adverse
effect on their businesses.
◦Media
Companies Risk.
The Fund invests in companies in the media industry, which includes
telecommunications, streaming, publishing (both traditional and online), and
entertainment companies and, as a result, the value of the Fund’s shares will be
more susceptible to the factors affecting these particular types of companies.
Market or economic factors impacting these companies that rely heavily on
technological advances could have a major effect on the value of the Fund’s
investments and therefore, the Fund. The value of stocks of these companies is
particularly vulnerable to research and development costs, substantial capital
requirements, product and services obsolescence, government regulation, and
domestic and international competition, including competition from foreign
competitors with lower production costs.
•Concentration
Risk.
Because the Fund’s assets will be concentrated in an industry or group of
industries to the extent the Index concentrates in a particular industry or
group of industries, the Fund is subject to loss due to adverse occurrences that
may affect that industry or group of industries.
•Currency
Exchange Rate Risk. The
Fund may invest in investments denominated in non-U.S. currencies or in
securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will affect the
value of the Fund’s investment and the value of your Shares. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the value of an investment in the Fund may change quickly and without
warning and you may lose money.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets, customer data (including private shareholder information), or
proprietary information, or cause the Fund, the Adviser (defined below), the
Sub-Adviser and/or other service providers (including custodians, transfer
agents and financial intermediaries) to suffer data breaches or data corruption.
Additionally, cybersecurity failures or breaches of the electronic systems of
the Fund, the Adviser, the Sub-Adviser or the Fund's other service providers,
market makers, Authorized Participants or the issuers of securities in which the
Fund invests have the ability to cause disruptions and negatively impact the
Fund's business operations, potentially resulting in financial losses to the
Fund and its shareholders. In an extreme case, a shareholder’s ability to redeem
Fund shares may be affected.
•Depositary
Receipt Risk.
Depositary receipts, including ADRs and GDRs, involve risks similar to those
associated with investments in foreign securities, such as changes in political
or economic conditions of other countries and changes in the exchange rates of
foreign currencies. Depositary receipts listed on U.S. exchanges are issued by
banks or trust companies, and entitle the holder to all dividends and capital
gains that are paid out on the underlying foreign shares (“Underlying Shares”).
When the Fund invests in depositary receipts as a substitute for an investment
directly in the Underlying Shares, the Fund is exposed to the risk that the
depositary receipts may not provide a return that corresponds precisely with
that of the Underlying Shares.
Because
the Underlying Shares trade on foreign exchanges that may be closed when the
Fund’s primary listing exchange is open, the Fund may experience premiums and
discounts greater than those of funds without exposure to such Underlying
Shares.
•Digital
Infrastructure Companies Risk.
Digital Infrastructure Companies are exposed to the risks specific to the real
estate market as well as the risks that relate specifically to the way in which
Digital Infrastructure Companies are utilized and operated. Digital
Infrastructure Companies may be affected by unique supply and demand factors
that do not apply to other real estate sectors, such as changes in demand for
communications infrastructure, consolidation of tower sites, and new
technologies that may affect demand for data centers. Digital Infrastructure
Companies are also subject to a variety of factors that may adversely affect
their business or operations including high interest costs, costs associated
with compliance with and changes in environmental and other regulations,
difficulty in raising capital in adequate amounts on reasonable terms in periods
of high inflation and unsettled markets, the effects of surplus capacity,
increased competition from other providers of services, the effects of energy
conservation policies, and other factors. Additionally, Digital Infrastructure
Companies may be subject to regulation by various governmental authorities and
may also be affected by governmental regulation of rates charged to customers,
government budgetary constraints, service interruption due to environmental,
operational or other mishaps and the imposition of special tariffs and changes
in tax laws, regulatory policies and accounting standards. Other factors that
may affect the operations of Digital Infrastructure Companies include
innovations in technology that could render the way in which a company delivers
a product or service obsolete, significant changes to the number of ultimate
end-users of a company’s products, increased susceptibility to terrorist acts,
cyber-attacks, or political actions, risks of environmental damage due to a
company’s operations or an accident, and general changes in market sentiment
towards digital infrastructure assets.
•Emerging
Markets Risk.
Emerging markets are subject to greater market volatility, lower trading volume,
political and economic instability, uncertainty regarding the existence of
trading markets and more governmental limitations on foreign investment than
more developed markets. In addition, securities in emerging markets may be
subject to greater price fluctuations than securities in more developed markets.
Differences in regulatory, accounting, auditing, and financial reporting and
recordkeeping standards could impede the Sub-Adviser’s ability to evaluate local
companies and impact the Fund’s performance.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
•ETF
Risks.
The Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the
business or significantly reduce their business activities and no other entities
step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums or discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares.
•Foreign
Securities Risk. Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political or economic instability. Investments in non-U.S. securities also may
be subject to withholding or other taxes and may be
subject
to additional trading, settlement, custodial, and operational risks. These and
other factors can make investments in the Fund more volatile and potentially
less liquid than other types of investments.
•Frontier
Markets Risk. Certain
foreign markets are only in the earliest stages of development and may be
considered “frontier markets.” Frontier financial markets generally are less
liquid and more volatile than other markets, including markets in developing and
emerging economies. Securities may have limited marketability and be subject to
erratic price movements. Frontier markets may be impacted by political
instability, war, terrorist activities and religious, ethnic and/or
socioeconomic unrest. These and other factors make investing in frontier market
countries significantly riskier than investing in developed market or emerging
market countries.
•Geographic
Investment Risk.
To the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. The Adviser relies upon the Index Provider and its agents to
compile, determine, construct, reconstitute, rebalance, compose, calculate (or
arrange for an agent to calculate), and disseminate the Index accurately. Any
losses or costs associated with errors made by the Index Provider or its agents
generally will be borne by the Fund and its shareholders.
•Issuer
Risk.
Because the Fund may invest in a limited number of issuers, it is subject to the
risk that the value of the Fund’s portfolio may decline due to a decline in
value of the equity securities of particular issuers. The value of an issuer’s
equity securities may decline for reasons directly related to the issuer, such
as management performance and reduced demand for the issuer’s goods or services.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. These developments as well as other events could result in
further market volatility and negatively affect financial asset prices, the
liquidity of certain securities and the normal operations of securities
exchanges and other markets. It is unknown how long circumstances related to the
pandemic will persist, whether they will reoccur in the future, whether efforts
to support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Micro
and Small-Capitalization Investing.
The securities of micro small-capitalization companies may be newly formed or
have limited product lines, distribution channels and financial and managerial
resources. Micro and small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of micro and
small-capitalization companies generally trade in lower volumes and are subject
to greater and more unpredictable price changes than large- or
mid-capitalization stocks or the stock market as a whole. There is typically
less publicly available information concerning micro and smaller-capitalization
companies than for larger, more established companies.
•Models
and Data Risk. The
composition of the Index is heavily dependent on proprietary quantitative models
as well as information and data supplied by third parties (“Models and Data”),
over which the Adviser has no or limited ability to oversee. When Models and
Data prove to be incorrect or incomplete, any decisions made in reliance thereon
may lead to the inclusion or exclusion of securities from the Index universe
that would have been excluded or included had the Models and Data been correct
and
complete. If the composition of the Index reflects such errors, the Fund’s
portfolio can be expected to also reflect the errors. In addition, data
and
information
on non-U.S. countries may be unreliable or outdated or there may be less
publicly available data or information about non-U.S. countries due to
differences in registration, accounting, audit and financial record keeping
standards which creates the potential for errors in Index data, Index
computation and/or Index construction and could have an adverse effect on the
Fund’s performance.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a lesser number of issuers than if it was a diversified fund. As a result,
the Fund may be more exposed to the risks associated with and developments
affecting an individual issuer or a lesser number of issuers than a fund that
invests more widely. This may increase the Fund’s volatility and cause the
performance of a relatively small number of issuers to have a greater impact on
the Fund’s performance.
•Passive
Investment Risk.
The Fund is not actively managed and its Sub-Adviser would not sell shares of an
equity security due to current or projected underperformance of a security
industry or sector unless that security is removed from the Index or the selling
of shares of that security is otherwise required upon a rebalancing of the Index
as addressed in the Index methodology.
•Real
Estate Sector Risk.
The Fund invests in real estate companies, including REITs and real estate
holdings companies, which will expose investors to the risks of owning real
estate directly, as well as to the risks that relate specifically to the way in
which such companies are organized and operated. Real estate is highly sensitive
to general and local economic conditions and developments. The U.S. real estate
market may experience and has, in the past, experienced a decline in value, with
certain regions experiencing significant losses in property values. Many real
estate companies, including REITs, utilize leverage (and some may be highly
leveraged), which increases investment risk and the risk normally associated
with debt financing, and could potentially increase the Fund’s volatility and
losses. Exposure to such real estate may adversely affect Fund performance.
•REIT
Risk. REITs
are subject to the risks associated with investing in the securities of real
property companies. In particular, REITs may be affected by changes in the
values of the underlying properties that they own or operate.
Residential/diversified REITs and commercial equity REITs may be affected by
changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended. Further,
REITs are dependent upon specialized management skills, and their investments
may be concentrated in relatively few properties, or in a small geographic area
or a single property type. REITs are also subject to heavy cash flow dependency
and, as a result, are particularly reliant on the proper functioning of capital
markets. A variety of economic and other factors may adversely affect a lessee's
ability to meet its obligations to a REIT. In the event of a default by a
lessee, the REIT may experience delays in enforcing its rights as a lessor and
may incur substantial costs associated in protecting its investments. In
addition, a REIT could fail to qualify for favorable regulatory treatment.
•Tracking
Error Risk. As with all index funds, the performance of
the Fund and its Index may differ from each other for a variety of reasons. For
example, the Fund incurs operating expenses and portfolio transaction costs not
incurred by the Index. In addition, the Fund may not be fully invested in the
securities of the Index at all times or may hold securities not included in the
Index.
Performance
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance
information for the Fund will be presented in this section. Updated performance
information is available on the Fund’s website at www.roundhillinvestments.com.
Portfolio
Management
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Adviser |
Roundhill
Financial Inc. (the “Adviser”) |
Sub-Adviser |
Exchange
Traded Concepts, LLC |
Portfolio
Managers |
Andrew
Serowik, Todd Alberico, and Gabriel Tan, each a portfolio manager for the
Sub-Adviser, have been portfolio managers of the Fund since its inception
in October 2021 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.roundhillinvestments.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
Investment Objective
The Roundhill MEME ETF (“MEME
ETF” or the “Fund”) seeks to track the performance, before fees and expenses, of
the Solactive Roundhill Meme Stock Index (the “Index”).
Fees and Expenses of the Fund
This
table describes the fees and expenses that you may pay if you buy, hold, and
sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fee |
0.69% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses* |
0.00% |
Total
Annual Fund Operating Expenses |
0.69% |
|
* Estimated for the current fiscal
year.
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. The
Example does not take into account brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year: |
$70 |
3
Years: |
$221 |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in the Total Annual Fund Operating Expenses
or in the Example, affect the Fund’s performance. For the fiscal period December
7, 2021 (commencement of operations) through December 31, 2021, the Fund’s
portfolio turnover rate was 32% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund uses a “passive management” (or indexing) approach to seek to track the
performance, before fees and expenses, of the Solactive Roundhill Meme Stock
Index which, in turn, seeks to track the performance of “meme stocks.” Meme
stocks are equity securities, including common stock and American depositary
receipts (“ADRs”), of companies that exhibit a combination of elevated social
media activity (i.e.,
the number of times a company or its ticker is mentioned on specific social
media platforms) and high short interest (i.e.,
the percentage of an issuer’s available publicly traded shares which are
unrestricted (“free float shares”), that have been sold short but which have not
yet been covered or closed out), both of which are indicators of market
sentiment. Solactive AG acts as the index provider and calculation agent (the
“Index Provider”).
Solactive
Roundhill Meme Stock Index
The
Index Provider will define the initial investable universe on the last business
day of each month, which will become effective on the close of business five
Business Days (defined below) later. The initial investable universe will
include all U.S. exchange-listed equity securities (including ADRs) that meet
minimum initial market capitalization, average and median daily traded value,
and stock price criteria. Each issuer in this initial universe with a minimum
market capitalization of $1 billion on Selection Day (defined below) will be
assigned a “social media activity score.” The social media activity score
is
based on
the number of text-based (as opposed to graphics or other image-based) mentions
of a company’s name or its ticker over a trailing 14-day period on specific
social media platforms defined in the Index methodology, the primary purpose of
which is to facilitate discussion of the performance of the financial industry
generally and/or the stock or options markets specifically. The social media
activity score is provided by a third-party data provider that also maintains an
exclusion list intended to identify computer generated, false positive, and/or
otherwise deceptive postings. Companies on the exclusion list will be excluded
from the Index on Selection Day.
Upon
each Selection Day, the top 50 issuers by social media activity score are then
ranked according to their short interest, which is assigned by an independent
third-party data provider. The resulting top 25 issuers by short interest will
be selected as the components of, and equally weighted in, the Index.
The
Index components will be rebalanced bi-weekly, with selections made on every
second Friday (“Selection Day”). If a Selection Day does not fall on a day on
which the New York Stock Exchange is open (a “Business Day”), then that
Selection Day will be moved to the next Business Day. Any resulting adjustments
to reconstitute the Index will be made on the second Business Day after the
Selection Day.
The
Fund’s Investment Strategy
Under
normal circumstances, at least 80% of the Fund’s net assets (plus borrowings for
investment purposes) will be invested in meme stocks, which may include common
stock and depositary receipts. From time to time, the Fund’s investments may
include the common stock of U.S.-listed special purpose acquisition companies
(“SPACs”), which are “blank check” companies with no commercial operations that
are designed to raise capital via an initial public offering for the purpose of
engaging in a merger, acquisition, reorganization, or similar business
combination with one or more operating companies. The Fund expects that, over
time, the correlation between the Fund’s performance and that of the Index,
before fees and expenses, will be 95% or better.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning it generally will invest in all of the component securities
of the Index in approximately the same proportions as in the Index. However, the
Fund may use a “representative sampling” strategy, meaning it may invest in a
sample of the securities in the Index whose risk, return and other
characteristics closely resemble the risk, return and other characteristics of
the Index as a whole, when Exchange Traded Concepts, LLC (the “Sub-Adviser”),
the Fund’s sub-adviser, believes it is in the best interests of the Fund
(e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund also may invest in securities or other investments not included in the
Index, but which the Sub-Adviser believes will help the Fund track the Index.
For example, the Fund may invest in securities that are not components of the
Index to reflect various corporate actions and other changes to the Index (such
as reconstitutions, additions, and deletions).
To
the extent the Index concentrates (i.e., holds more than 25% of its total assets)
in the securities of a particular industry or group of related industries, the
Fund will concentrate its investments to approximately the same extent as the
Index. Because the Index is rebalanced bi-weekly, Index concentration may change
frequently. As of March 31, 2022, the Index was concentrated in one or more
industries in the consumer discretionary sector. The Fund may
also experience high portfolio turnover.
The Fund is classified as a
“non-diversified” investment company under the Investment Company Act of 1940,
as amended (the “1940 Act”).
Principal Investment Risks
The
principal risks of investing in the Fund are summarized below. The
principal risks are presented in alphabetical order to facilitate finding
particular risks and comparing them with those of other funds. Each risk
summarized below is considered a “principal risk” of investing in the Fund,
regardless of the order in which it appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and/or ability to meet its
objective. The following risks could affect the value of your investment in
the Fund:
•Associated
Risks of Meme Stocks.
Meme stocks are stocks whose trading volume increases not necessarily because of
a company’s performance or fundamentals, but because of social media attention.
Social media attention may result from a variety of factors, including the
reputation of the issuer, marketing efforts, and the timing of the release of
publicly available information, which may be unrelated to the company’s
performance, financial position, or other business fundamentals. As a result,
meme stocks are prone to high volatility, experiencing spikes of rapid growth in
short spaces of time, followed by dramatic drops in price and value, which may
be a result of panic selling or loss of general interest or popularity. Because
meme stocks are heavily dependent on investor sentiment and opinion, they may be
overpriced in comparison to the company’s fundamentals, resulting in losses to
the Fund.
•Associated
Risks of Social Media Analytics. The
Fund’s investment strategy relies heavily on social media analytics, which are
relatively new and untested. “Social media” is an umbrella term that encompasses
various activities that integrate technology, social interaction and content
creation. Investing in companies based on social media analytics involves the
potential risk of market manipulation because social media posts may be made
with an intent to inflate, or otherwise manipulate, the public perception of a
company stock or other investment. Although the Index Provider attempts to
mitigate the potential risk of such manipulation by employing screens to
identify posts which may be computer generated or deceptive and by employing
market capitalization and trading volume criteria to remove companies which may
be more likely targets for such manipulation, there is no guarantee that such
screens will be able to successfully reduce such risk. Furthermore, text and
sentiment analysis of social media postings may prove inaccurate in predicting a
company’s stock performance (i.e.,
high positive sentiment may not correlate
with
positive change in the value of a company’s stock and low positive or negative
sentiment may not correlate with negative change in the value of a company’s
stock). Additionally, social media companies are susceptible to other events and
concerns which may disrupt the ability to extract meaningful data from such
sites, including permanent cessation of operations, disruption in service caused
by hardware or software failure, interruptions or delays in service by
third-party data center hosting facilities and maintenance providers, security
breaches involving certain private, sensitive, proprietary and confidential
information managed and transmitted by social media companies, privacy concerns
and laws, and evolving Internet regulation and other foreign or domestic
regulations that may limit or otherwise affect the operations of social media
companies.
•Consumer
Discretionary Sector Risk.
Consumer discretionary companies are companies that provide non-essential goods
and services, such as retailers, media companies and consumer services. These
companies manufacture products and provide discretionary services directly to
the consumer, and the success of these companies tied closely to the performance
of the overall domestic and international economy, interest rates, competition
and consumer confidence.
•Concentration
Risk.
Because the Fund’s assets will be concentrated in an industry or group of
industries to the extent the Index concentrates in a particular industry or
group of industries, the Fund is subject to loss due to adverse occurrences that
may affect that industry or group of industries.
•Cybersecurity
Risk.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets, customer data (including private shareholder information), or
proprietary information, or cause the Fund, the Adviser (defined below), the
Sub-Adviser and/or other service providers (including custodians, transfer
agents and financial intermediaries) to suffer data breaches or data corruption.
Additionally, cybersecurity failures or breaches of the electronic systems of
the Fund, the Adviser, the Sub-Adviser or the Fund’s other service providers,
market makers, Authorized Participants or the issuers of securities in which the
Fund invests have the ability to cause disruptions and negatively impact the
Fund’s business operations, potentially resulting in financial losses to the
Fund and its shareholders. In an extreme case, a shareholder’s ability to redeem
Fund shares may be affected.
•Depositary
Receipt Risk.
Depositary receipts, including ADRs, involve risks similar to those associated
with investments in foreign securities, such as changes in political or economic
conditions of other countries and changes in the exchange rates of foreign
currencies. Depositary receipts listed on U.S. exchanges are issued by banks or
trust companies, and entitle the holder to all dividends and capital gains that
are paid out on the underlying foreign shares (“Underlying Shares”). When the
Fund invests in depositary receipts as a substitute for an investment directly
in the Underlying Shares, the Fund is exposed to the risk that the depositary
receipts may not provide a return that corresponds precisely with that of the
Underlying Shares. Because the Underlying Shares trade on foreign exchanges that
may be closed when the Fund’s primary listing exchange is open, the Fund may
experience premiums and discounts greater than those of funds without exposure
to such Underlying Shares.
•Equity
Market Risk. The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, sectors or companies in which the Fund invests.
Common stocks are generally exposed to greater risk than other types of
securities, such as preferred stocks and debt obligations, because common
stockholders generally have inferior rights to receive payment from issuers.
•ETF
Risks.
The Fund is an ETF, and, as a result of its structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the
business or significantly reduce their business activities and no other entities
step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums or discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. The Adviser relies upon the Index Provider and its agents to
compile, determine, construct, reconstitute, rebalance, compose, calculate (or
arrange for an agent to calculate), and disseminate the Index accurately. Any
losses or costs associated with errors made by the Index Provider or its agents
generally will be borne by the Fund and its shareholders.
•IPO
Risk. The
Fund may invest in securities issued in initial public offerings. The market
value of IPO shares will fluctuate considerably due to factors such as the
absence of a prior public market, unseasoned trading, the small number of shares
available for trading and limited information about the issuer. The purchase of
IPO shares may involve high transaction costs. IPO shares are subject to market
risk and liquidity risk.
•Issuer
Risk.
Because the Fund may invest in a limited number of issuers, it is subject to the
risk that the value of the Fund’s portfolio may decline due to a decline in
value of the equity securities of particular issuers. The value of an issuer’s
equity securities may decline for reasons directly related to the issuer, such
as management performance and reduced demand for the issuer’s goods or
services.
•Limited
Operating History Risk. The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
these factors, including the impact of the COVID-19 pandemic and related public
health issues, growth concerns in the U.S. and overseas, uncertainties regarding
interest rates, trade tensions and the threat of tariffs imposed by the U.S. and
other countries. These developments as well as other events could result in
further market volatility and negatively affect financial asset prices, the
liquidity of certain securities and the normal operations of securities
exchanges and other markets. It is unknown how long circumstances related to the
pandemic will persist, whether they will reoccur in the future, whether efforts
to support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a lesser number of issuers than if it was a diversified fund. As a result,
the Fund may be more exposed to the risks associated with and developments
affecting an individual issuer or a lesser number of issuers than a fund that
invests more widely. This may increase the Fund’s volatility and cause the
performance of a relatively small number of issuers to have a greater impact on
the Fund’s performance.
•Passive
Investment Risk.
The Fund is not actively managed and its Sub-Adviser would not sell shares of an
equity security due to current or projected underperformance of a security
industry or sector unless that security is removed from the Index or the selling
of shares of that security is otherwise required upon a rebalancing of the Index
as addressed in the Index methodology.
•Portfolio
Turnover Risk. Because
the Fund may “turn over” some or all of its portfolio frequently, the Fund may
incur high levels of transaction costs from commissions or mark-ups in the
bid/offer spread. Higher portfolio turnover (e.g.,
in excess of 100% per year) may result in the Fund paying higher levels of
transaction costs and generating greater tax liabilities for
shareholders.
•Price
Volatility Risk. The
value of meme stocks may increase or decrease rapidly or unpredictably, causing
the NAV of the Fund to also increase or decrease rapidly or unpredictably.
•SPAC
Investment Risk.
The Fund may invest in equity securities of SPACs, which raise assets to seek
potential business combination opportunities. Unless and until a business
combination is completed, a SPAC generally invests its assets in U.S. government
securities, money market securities, and cash. Because SPACs have no operating
history or ongoing business other than seeking a business combination, the value
of their securities is particularly dependent on the ability of the entity’s
management to identify and complete a profitable business combination. There is
no guarantee that the SPACs in which the Fund invests will complete a business
combination or that any business combination that is completed will be
profitable. The market perception of a SPAC’s ability to complete a business
combination could materially impact the market value of the SPAC’s securities.
Public stockholders of SPACs may not be afforded a meaningful opportunity to
vote on a proposed initial business combination because certain stockholders,
including stockholders affiliated with the management of the SPAC, may have
sufficient voting power, and a financial incentive, to approve such a
transaction without support from public stockholders. As a result, a SPAC may
complete a business combination even though a majority of its public
stockholders do not support such a combination. Some SPACs may pursue a business
combination only within certain industries or regions, which may increase the
volatility of their prices.
•Tax
Risk. Investment
in SPACs introduces complexities beyond typical equity investments and may
introduce tax risks to the Fund. In particular, certain non-U.S. SPACs may be
treated as a “passive foreign investment company” (“PFIC”) under the Internal
Revenue Code of 1986, as amended (the “Code”), thereby causing the Fund to be
subject to special tax rules. If a SPAC is classified as a PFIC, the Fund may be
subject to U.S. federal income tax on a portion of any “excess distribution” or
gain from the disposition of shares in the PFIC even if such income is
distributed as a taxable dividend by the Fund to its shareholders. Additional
charges in the nature of interest may be imposed on the Fund in respect of
deferred taxes arising from such distributions or gains unless the Fund makes
certain elections. See “Federal Income Taxes—Foreign Investments” in the SAI for
additional information.
•Tracking
Error Risk. As
with all index funds, the performance of the Fund and its Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Performance
Performance information for the Fund is not
included because the Fund did not have a full calendar year of performance prior
to the date of this Prospectus. In the future, performance
information for the Fund will be presented in this section. Updated performance
information is available on the Fund’s website at www.roundhillinvestments.com.
Portfolio
Management
|
|
|
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|
|
Adviser |
Roundhill
Financial Inc. (the “Adviser”) |
Sub-Adviser |
Exchange
Traded Concepts, LLC |
Portfolio
Managers |
Andrew
Serowik, Todd Alberico, and Gabriel Tan, each a portfolio manager for the
Sub-Adviser, have been portfolio managers of the Fund since its inception
in December 2021 |
Purchase
and Sale of Shares
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through a broker or dealer at market prices, rather than
NAV. Because Shares trade at market prices rather than NAV, Shares may trade at
a price greater than NAV (premium) or less than NAV (discount).
An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase Shares (the “bid” price) and the
lowest price a seller is willing to accept for Shares (the “ask” price) when
buying or selling Shares in the secondary market. The difference in the bid and
ask prices is referred to as the “bid-ask spread.”
Recent
information regarding the Fund’s NAV, market price, how often Shares traded on
the Exchange at a premium or discount, and bid-ask spreads can be found on the
Fund’s website at www.roundhillinvestments.com.
Tax
Information
The
Fund’s distributions are generally taxable as ordinary income, qualified
dividend income, or capital gains (or a combination), unless your investment is
in an individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange-traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
Roundhill
BITKRAFT Esports Index and Roundhill Sports Betting & iGaming
Index
– The Adviser provides the Indexes to the Esports ETF and Sports Betting ETF,
respectively. The Adviser created and developed the Indexes and is responsible
for maintaining and applying the methodology for each Index.
Ball
Metaverse Index
– Ball Metaverse Research Partners LLC acts as the Index Provider.
IO
Digital Infrastructure Index – IO
Digital Index Partners acts as the Index Provider.
Solactive
Roundhill Meme Stock Index – Solactive
AG acts as the Index Provider.
With
respect to the Ball Metaverse Index, IO Digital Infrastructure Index, and
Solactive Roundhill Meme Stock Index, the Index Provider provides information to
the respective Fund about its Index constituents and does not provide investment
advice with respect to the desirability of investing in, purchasing, or selling
securities. Each Index Provider for such Indexes is an independent third party
that is not affiliated with the respective Fund, the Adviser, the Sub-Adviser,
the Fund’s distributor, or any of their respective affiliates.
Each
Index is calculated by Solactive AG, an independent third party that is not
affiliated with the Funds, the Adviser, the Sub-Adviser, the Funds’ distributor,
or any of their respective affiliates. The Index calculation agent provides
information to the respective Fund about its Index constituents and does not
provide investment advice with respect to the desirability of investing in,
purchasing, or selling securities.
Each
Index is calculated as a gross total return index.
ADDITIONAL
INFORMATION ABOUT THE FUNDS
Investment
Objective
Each
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
Principal
Investment Strategies
The
following information is in addition to, and should be read along with, the
description of each Fund’s principal investment strategies in each section
titled “Fund Summary—Principal Investment Strategies” above.
Each
Fund has adopted a policy to comply with Rule 35d-1 under the1940 Act. Each such
policy has been adopted as a non-fundamental investment policy and may be
changed without shareholder approval upon 60 days’ written notice to
shareholders.
The
Esports ETF invests, under normal circumstances, at least 80% of its net assets
(plus borrowings for investment purposes) in companies that are economically
tied to esports and other digital entertainment industries. For purposes of the
foregoing policy, a company is considered economically tied to the esports
industry if it earns revenue from the Esports Industry. A company is considered
economically tied to other digital entertainment industries if its principal
business activity is classified in one of the following sub-industries:
broadcasting, interactive home entertainment, interactive media & services,
technology hardware storage or technology hardware, storage and
peripherals.
The
Sports Betting ETF invests, under normal circumstances, at least 80% of its net
assets (plus borrowings for investment purposes) in securities issued by Sports
Betting and iGaming Companies. Sports Betting and iGaming Companies are
companies assigned to the “Casinos & Gaming” sub-industry as defined by the
Global Industry Classification Standard®, a widely recognized industry
classification methodology developed by MSCI, Inc. and Standard & Poor’s
Financial Services LLC, that are actively involved in iGaming as that term is
defined above. A proprietary keyword scanning algorithm that screens filings,
disclosures and other public information of issuers within the Casinos &
Gaming sub-industry for variations of the terms “sports betting” and “iGaming”
is used to further identify companies actively involved in iGaming.
The
Metaverse ETF invests, under normal circumstances, at least 80% of its net
assets (plus any borrowings for investment purposes) in Metaverse Companies. For
purposes of this policy, the Fund defines Metaverse Companies as companies that
engage in activities or provide products, services, technologies, or
technological capabilities to enable the Metaverse, and benefit from its
generated revenues.
The
Digital Infrastructure ETF invests, under normal circumstances, at least 80% of
its net assets (plus any borrowings for investment purposes) in Digital
Infrastructure Companies. For purposes of this policy, Digital Infrastructure
Companies are companies that earn a majority of their revenue from digital
infrastructure assets, which include fixed-line, speed data transmission (such
as fiberoptic cable and certain “last-mile” technologies that bring data to the
end-user); data centers; mobile towers and related infrastructure; and other
long-lived physical infrastructure assets.
The
MEME ETF invests, under normal circumstances, at least 80% of its net assets
(plus any borrowings for investment purposes) in meme stocks, which may include
investments in common stock and depositary receipts.
Esports
ETF
Each
security in the Index will have a market capitalization of at least $150 million
USD, or be a “pure-play” company with a market capitalization of at least $100
million USD. Existing Index components must have a market capitalization of at
least $100 million USD.
Sports
Betting ETF
At
each rebalance, the Committee will calculate an “estimate of total assets” in
products linked to the Index. If the aggregate dollar position in a given
security (equal to percentage weighting in the Index multiplied by the “estimate
of total assets”) is greater than 5% of a component’s market capitalization,
then the component’s index weighting will be revised downward to ensure that the
aggregate dollar position is capped at 5% of market capitalization. The
weighting removed from that component will then be allocated on a pro-rata basis
across remaining components, subject to the same 5% cap.
Each
security in the Index will have a market capitalization of at least $50 million
USD.
Metaverse
ETF and MEME ETF
The
Fund also may invest in SPACs. A SPAC is a company with no commercial operations
that is designed to raise capital via an IPO for the purpose of engaging in a
merger, acquisition, reorganization, or similar business combination (a
“Combination”) with one or more operating companies. Sponsors of SPACs typically
pay the SPAC’s offering costs and underwriting fees and contribute all or a
portion of its working capital in exchange for participation in the common stock
and derivatives (such as warrants) of the SPAC. A SPAC IPO typically involves
the sale of units consisting of one share of common stock and a warrant or right
(or portion of a warrant or right) to purchase common stock at a fixed price
upon or after the consummation of a Combination. The capital raised in the IPO
is typically placed into a trust. The proceeds of the IPO may be used only to
consummate a Combination and for other limited purposes such as paying taxes
owed by the SPAC.
With
respect to the Metaverse ETF, if a SPAC held by the Fund does not meet the
definition of a Metaverse Company after its business combination, the position
will be removed from the Index and the Fund will exit its position in such
security.
Principal
Investment Risks
An
investment in a Fund entails risks. A Fund could lose money, or its performance
could trail that of other investment alternatives. The following provides
additional information about the Funds’ principal risks. It is important that
investors closely review and understand these risks before making an investment
in a Fund. Each risk applies to each Fund unless otherwise specified. Just as in
each Fund’s summary section above, the principal risks below are presented in
alphabetical order to facilitate finding particular risks and comparing them
with those of other funds. Each risk summarized below is considered a “principal
risk” of investing in the applicable Fund, regardless of the order in which it
appears.
•Associated
Risks of Meme Stocks (MEME
ETF only).
Meme stocks are stocks whose trading volume increases not necessarily because of
a company’s performance or fundamentals, but because of social media attention.
Social media attention may result from a variety of factors, including the
reputation of the issuer, marketing efforts, and the timing of the release of
publicly available information, which may be unrelated to the company’s
performance, financial position, or other business fundamentals. As a result,
meme stocks are prone to high volatility, experiencing spikes of rapid growth in
short spaces of time, followed by dramatic drops in price and value, which may
be a result of panic selling or loss of general interest or popularity. Because
meme stocks are heavily dependent on investor sentiment and opinion, they may be
overpriced in comparison to the company’s fundamentals, resulting in losses to
the Fund.
•Associated
Risks of Social Media Analytics (MEME
ETF only).
The
Fund’s investment strategy relies heavily on social media analytics, which are
relatively new and untested. “Social media” is an umbrella term that encompasses
various activities that integrate technology, social interaction and content
creation. Investing in companies based on social media analytics involves the
potential risk of market manipulation because social media posts may be made
with an intent to inflate, or otherwise manipulate, the public perception of a
company stock or other investment. Although the Index Provider attempts to
mitigate the potential risk of such manipulation by employing screens to
identify posts which may be computer generated or deceptive and by employing
market capitalization and trading volume criteria to remove companies which may
be more likely targets for such manipulation, there is no guarantee that such
screens will be able to successfully reduce such risk. Furthermore, text and
sentiment analysis of social media postings may prove inaccurate in predicting a
company’s stock performance (i.e.,
high positive sentiment may not correlate with positive change in the value of a
company’s stock and low positive or negative sentiment may not correlate with
negative change in the value of a company’s stock). Additionally, social media
companies are susceptible to other events and concerns which may disrupt the
ability to extract meaningful data from such sites, including permanent
cessation of operations, disruption in service caused by hardware or software
failure, interruptions or delays in service by third-party data center hosting
facilities and maintenance providers, security breaches involving certain
private, sensitive, proprietary and confidential information managed and
transmitted by social media companies, privacy concerns and laws, and evolving
Internet regulation and other foreign or domestic regulations that may limit or
otherwise affect the operations of social media companies.
•Competitive
Esports Risk (Esports
ETF only).
Esports companies face intense competition, both domestically and
internationally, may have limited product lines, markets, financial resources,
or personnel, may have products that face rapid obsolescence, and are heavily
dependent on the protection of patent and intellectual property rights.
Pure-play companies may be dependent on one or a small number of product or
product franchises for a significant portion of their revenue and
profits. They may also be subject to shifting consumer preferences,
including preferences with respect to gaming console platforms, and changes in
consumer discretionary spending. Such factors may adversely affect the
profitability and value of esports companies. Esports companies also may be
subject to increasing regulatory constraints, particularly with respect to
cybersecurity and privacy. In addition to the costs of complying with such
constraints, the unintended disclosure of confidential information, whether
because of an error or a cybersecurity event, could adversely affect the
reputation, profitability and value of these companies. Esports companies may be
subject to sophisticated intellectual property infringement schemes and piracy
efforts, particularly in foreign markets, which may limit the revenue potential
in such markets, and combating such infringement or piracy schemes may require
significant expenses. Such anti-piracy programs may not be
effective.
•Communication
Services Sector Risk (Esports
ETF, Digital Infrastructure ETF, and Metaverse ETF
only).
Market
or economic factors impacting communication services companies and companies
that rely heavily on technological advances could have a major effect on the
value of the Fund’s investments. Communication services companies are
particularly vulnerable to the potential obsolescence of products and services
due to technological advancement and the innovation of competitors. Companies in
the communication services sector may also be affected by other competitive
pressures, such as pricing competition, as well as research and development
costs, substantial capital requirements and government regulation. Additionally,
fluctuating domestic and international demand, shifting demographics and often
unpredictable changes in consumer tastes can drastically affect a communication
services company’s profitability. Stocks of communication services
companies and companies that rely heavily on technology, especially those of
smaller, less-seasoned companies, tend to be more volatile than the overall
market. Additionally, companies in the communication services sector may face
dramatic and often unpredictable changes in growth rates and competition for the
services of qualified personnel. While all companies may be susceptible to
network security breaches, certain companies in the communication services
sector may be particular targets of hacking and potential theft of proprietary
or consumer information or disruptions in service, which could have a material
adverse effect on their businesses.
◦Entertainment
Industry Risk (Esports ETF only).
As
a result of the Fund’s concentration in the Entertainment Industry, the Fund is
subject to the risks associated with that Industry. The Entertainment Industry
is highly competitive and relies on consumer spending and the availability of
disposable income for success. The prices of the securities of companies in the
Entertainment Industry may fluctuate widely due to competitive pressures, heavy
expenses incurred for research and development of products, problems related to
bringing products to market, consumer preferences and rapid obsolescence of
products. Legislative or regulatory changes and increased government supervision
also may affect companies in the Entertainment Industry. The Entertainment
Industry is a separate industry within the Communication Services
Sector.
◦Media
Companies Risk (Digital Infrastructure ETF only). The
Fund invests in companies in the media industry, which includes
telecommunications, streaming, publishing (both traditional and online), and
entertainment companies and, as a result, the value of the Fund’s shares will be
more susceptible to the factors affecting these particular types of companies.
Market or economic factors impacting these companies that rely heavily on
technological advances could have a major effect on the value of the Fund’s
investments and therefore, the Fund. The value of stocks of these companies is
particularly vulnerable to research and development costs, substantial capital
requirements, product and services obsolescence, government regulation, and
domestic and international competition, including competition from foreign
competitors with lower production costs. Stocks of companies that rely heavily
on technology, especially those of smaller, less-seasoned companies, tend to be
more volatile than the overall market. Additionally, these companies may face
dramatic and often unpredictable changes in growth rates and competition for the
services of qualified personnel. While all companies may be susceptible to
network security breaches, these companies may be particular targets of hacking
and potential theft of proprietary or consumer information or disruptions in
service, which could have a material adverse effect on their
businesses.
•Concentration
Risk.
Because the Fund’s assets will be concentrated in an industry or group of
industries to the extent the Index concentrates in a particular industry or
group of industries, the Fund is subject to loss due to adverse occurrences that
may affect that industry or group of industries. To the extent the Fund
concentrates in the securities of issuers in a particular industry, the Fund may
face more risks than if it were diversified more broadly over numerous
industries. Such industry-based risks, any of which may adversely affect the
Fund may include, but are not limited to, the following: general economic
conditions or cyclical market patterns that could negatively affect supply and
demand in a particular industry; competition for resources, adverse labor
relations, political or world events; obsolescence of technologies; and
increased competition or new product introductions that may affect the
profitability or viability of companies in an industry. In addition, at times,
an industry may be out of favor and underperform other industries or the market
as a whole.
•Consumer
Discretionary Sector Risk (Sports
Betting ETF, Metaverse ETF, and MEME ETF only).
Consumer
discretionary companies are companies that provide non-essential goods and
services, such as retailers, media companies and consumer services. These
companies manufacture products and provide discretionary services directly to
the consumer, and the success of
these
companies is tied closely to the performance of the overall domestic and
international economy, interest rates, competition and consumer confidence.
Success depends heavily on disposable household income and consumer spending.
Changes in demographics and consumer tastes can also affect the demand for, and
success of, consumer discretionary products in the marketplace.
•Currency
Exchange Rate Risk (All
Funds except MEME ETF).
Changes in currency exchange rates and the relative value of non-U.S. currencies
will affect the value of the Fund’s investments and the value of your Shares.
Because the Fund’s NAV is determined on the basis of U.S. dollars, the U.S.
dollar value of your investment in the Fund may go down if the value of the
local currency of the non-U.S. markets in which the Fund invests depreciates
against the U.S. dollar. This is true even if the local currency value of
securities in the Fund’s holdings goes up. Conversely, the dollar value of your
investment in the Fund may go up if the value of the local currency appreciates
against the U.S. dollar. The value of the U.S. dollar measured against other
currencies is influenced by a variety of factors. These factors include:
national debt levels and trade deficits, changes in balances of payments and
trade, domestic and foreign interest and inflation rates, global or regional
political, economic or financial events, monetary policies of governments,
actual or potential government intervention, and global energy prices. Political
instability, the possibility of government intervention and restrictive or
opaque business and investment policies may also reduce the value of a country’s
currency. Government monetary policies and the buying or selling of currency by
a country’s government may also influence exchange rates. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the value of an investment in the Fund may change quickly and without
warning, and you may lose money.
•Cybersecurity
Risk.
With the increased use of technologies such as the Internet and the dependence
on computer systems to perform business and operational functions, funds (such
as the Fund) and their service providers may be prone to operational and
information security risks resulting from cyber-attacks and/or technological
malfunctions. In general, cyber-attacks are deliberate, but unintentional events
may have similar effects. Cyber-attacks include, among others, stealing or
corrupting data maintained online or digitally, preventing legitimate users from
accessing information or services on a website, releasing confidential
information without authorization, and causing operational disruption.
Cybersecurity incidents may allow an unauthorized party to gain access to Fund
assets or proprietary information, or cause the Fund, the Adviser, the
Sub-Adviser and/or other service providers (including custodians and financial
intermediaries) to suffer data breaches or data corruption. Additionally,
cybersecurity failures or breaches of the electronic systems of the Fund, the
Adviser, the Sub-Adviser or the Fund’s other service providers, market makers,
APs or the issuers of securities in which the Fund invests have the ability to
cause disruptions and negatively impact the Fund’s business operations,
potentially resulting in financial losses to the Fund and its shareholders. For
instance, cyber-attacks or technical malfunctions may interfere with the
processing of shareholder or other transactions, affect the Fund’s ability to
calculate its NAV, cause the release of private shareholder information or
confidential Fund information, impede trading, cause reputational damage, and
subject the Fund to regulatory fines, penalties or financial losses,
reimbursement or other compensation costs, and additional compliance costs.
Cyber-attacks or technical malfunctions may render records of Fund assets and
transactions, shareholder ownership of Fund Shares, and other data integral to
the functioning of the Fund inaccessible or inaccurate or incomplete. The Fund
may also incur substantial costs for cybersecurity risk management in order to
prevent cyber incidents in the future. The Fund and its shareholders could be
negatively impacted as a result.
•Depositary
Receipt Risk.
The Fund may hold the securities of non-U.S. companies in the form of depository
receipts, including ADRs and GDRs. ADRs are negotiable certificates issued by a
U.S. financial institution that represent a specified number of shares in a
foreign stock and trade on a U.S. national securities exchange, such as the New
York Stock Exchange (“NYSE”). Sponsored ADRs are issued with the support of the
issuer of the foreign stock underlying the ADRs and carry all of the rights of
common shares, including voting rights. GDRs are similar to ADRs, but may be
issued in bearer form and are typically offered for sale globally and held by a
foreign branch of an international bank. The underlying issuers of certain
depositary receipts, particularly unsponsored or unregistered depositary
receipts, are under no obligation to distribute shareholder communications to
the holders of such receipts, or to pass through to them any voting rights with
respect to the deposited securities. Issuers of unsponsored depositary receipts
are not contractually obligated to disclose material information in the U.S.
and, therefore, such information may not correlate to the market value of the
unsponsored depositary receipt. The Underlying Shares in the Fund’s portfolio
are usually denominated or quoted in currencies other than the U.S. Dollar. As a
result, changes in foreign currency exchange rates may affect the value of the
Fund’s portfolio. In addition, because the Underlying Shares trade on foreign
exchanges at times when the U.S. markets are not open for trading, the value of
the Underlying Shares may change materially at times when the U.S. markets are
not open for trading, regardless of whether there is an active U.S. market for
Shares.
•Digital
Infrastructure Companies Risk (Digital
Infrastructure ETF only).
Digital
Infrastructure Companies are exposed to the risks specific to the real estate
market as well as the risks that relate specifically to the way in which Digital
Infrastructure Companies are utilized and operated. Digital Infrastructure
Companies may be affected by unique supply and demand factors that do not apply
to other real estate sectors, such as changes in demand for communications
infrastructure, consolidation of tower sites, and new technologies that may
affect demand for data centers. Digital Infrastructure Companies are
particularly affected by changes in demand for wireless infrastructure and
wireless connectivity. Such demand is affected by numerous factors including,
but not limited to, consumer demand for wireless connectivity; availability or
capacity of wireless infrastructure or associated land interests; location of
wireless infrastructure; financial condition of customers; increased use of
network sharing, roaming, joint
development,
or resale agreements by customers; mergers or consolidations by and among
customers; governmental regulations, including local or state restrictions on
the proliferation of wireless infrastructure; and technological changes,
including those affecting the number or type of wireless infrastructure needed
to provide wireless connectivity to a given geographic area or resulting in the
obsolescence or decommissioning of certain existing wireless networks.
Digital
Infrastructure Companies are subject to a variety of factors that may adversely
affect their business or operations including high interest costs, costs
associated with compliance with and changes in environmental and other
regulations, difficulty in raising capital in adequate amounts on reasonable
terms in periods of high inflation and unsettled markets, the effects of surplus
capacity, increased competition from other providers of services, the effects of
energy conservation policies, and other factors. Additionally, Digital
Infrastructure Companies also may be subject to regulation by various
governmental authorities and may also be affected by governmental regulation of
rates charged to customers, government budgetary constraints, service
interruption due to environmental, operational or other mishaps and the
imposition of special tariffs and changes in tax laws, regulatory policies and
accounting standards. Other factors that may affect the operations of Digital
Infrastructure Companies include innovations in technology that could render the
way in which a company delivers a product or service obsolete, significant
changes to the number of ultimate end-users of a company’s products, increased
susceptibility to terrorist acts or political actions, risks of environmental
damage due to a company’s operations or an accident, and general changes in
market sentiment towards infrastructure and utilities assets. Digital
Infrastructure Companies may be particularly subject to external risks
including, but not limited to, natural disasters and supplier outages. Certain
geographical areas may be at higher risk for natural disasters, which can
increase the likelihood of power surges and supplier outages. Natural disasters
and supplier outages can lead to significant downtime, data loss, and associated
expenses. Digital Infrastructure Companies also may be particularly subject to
internal risks including, but not limited to, water supply and climate risk and
data security risk. Water damage or an imprecise climate may cause extensive
damage to critical infrastructure if adequate systems aimed at water penetration
and climate control are not installed. Data centers increasingly rely on the use
of electronic data, which may make them more vulnerable to data security risk.
Data centers are potential targets for cyber-attacks, which may have a
materially adverse impact on the performance of these companies. Data centers
that do not implement more advanced access control and security monitoring in
response to internal and external threats may be at greater risk of potential
breaches or damage to data integrity.
•Emerging
Markets Risk (Esports
ETF and Digital Infrastructure ETF only).
The Fund’s investments may expose its portfolio to the risks of investing in
emerging markets. Investments in emerging markets are subject to greater risk of
loss than investments in developed markets. This is due to, among other things,
greater market volatility, lower trading volume, political and economic
instability, greater risk of market shutdown and more governmental limitations
on foreign investments than typically found in developed markets. In addition,
less developed markets are more likely to experience problems with the clearing
and settling of trades and the holding of securities by local banks, agents and
depositories.
•Equity
Market Risk. Common
stocks are susceptible to general stock market fluctuations and to volatile
increases and decreases in value as market confidence in and perceptions of
their issuers change. These investor perceptions are based on various and
unpredictable factors including: expectations regarding government, economic,
monetary and fiscal policies; inflation and interest rates; economic expansion
or contraction; and global or regional political, economic and banking crises.
If you held common stock, or common stock equivalents, of any given issuer, you
would generally be exposed to greater risk than if you held preferred stocks and
debt obligations of the issuer because common stockholders, or holders of
equivalent interests, generally have inferior rights to receive payments from
issuers in comparison with the rights of preferred stockholders, bondholders,
and other creditors of such issuers.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and in many cases unprecedented volatility and
severe losses due to the global pandemic caused by COVID‑19, a novel
coronavirus. The pandemic has resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, supply chain disruptions, and so-called “stay-at-home”
orders throughout much of the United States and many other countries. The
fall-out from these disruptions has included the rapid closure of businesses
deemed “non-essential” by federal, state, or local governments and rapidly
increasing unemployment, as well as greatly reduced liquidity for certain
instruments at times. Some sectors of the economy and individual issuers have
experienced particularly large losses. Such disruptions may continue for an
extended period of time or reoccur in the future to a similar or greater extent.
In response, the U.S. government and the Federal Reserve have taken
extraordinary actions to support the domestic economy and financial markets,
resulting in very low interest rates and in some cases negative yields. It is
unknown how long circumstances related to the pandemic will persist, whether
they will reoccur in the future, whether efforts to support the economy and
financial markets will be successful, and what additional implications may
follow from the pandemic. The impact of these events and other epidemics or
pandemics in the future could adversely affect Fund performance.
•ETF
Risks.
The Fund is an ETF, and, as a result of the structure, is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers
in the marketplace. To the extent either of the following events occur, Shares
may trade at a material discount to NAV and possibly face delisting: (i) APs
exit the business or otherwise become unable to process creation and/or
redemption orders and no other APs step forward to perform these services, or
(ii) market makers and/or liquidity providers exit the business or significantly
reduce their business activities and no other entities step forward to perform
their functions.
◦Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in the Fund, asset swings in the Fund and/or increased market volatility may
cause increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines and periods when there is limited trading activity for
Shares in the secondary market, in which case such premiums or discounts may be
significant. The market price of Shares during the trading day, like the price
of any exchange-traded security, includes a “bid/ask” spread charged by the
exchange specialist, market makers or other participants that trade Shares. In
times of severe market disruption, the bid/ask spread can increase
significantly. At those times, Shares are most likely to be traded at a discount
to NAV, and the discount is likely to be greatest when the price of Shares is
falling fastest, which may be the time that you most want to sell your Shares.
The Adviser believes that, under normal market conditions, large market price
discounts or premiums to NAV will not be sustained because of arbitrage
opportunities. Because securities held by the Fund may trade on foreign
exchanges that are closed when the Fund’s primary listing exchange is open, the
Fund is likely to experience premiums or discounts greater than those of
domestic ETFs.
◦Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500 Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than Shares.
•Frontier
Markets Risk (Digital
Infrastructure ETF only).
Certain
foreign markets are only in the earliest stages of development and may be
considered “frontier markets.” Frontier financial markets generally are less
liquid and more volatile than other markets, including markets in developing and
emerging economies. Frontier markets have a high concentration of market
capitalization and trading volume in a small number of issuers representing a
limited number of industries. Securities may have limited marketability and be
subject to erratic price movements. Frontier market governments typically
exercise substantial influence over many aspects of the private sector. In
certain cases, the government owns or controls many companies, including the
largest company in the country. Accordingly, governmental actions in the future
could have a significant effect on economic conditions in frontier market
countries. This could affect private sector companies and the Fund, as well as
the value of securities in the Fund’s portfolio. Further, substantial
limitations may exist in certain frontier market countries with respect to the
Fund’s ability to protect its legal interests and ability to repatriate its
investment, investment income or capital gains. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investment. Procedures concerning transaction settlement and
dividend collection may be less reliable than in developed markets and larger
emerging markets. Frontier markets have been, and may continue to be, impacted
by political instability, war, terrorist activities and religious, ethnic and/or
socioeconomic unrest. These and other factors make investing in frontier market
countries significantly riskier than investing in developed market or emerging
market countries.
•Foreign
Securities Risk
(All
Funds except the MEME ETF).
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due
to
foreign currency fluctuations or to political or economic instability. There may
be less information publicly available about a non-U.S. issuer than a U.S.
issuer. Non-U.S. issuers may be subject to different accounting, auditing,
financial reporting and investor protection standards than U.S. issuers.
Investments in non-U.S. securities may be subject to withholding or other taxes
and may be subject to additional trading, settlement, custodial, and operational
risks. With respect to certain countries, there is the possibility of government
intervention and expropriation or nationalization of assets. Because legal
systems differ, there is also the possibility that it will be difficult to
obtain or enforce legal judgments in certain countries. Since foreign exchanges
may be open on days when the Fund does not price its shares, the value of the
securities in the Fund’s portfolio may change on days when shareholders will not
be able to purchase or sell the Fund’s shares. Conversely, Shares may trade on
days when foreign exchanges are close. Each of these factors can make
investments in the Fund more volatile and potentially less liquid than other
types of investments.
•Geographic
Investment Risk (Esports
ETF, Sports Betting ETF, and Digital Infrastructure ETF only).
To the extent that the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region. For example,
political and economic conditions and changes in regulatory, tax, or economic
policy in a country could significantly affect the market in that country and in
surrounding or related countries and have a negative impact on the Fund’s
performance. Currency developments or restrictions, political and social
instability, and changing economic conditions have resulted in significant
market volatility.
◦Risks
Related to Investing in China (Esports ETF only).
The
economy of China differs, often unfavorably, from the U.S. economy in such
respects as structure, general development, government involvement, wealth
distribution, rate of inflation, growth rate, allocation of resources and
capital reinvestment, among others. Under China’s political and economic system,
the central government has historically exercised substantial control over
virtually every sector of the Chinese economy through administrative regulation
and/or state ownership. Since 1978, the Chinese government has been, and is
expected to continue, reforming its economic policies, which has resulted in
less direct central and local government control over the business and
production activities of Chinese enterprises and companies. Notwithstanding the
economic reforms instituted by the Chinese government and the Chinese Communist
Party, actions of the Chinese central and local government authorities continue
to have a substantial effect on economic conditions in China, which could affect
the public and private sector companies in which the Fund may invest. In the
past, the Chinese government has from time to time taken actions that influence
the prices at which certain goods may be sold, encourage companies to invest or
concentrate in particular industries, induce mergers between companies in
certain industries and induce private companies to publicly offer their
securities to increase or continue the rate of economic growth, and control the
rate of inflation or otherwise regulate economic expansion and it may take such
actions in the future as well. Such actions and a variety of other centrally
planned or determined activities by the Chinese government could have a
significant adverse effect on economic conditions in China and the economic
prospects for, and the market prices and liquidity of, the securities of Chinese
companies and the payments of dividends and interest by Chinese companies. In
addition, expropriation, including nationalization, confiscatory taxation,
political, economic or social instability or other developments could adversely
affect and significantly diminish the values of the Chinese companies in which
the Fund may invest. Additionally, from time to time, China has experienced
outbreaks of infectious illnesses, including COVID-19, and the country may be
subject to other public health threats, diseases or similar issues in the
future. The Fund may invest in shares of Chinese companies traded on stock
markets in Mainland China or Hong Kong. These stock markets have experienced
high levels of volatility, which may continue in the future. The Hong Kong stock
market may behave differently from the Mainland China stock market and there may
be little to no correlation between the performance of the Hong Kong stock
market and the Mainland China stock market. From time to time, certain of the
companies comprising the Index may operate in, or have dealings with, countries
subject to sanctions or embargoes imposed by the U.S. government and the United
Nations and/or in countries identified by the U.S. government as state sponsors
of terrorism. One or more of these companies may be subject to constraints under
U.S. law or regulations which could negatively affect the company’s performance.
Additionally, one or more of these companies may suffer damage to its reputation
if it is identified as a company which invests or deals with countries which are
identified by the U.S. government as state sponsors of terrorism or subject to
sanctions. As an investor in such companies, an investing fund will be
indirectly subject to these risks.
•iGaming
and Sports Betting Companies Risk (Sports
Betting ETF only).
The
iGaming and sports betting industry is characterized by an increasingly high
degree of competition among a large number of participants including from
participants performing illegal activities or unregulated companies. Expansion
of iGaming and sports betting in other jurisdictions (both regulated and
unregulated) could increase competition with traditional betting companies,
which could have an adverse impact on their financial condition, operations and
cash flows. In a broader sense, iGaming and sports betting companies face
competition from all manner of leisure and entertainment activities, including
shopping, athletic events, television and movies, concerts and travel. In
addition, established jurisdictions could award additional licenses or permit
the expansion or relocation of existing sports betting companies. These
companies also may be subject to increasing regulatory constraints, particularly
with respect to cybersecurity and privacy. In addition to the costs of complying
with such constraints, the unintended disclosure of confidential
information,
whether because of an error or a cybersecurity event, could adversely affect the
reputation, profitability and value of these companies.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and in many cases unprecedented volatility and
severe losses due to the global pandemic caused by COVID‑19, a novel
coronavirus. The pandemic has resulted in a wide range of social and economic
disruptions. Some sectors of the economy and individual issuers, including
iGaming companies, have experienced particularly large losses. The shutdown of
all commercial sporting activity in the United States and other countries has
resulted in there being no sports betting online or otherwise. The continued
impact of these events or other epidemics or pandemics could have an impact on
the Fund.
•Illiquidity
Risk (Esports
ETF and Sports Betting ETF only).
Illiquidity risk exists when particular investments are difficult to purchase or
sell, possibly preventing the Fund from selling these illiquid investments at an
advantageous price or at the time desired. A lack of liquidity may also cause
the value of investments to decline. Illiquid investments may also be difficult
to value.
•Index
Provider Risk (Metaverse
ETF, Digital Infrastructure ETF, and MEME ETF only).
There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
constructed, reconstituted, rebalanced, composed, calculated or disseminated
accurately. The Adviser relies upon the Index Provider and its agents to
compile, determine, construct, reconstitute, rebalance, compose, calculate (or
arrange for an agent to calculate), and disseminate the Index accurately. Any
losses or costs associated with errors made by the Index Provider or its agents
generally will be borne by the Fund and its shareholders. To correct any such
error, the Index Provider or its agents may carry out an unscheduled rebalance
of the Index or other modification of Index constituents or weightings. When the
Fund in turn rebalances its portfolio, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne by the Fund and its
shareholders. Unscheduled rebalances also expose the Fund to additional tracking
error risk. Errors in respect of the quality, accuracy, and completeness of the
data used to compile the Index may occur from time to time and may not be
identified and corrected by the Index Provider for a period of time or at all,
particularly where the Index is less commonly used as a benchmark by funds or
advisors. For example, during a period where the Index contains incorrect
constituents, the Fund tracking the Index would have market exposure to such
constituents and would be underexposed to the Index’s other constituents. Such
errors may negatively impact the Fund and its shareholders. The Index Provider
and its agents rely on various sources of information to assess the criteria of
issuers included in the Index, including information that may be based on
assumptions and estimates. Neither the Fund nor the Adviser can offer assurances
that the Index’s calculation methodology or sources of information will provide
an accurate assessment of included issuers.
•Information
Technology Sector Risk (Esports
ETF and Metaverse ETF only).
The
information technology sector includes companies engaged in internet software
and services, technology hardware and storage peripherals, electronic equipment
instruments and components, and semiconductors and semiconductor equipment.
Information technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on profit margins. Information
technology companies may have limited product lines, markets, financial
resources or personnel. The products of information technology companies may
face rapid product obsolescence due to technological developments and frequent
new product introduction, unpredictable changes in growth rates and competition
for the services of qualified personnel. Failure to introduce new products,
develop and maintain a loyal customer base, or achieve general market acceptance
for their products could have a material adverse effect on a company’s business.
Companies in the information technology sector are heavily dependent on
intellectual property and the loss of patent, copyright and trademark
protections may adversely affect the profitability of these
companies.
◦Internet
Company Risk (Metaverse ETF only).
Many Internet-related companies have incurred large losses since their inception
and may continue to incur large losses in the hope of capturing market share and
generating future revenues. Accordingly, many such companies expect to incur
significant operating losses for the foreseeable future, and may never be
profitable. The markets in which many Internet companies compete face rapidly
evolving industry standards, frequent new service and product announcements,
introductions and enhancements, and changing customer demands. The failure of an
Internet company to adapt to such changes could have a material adverse effect
on the company’s business. Additionally, the widespread adoption of new
Internet, networking, telecommunications technologies, or other technological
changes could require substantial expenditures by an Internet company to modify
or adapt its services or infrastructure, which could have a material adverse
effect on an Internet company’s business.
◦Semiconductor
Company Risk (Metaverse ETF only).
Competitive pressures may have a significant effect on the financial condition
of semiconductor companies and, as product cycles shorten and manufacturing
capacity increases, these companies may become increasingly subject to
aggressive pricing, which hampers profitability. Reduced demand for end-user
products, under-utilization of manufacturing capacity, and other factors could
adversely impact the operating results of companies in the semiconductor sector.
Semiconductor companies typically face high capital costs and may be heavily
dependent on intellectual property rights. The semiconductor sector is highly
cyclical, which may cause the operating results of many semiconductor companies
to vary significantly. The stock prices of companies in the semiconductor sector
have been and likely will continue to be extremely volatile.
◦Software
Industry Risk
(Metaverse
ETF only).
The software industry can be significantly affected by intense competition,
aggressive pricing, technological innovations, and product obsolescence.
Companies in the software industry are subject to significant competitive
pressures, such as aggressive pricing, new market entrants, competition for
market share, short product cycles due to an accelerated rate of technological
developments and the potential for limited earnings and/or falling profit
margins. These companies also face the risks that new services, equipment or
technologies will not be accepted by consumers and businesses or will become
rapidly obsolete. These factors can affect the profitability of these companies
and, as a result, the value of their securities. Also, patent protection is
integral to the success of many companies in this industry, and profitability
can be affected materially by, among other things, the cost of obtaining (or
failing to obtain) patent approvals, the cost of litigating patent infringement
and the loss of patent protection for products (which significantly increases
pricing pressures and can materially reduce profitability with respect to such
products). In addition, many software companies have limited operating
histories. Prices of these companies’ securities historically have been more
volatile than other securities, especially over the short term.
◦Technology
Hardware, Storage and Peripherals Industry Risk (Esports ETF only).
Technology, hardware and services companies can be significantly affected by
competitive pressures, aggressive pricing, technological developments, changing
domestic demand, the ability to attract and retain skilled employees and
availability and price of components. The market for products produced by these
companies is characterized by rapidly changing technology, rapid product
obsolescence, cyclical market patterns, evolving industry standards and frequent
new product introductions. The success of technology hardware companies depends
in substantial part on the timely and successful introduction of new products.
An unexpected change in one or more of the technologies affecting an issuer’s
products or in the market for products based on a particular technology could
have a material adverse effect on a participant’s operating
results.
Many
of these companies rely on a combination of patents, copyrights, trademarks and
trade secret laws to establish and protect their proprietary rights in their
products and technologies. There can be no assurance that the steps taken by the
companies to protect their proprietary rights will be adequate to prevent
misappropriation of their technology or that competitors will not independently
develop technologies that are substantially equivalent or superior to such
companies’ technology.
•IPO
Risk (Metaverse
ETF and MEME ETF only).
The
Fund may invest in securities issued in initial public offerings. The market
value of IPO shares will fluctuate considerably due to factors such as the
absence of a prior public market, unseasoned trading, the small number of shares
available for trading and limited information about the issuer. The purchase of
IPO shares may involve high transaction costs. IPO shares are subject to market
risk and liquidity risk.
•Issuer
Risk (Metaverse
ETF, Digital Infrastructure ETF, and MEME ETF only).
Because the Fund may invest in a limited number of issuers, it is subject to the
risk that the value of the Fund’s portfolio may decline due to a decline in
value of the equity securities of particular issuers. The value of an issuer’s
equity securities may decline for reasons directly related to the issuer, such
as management performance and reduced demand for the issuer’s goods or
services.
•Limited
Operating History Risk (Metaverse
ETF, Digital Infrastructure ETF, and MEME ETF only).
The
Fund is a recently organized investment company with a limited operating
history. As a result, prospective investors have a limited track record or
history on which to base their investment decision.
•Market
Risk. The
trading prices of securities and other instruments fluctuate in response to a
variety of factors. These factors include events impacting the entire market or
specific market segments, such as political, market and economic developments,
as well as events that impact specific issuers. The Fund’s NAV and market price,
like security and commodity prices generally, may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time. U.S. and international markets have
experienced significant periods of volatility in recent years due to a number of
economic, political and global macro factors, including public health issues,
growth concerns in the U.S. and overseas, uncertainties regarding interest
rates, trade tensions and the threat of tariffs imposed by the U.S. and other
countries. These developments as well as other events could result in further
market volatility and negatively affect financial asset prices, the liquidity of
certain securities and the normal operations of securities exchanges and other
markets, which could have an adverse effect on the Fund.
COVID-19
has resulted in a pandemic and major disruption to economies and markets around
the world, including the United States. The pandemic has resulted in a wide
range of social and economic disruptions, including closed borders, voluntary or
compelled quarantines of large populations, stressed healthcare systems, reduced
or prohibited domestic or international travel, supply chain disruptions, and
so-called “stay-at-home” orders throughout much of the United States and many
other countries. Financial markets have experienced extreme volatility and
severe losses, and trading in many instruments has been disrupted. Some sectors
of the economy and individual issuers have experienced particularly large
losses. Such disruptions may continue for an extended period of time or reoccur
in the future to a similar or greater extent. Liquidity for many instruments has
been greatly reduced for periods of time. In response to these disruptions, the
U.S. government and the Federal Reserve have taken extraordinary actions to
support the domestic economy and financial markets, resulting in very low
interest rates and in some
cases
negative yields. It is unknown how long circumstances related to the pandemic
will persist, whether they will reoccur in the future, whether efforts to
support the economy and financial markets will be successful, and what
additional implications may follow from the pandemic. The impact of these events
and other epidemics or pandemics in the future could adversely affect Fund
performance.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing.
The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing.
The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole. Some medium capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization companies.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some small capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to larger capitalization companies. There
is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and earnings.
◦Micro-Capitalization
Investing (Digital Infrastructure ETF only).
In addition to the risk associated with small-capitalization companies, the
securities of micro-capitalization companies may be newly formed or have limited
product lines, distribution channels and financial and managerial resources.
•Models
and Data Risk (Metaverse
ETF and Digital Infrastructure ETF only).
When models and data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Index and the Fund to potential risks. The model
used to construct the Index is predictive in nature. The use of predictive
models has inherent risks. For example, such models may incorrectly forecast
future behavior, leading to potential losses. In addition, in unforeseen or
certain low-probability scenarios (often involving a market disruption of some
kind), such models may produce unexpected results, which can result in losses
for the Fund. Furthermore, because predictive models are usually constructed
based on historical data supplied by third parties, the success of relying on
such models may depend heavily on the accuracy and reliability of the supplied
historical data. In addition, data and
information
on non-U.S. countries may be unreliable or outdated or there may be less
publicly available data or information about non-U.S. countries due to
differences in registration, accounting, audit and financial record keeping
standards which creates the potential for errors in Index data, Index
computation and/or Index construction and could have an adverse effect on the
Fund’s performance.
•Non-Diversification
Risk. Because
the Fund is “non-diversified,” it may invest a greater percentage of its assets
in the securities of a single issuer or a lesser number of issuers than if it
was a diversified fund. As a result, a decline in the value of an investment in
a single issuer or a lesser number of issuers could cause the Fund’s overall
value to decline to a greater degree than if the Fund held a more diversified
portfolio. This may increase the Fund’s volatility and have a greater impact on
the Fund’s performance.
•Passive
Investment Risk. The
Fund invests in the securities included in, or representative of, its Index
regardless of its investment merit. The Fund does not attempt to outperform its
respective Index or take defensive positions in declining markets. As a result,
the Fund’s performance may be adversely affected by a general decline in the
market segments relating to its Index. The returns from the types of securities
in which the Fund invests may underperform returns from the various general
securities markets or different asset classes. This may cause the Fund to
underperform other investment vehicles that invest in different asset classes.
Different types of securities (for example, large-, mid- and
small-capitalization stocks) tend to go through cycles of doing better or worse
than the general securities markets. In the past, these periods have lasted for
as long as several years.
•Portfolio
Turnover Risk (MEME
ETF only).
Because
the Fund may “turn over” some or all of its portfolio frequently, the Fund may
incur high levels of transaction costs from commissions or mark-ups in the
bid/offer spread. Higher portfolio turnover (e.g.,
in excess of 100% per year) may result in the Fund paying higher levels of
transaction costs and generating greater tax liabilities for shareholders.
Portfolio turnover risk may cause the Fund’s performance to be less than you
expect.
•Price
Volatility Risk (MEME
ETF only).
The
values of all of the Fund’s investments have the potential to be volatile. Price
volatility of an investment refers to the variation of changes in that
investment’s value over time. Thus, an investment with higher
price
volatility is more likely to have greater price swings over shorter time periods
than an investment with lower price volatility, and the Fund’s NAV also may
increase or decrease rapidly or unpredictably as a result.
•Real
Estate Sector Risk (Digital
Infrastructure ETF only).
The
Fund invests in real estate companies, including REITs and real estate holdings
companies, which will expose investors to the risks of owning real estate
directly, as well as to the risks that relate specifically to the way in which
such companies are organized and operated. Real estate is highly sensitive to
general and local economic conditions and developments. The U.S. real estate
market may, in the future, experience and has, in the past, experienced a
decline in value, with certain regions experiencing significant losses in
property values. Many real estate companies, including REITs, utilize leverage
(and some may be highly leveraged), which increases investment risk and the risk
normally associated with debt financing, and could potentially increase the
Fund’s volatility and losses. Exposure to such real estate may adversely affect
Fund performance.
•REITs
Risk (Digital
Infrastructure ETF only).
Investments in REITs involve unique risks. REITs may have limited financial
resources, may trade less frequently and in limited volume, and may be more
volatile than other securities. In addition, to the extent the Fund holds
interests in REITs, it is expected that investors in the Fund will bear two
layers of asset-based management fees and expenses (directly at the Fund level
and indirectly at the REIT level). The risks of investing in REITs include
certain risks associated with the direct ownership of real estate and the real
estate industry in general. These include risks related to general, regional and
local economic conditions; fluctuations in interest rates and property tax
rates; shifts in zoning laws, environmental regulations and other governmental
action such as the exercise of eminent domain; increased operating expenses;
lack of availability of mortgage funds or other limits to accessing the credit
or capital markets; losses due to natural disasters; overbuilding; losses due to
casualty or condemnation; changes in property values and rental rates; and other
factors.
In
addition to these risks, residential/diversified REITs and commercial equity
REITs may be affected by changes in the value of the underlying property owned
by the trusts, while mortgage REITs may be affected by the quality of any credit
extended. Further, REITs are dependent upon management skills and generally may
not be diversified. REITs are also subject to heavy cash flow dependency,
defaults by borrowers or lessees and self-liquidation. In addition, U.S. REITs
are subject to special U.S. federal tax requirements. A U.S. REIT that fails to
comply with such tax requirements may be subject to U.S. federal income
taxation, which may affect the value of the REIT and the characterization of the
REIT’s distributions. The U.S. federal tax requirement that a REIT distributes
substantially all of its net income to its shareholders may result in the REIT
having insufficient capital for future expenditures. A REIT that successfully
maintains its qualification may still become subject to U.S. federal, state and
local taxes, including excise, penalty, franchise, payroll, mortgage recording,
and transfer taxes, both directly and indirectly through its subsidiaries. In
the event of a default by a borrower or lessee, the REIT may experience delays
in enforcing its rights as a mortgagee or lessor and may incur substantial costs
associated with protecting investments.
•SPAC
Investment Risk (Metaverse
ETF and MEME ETF only).
The Fund may invest in equity securities of SPACs, which raise assets to seek
potential business combination opportunities. Unless and until a business
combination is completed, a SPAC generally invests its assets in U.S. government
securities, money market securities, and cash. Because SPACs have no operating
history or ongoing business other than seeking a business combination, the value
of their securities is particularly dependent on the ability of the entity’s
management to identify and complete a profitable business combination. There is
no guarantee that the SPACs in which the Fund invests will complete a business
combination or that any business combination that is completed will be
profitable. The market perception of a SPAC’s ability to complete a business
combination could materially impact the market value of the SPAC’s securities.
Public stockholders of SPACs may not be afforded a meaningful opportunity to
vote on a proposed initial business combination because certain stockholders,
including stockholders affiliated with the management of the SPAC, may have
sufficient voting power, and a financial incentive, to approve such a
transaction without support from public stockholders. As a result, a SPAC may
complete a business combination even though a majority of its public
stockholders do not support such a combination. Some SPACs may pursue a business
combination only within certain industries or regions, which may increase the
volatility of their prices. SPACs may also encounter intense competition from
other entities having a similar business objective, such as private investors or
investment vehicles and other SPACs, competing for the same acquisition
opportunities, which could make completing an attractive business combination
more difficult.
•Tax
Risk (Metaverse
ETF and MEME ETF only).
Investment
in SPACs introduces complexities beyond typical equity investments and may
introduce tax risks to the Fund. In particular, certain non-U.S. SPACs may be
treated as a PFIC under the Code thereby causing the Fund to be subject to
special tax rules. If a SPAC is classified as a PFIC, the Fund may be subject to
U.S. federal income tax on a portion of any “excess distribution” or gain from
the disposition of shares in the PFIC even if such income is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such distributions or gains unless the Fund makes certain
elections. See “Federal Income Taxes—Foreign Investments” in the SAI for
additional information.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and the Index may differ
from each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index. The use of sampling techniques
may affect the Fund’s ability to achieve close correlation with the Index. The
Fund may
use
a representative sampling strategy to achieve its investment objective, if the
Sub-Adviser believes it is in the best interest of the Fund, which generally can
be expected to produce a greater non-correlation risk.
PORTFOLIO
HOLDINGS INFORMATION
Information
about each Fund’s daily portfolio holdings is available at
www.roundhillinvestments.com. A complete description of the Funds’ policies and
procedures with respect to the disclosure of the Funds’ portfolio holdings is
available in the Funds’ Statement of Additional Information (“SAI”).
MANAGEMENT
Investment
Adviser
Roundhill
Financial Inc., a Delaware corporation located at 154 West 14th Street, 2nd
Floor, New York, New York 10011, serves as the investment adviser for the Funds.
The Adviser oversees the day-to-day operations of the Funds, subject to the
general supervision and oversight of the Board. The Adviser also arranges for
sub-advisory, transfer agency, custody, fund administration, distribution and
all other services necessary for the Funds to operate. The Adviser is an
SEC-registered investment adviser. As
of March 31, 2022, the Adviser had approximately $1.06 billion in assets under
management.
The
Adviser continuously reviews, supervises, and administers each Fund’s investment
program. In particular, the Adviser provides investment and operational
oversight of the Sub-Adviser (defined below). The Board supervises the Adviser
and establishes policies that the Adviser must follow in its day-to-day
management activities.
For
the services it provides to the Funds, the Adviser is entitled to a unified
management fee, which is calculated daily and paid monthly, at an annual rate
based on each Fund’s average daily net assets as set forth in the table below.
|
|
|
|
|
|
Fund |
Management
Fee |
Roundhill
BITKRAFT Esports & Digital Entertainment ETF |
0.50% |
Roundhill
Sports Betting & iGaming ETF |
0.75% |
Roundhill
Ball Metaverse ETF* |
0.59% |
Roundhill
IO Digital Infrastructure ETF |
0.75% |
Roundhill
MEME ETF |
0.69% |
*
For the period beginning June 29, 2021 (commencement of operations) through
February 4, 2022, the Adviser received a unified management fee, which was
calculated daily and paid monthly, at an annual rate of 0.75% of the Fund’s
average daily net assets. Effective February 4, 2022, the Board approved a
reduction in the unified management fee from 0.75% to 0.59% to be paid by the
Fund to the Adviser.
Pursuant
to an investment advisory agreement between the Trust, on behalf of each Fund,
and the Adviser (the “Advisory Agreement”), the Adviser has agreed to pay all
expenses of the Funds except the fee paid to the Adviser under the Advisory
Agreement, interest charges on any borrowings, dividends, and other expenses on
securities sold short, taxes, brokerage commissions and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, acquired fund fees and expenses, accrued deferred tax liability,
extraordinary expenses, and distribution (12b-1) fees and expenses (if any). The
Adviser, in turn, compensates the Sub-Adviser from the management fee it
receives.
BITKRAFT
Esports Ventures Fund I, L.P. (“BITKRAFT”) is a minority owner of the Adviser
and has (via an affiliate) licensed the name “BITKRAFT” to the Adviser for use
with the Esports ETF. BITKRAFT is not involved in the management of the Esports
ETF or the maintenance or calculation of the Roundhill BITKRAFT Esports
Index.
The
basis for the Board’s approval of the continuation of the Advisory Agreement of
the Esports ETF is available in the Esports ETF’s Semi-Annual
Report to Shareholders
for the period ended June 30, 2021. The basis for the Board’s approval of
the Advisory Agreement of the Sports Betting ETF is available in the Sports
Betting ETF’s Semi-Annual
Report to Shareholders
for the period ended June 30, 2020. The basis for the Board’s approval of the
Advisory Agreement of the Metaverse ETF is available in the Metaverse ETF’s
Semi-Annual
Report to Shareholders
for the period ended June 30, 2021. The basis for the Board’s approval of the
Advisory Agreement of the Digital Infrastructure ETF and MEME ETF is available
in the Digital Infrastructure ETF and MEME ETF’s Annual
Report to Shareholders
for the period ended December 31, 2021.
Sub-Adviser
Exchange
Traded Concepts, LLC, an Oklahoma limited liability company located at 10900
Hefner Pointe Drive, Suite 400, Oklahoma City, Oklahoma 73120, is responsible
for the day-to-day management of the Funds. An SEC-registered investment adviser
formed in 2018, the Sub-Adviser is majority owned by Cottonwood ETF Holdings
LLC. As
of March 31, 2022, the Sub-Adviser had approximately $7.55 billion under
management.
The
Sub-Adviser is responsible for trading portfolio securities for each Fund,
including selecting broker-dealers to execute purchase and sale transactions or
in connection with any rebalancing or reconstitution of each respective Index,
subject to the supervision of the Adviser and the Board. For its services, the
Sub-Adviser is entitled to a fee by the Adviser, which fee is calculated daily
and paid monthly, at an annual rate based on the accumulative average daily net
assets of each fund that Exchange Traded Concepts, LLC sub-advises and for which
Roundhill serves as the investment adviser (or the Fund Sponsor), and subject to
a minimum annual fee as follows:
|
|
|
|
|
|
Minimum
Annual Fee |
Asset-Based
Fee |
$15,000 |
4
bps (0.04%) on the first $200 million 3.5 bps (0.035%) on the next $800
million 3 bps (0.03%) on the next $1 billion 2.5 bps (0.025%) on the
balance over $2 billion |
The
basis for the Board’s approval of the continuation of the Sub-Advisory Agreement
of the Esports ETF is available in the Esports ETF’s Semi-Annual
Report to Shareholders
for the period ended June 30, 2021. The basis for the Board’s approval of
the Sub-Advisory Agreement of the Sports Betting ETF is available in the Sports
Betting ETF’s Semi-Annual
Report to Shareholders
for the period ended June 30, 2020. The basis for the Board’s approval of the
Sub-Advisory Agreement of the Metaverse ETF is available in the Metaverse ETF’s
Semi-Annual
Report to Shareholders
for the period ended June 30, 2021. The basis for the Board’s approval of the
Sub-Advisory Agreement of the Digital Infrastructure ETF and MEME ETF is
available in the Digital Infrastructure ETF and MEME ETF’s Annual
Report to Shareholders
for the period ended December 31, 2021.
Portfolio
Managers
The
individuals identified below are jointly and primarily responsible for the
day-to-day management of each Fund’s portfolio.
Mr.
Serowik joined the Sub-Adviser from Goldman Sachs. He began his career at Spear,
Leeds & Kellogg, continuing with Goldman after its acquisition of SLK.
During his career of more than 18 years at the combined companies, he held
various roles, including managing the global Quant ETF Strats team and One Delta
ETF Strats. He designed and developed systems for portfolio risk calculation,
algorithmic ETF trading, and execution monitoring, with experience across all
asset classes. He graduated from the University of Michigan with a Bachelor of
Business Administration degree in Finance.
Mr.
Alberico joined the Sub-Adviser in November 2020, having spent the past 14 years
in ETF trading at Goldman Sachs, Cantor Fitzgerald, and, most recently, Virtu
Financial. He spent most of that time focused on the Trading and Portfolio Risk
Management of ETFs exposed to international and domestic equity. He has worked
on several different strategies including lead market-making and electronic
trading, to customer facing institutional business developing models for block
trading as well as transitional trades. Mr. Alberico graduated from St. John’s
University in NY with a Bachelor of Science degree in Finance.
Mr.
Tan joined the Sub-Adviser in May 2019 as an Associate Portfolio Manager and was
promoted to Portfolio Manager in December 2020. He began his career at UBS and
BBR Partners where he worked as a financial planning analyst and a portfolio
strategist for over four years. During his time there, he developed
comprehensive wealth management solutions focused on portfolio optimization,
trust and estate planning, and tax planning.
The
Funds’ SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of Shares.
Other
Service Providers
Foreside
Fund Services, LLC (the “Distributor”) is the principal underwriter and
distributor of each Fund’s shares. The Distributor’s principal address is Three
Canal Plaza, Suite 100, Portland, ME 04101. The Distributor will not distribute
Shares in less than a whole Creation Unit, and it does not maintain a secondary
market in the shares. The Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934 and a member of the Financial Industry
Regulatory Authority, Inc. (“FINRA”). The Distributor has no role in determining
the policies of the Funds or the securities that are purchased or sold by the
Funds and is not affiliated with the Adviser, Sub-Adviser, or any of their
respective affiliates.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services,
located at 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as the
administrator, transfer agent and index receipt agent for the
Funds.
U.S.
Bank National Association, located at 1555 N. Rivercenter Drive, Suite 302,
Milwaukee, Wisconsin 53212, serves as the custodian for the Funds.
Morgan,
Lewis & Bockius LLP, located at 1111 Pennsylvania Avenue, N.W., Washington,
D.C. 20004, serves as legal counsel to the Trust.
Cohen
& Company, Ltd., located at 1350 Euclid Avenue, Suite 800, Cleveland, Ohio
44115, serves as the Funds’ independent registered public accounting firm. The
independent registered public accounting firm is responsible for auditing the
annual financial statements of the Funds.
HOW
TO BUY AND SELL SHARES
Each
Fund issues and redeems Shares only in Creation Units at the NAV per share next
determined after receipt of an order from an AP. Only APs may acquire Shares
directly from a Fund, and only APs may tender their Shares for redemption
directly to a Fund, at NAV. APs must be a member or participant of a clearing
agency registered with the SEC and must execute a Participant Agreement that has
been agreed to by the Distributor, and that has been accepted by the Funds’
transfer agent, with respect to purchases and redemptions of Creation Units.
Once created, Shares trade in the secondary market in quantities less than a
Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Individual Shares are listed for trading on the secondary market on the Exchange
and can be bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares, and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Funds impose no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with the Funds, are an essential part of the ETF process and
help keep Share trading prices in line with NAV. As such, the Funds accommodate
frequent purchases and redemptions by APs. However, frequent purchases and
redemptions for cash may increase tracking error and portfolio transaction costs
and may lead to the realization of capital gains. To minimize these potential
consequences of frequent purchases and redemptions, the Funds employ fair value
pricing and may impose transaction fees on purchases and redemptions of Creation
Units to cover the custodial and other costs incurred by the Funds in effecting
trades. In addition, the Funds reserve the right to reject any purchase order at
their discretion.
Determination
of Net Asset Value
Each
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (the “NYSE”), generally 4:00 p.m. Eastern time, each day the
NYSE is open for business. The NAV for a Fund is calculated by dividing the
applicable Fund’s net assets by its Shares outstanding.
In
calculating its NAV, each Fund generally values its assets on the basis of
market quotations, last sale prices, or estimates of value furnished by a
pricing service or brokers who make markets in such instruments. The values of
non-U.S. dollar denominated securities are converted to U.S. dollars using
foreign currency exchange rates generally determined as of 4:30 p.m., London
time (London Stock Exchange close). If such information is not available for a
security held by a Fund or is determined to be unreliable, the security will be
valued at fair value estimates under guidelines established by the Board (as
described below).
Fair
Value Pricing
The
Board has adopted procedures and methodologies to fair value Fund securities
whose market prices are not “readily available” or are deemed to be unreliable.
For example, such circumstances may arise when: (i) a security has been
de-listed or has had its trading halted or suspended; (ii) a security’s primary
pricing source is unable or unwilling to provide a price; (iii) a security’s
primary trading market is closed during regular market hours; or (iv) a
security’s value is materially affected by events occurring after the close of
the security’s primary trading market. Generally, when fair valuing a security,
the Funds will take into account all reasonably available information that may
be relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in
accordance
with the fair value methodologies included in the Board-adopted valuation
procedures. Due to the subjective and variable nature of fair value pricing,
there can be no assurance that the Adviser or Sub-Adviser will be able to obtain
the fair value assigned to the security upon the sale of such security.
DIVIDENDS,
DISTRIBUTIONS, AND TAXES
Dividends
and Distributions
Each
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. Each Fund will declare and
pay capital gain distributions, if any, in cash. Distributions in cash may be
reinvested automatically in additional whole Shares only if the broker through
whom you purchased Shares makes such option available. Your broker is
responsible for distributing the income and capital gain distributions to
you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Funds. Your investment
in a Fund may have other tax implications. Please consult your tax advisor about
the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
Each
Fund has elected (or intends to elect) and intends to qualify each year for
treatment as a regulated investment company (a “RIC”). If it meets certain
minimum distribution requirements, a RIC is not subject to tax at the fund level
on income and gains from investments that are timely distributed to
shareholders. However, a Fund’s failure to qualify as a RIC or to meet minimum
distribution requirements would result (if certain relief provisions were not
available) in fund-level taxation and, consequently, a reduction in income
available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when a Fund makes distributions, when you sell your Shares listed
on the Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
Each
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains income. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long a Fund owned the investments that generated them, rather
than how long a shareholder has owned his or her Shares. Sales of assets held by
a Fund for more than one year generally result in long-term capital gains and
losses, and sales of assets held by a Fund for one year or less generally result
in short-term capital gains and losses. Distributions of a Fund’s net capital
gain (the excess of net long-term capital gains over net short-term capital
losses) that are reported by such Fund as capital gain dividends (“Capital Gain
Dividends”) will be taxable as long-term capital gains, which for non-corporate
shareholders are subject to tax at reduced rates of up to 20% (lower rates apply
to individuals in lower tax brackets). Distributions of short-term capital gain
will generally be taxable as ordinary income. Dividends and distributions are
generally taxable to you whether you receive them in cash or reinvest them in
additional Shares.
Distributions
reported by a Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that a Fund receives in respect of stock of certain foreign
corporations may be qualified dividend income if that stock is readily tradable
on an established U.S. securities market. A Fund’s investment strategies may
limit its ability to make distributions of qualified dividend income. Corporate
shareholders may be entitled to a dividends received deduction for the portion
of dividends they receive from a Fund that are attributable to dividends
received by the Fund from U.S. corporations, subject to certain limitations. A
Fund’s investment strategies may limit its ability to make distributions
eligible for the dividends received deduction for corporate
shareholders.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from a Fund.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in a Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your
investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
a Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares from non-U.S. shareholders generally are not subject to U.S.
taxation, unless you are a nonresident alien individual who is physically
present in the U.S. for 183 days or more per year. A Fund may, under certain
circumstances, report all or a portion of a dividend as an “interest-related
dividend” or a “short-term capital gain dividend,” which would generally be
exempt from this 30% U.S. withholding tax, provided certain other requirements
are met. Different tax consequences may result if you are a foreign shareholder
engaged in a trade or business within the United States or if a tax treaty
applies.
Under
legislation generally known as “FATCA” (the Foreign Account Tax Compliance Act),
a Fund is required to withhold 30% of certain ordinary dividends it pays to
shareholders that are foreign entities and that fail to meet prescribed
information reporting or certification requirements.
A
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage of the taxable distributions and sale proceeds paid to any
shareholder who fails to properly furnish a correct taxpayer identification
number, who has underreported dividend or interest income, or who fails to
certify that the shareholder is not subject to such withholding.
Taxes
When Shares Are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of a Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of a Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your account.
Any loss realized on a sale will be disallowed to the extent Shares of a Fund
are acquired, including through reinvestment of dividends, within a 61-day
period beginning 30 days before and ending 30 days after the disposition of
Shares.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market their
holdings) or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax advisor with
respect to whether wash sale rules apply and when a loss might be
deductible.
Any
gain or loss realized upon redemption of Creation Units is treated as capital
gain or loss or ordinary gain or loss depending on the circumstances. Any
capital gain or loss realized upon redemption of Creation Units is generally
treated as long-term capital gain or loss if Shares have been held for more than
one year and as a short-term capital gain or loss if Shares have been held for
one year or less.
A
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. A Fund may sell
portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause a Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, a Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
Foreign
Investments by a Fund
Interest
and other income received by a Fund with respect to foreign securities may give
rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. If as of the close of a taxable year more than 50% of the
value of a Fund’s assets consists of certain foreign stock or securities, each
such Fund will be eligible to elect to “pass through” to investors the amount of
foreign income and similar taxes (including withholding taxes) paid by such Fund
during that taxable year. This means that investors would be considered to have
received as additional income their respective shares of such foreign taxes, but
may be entitled to either a corresponding tax deduction in calculating taxable
income, or, subject to certain limitations, a credit in calculating federal
income tax. If a Fund does not so elect, each such Fund will be entitled to
claim a deduction for certain foreign taxes incurred by such Fund. A Fund (or a
financial intermediary, such as a broker, through which a shareholder owns
Shares) will notify you if it makes such an election and provide you with the
information necessary to reflect foreign taxes paid on your income tax return.
The
Fund invests in REITs. “Qualified REIT dividends” (i.e.,
ordinary REIT dividends other than capital gain dividends and portions of REIT
dividends designated as qualified dividend income eligible for capital gain tax
rates) are eligible for a 20% deduction by non-corporate taxpayers. This
deduction, if allowed in full, equates to a maximum effective tax rate of 29.6%
(37% top rate applied to income after 20% deduction). Distributions by the Fund
to its shareholders that are attributable to qualified REIT dividends received
by the Fund and which the Fund properly reports as “section 199A dividends,” are
treated as “qualified REIT dividends” in the hands of non-corporate
shareholders. A section 199A dividend is treated as a qualified REIT dividend
only if the shareholder receiving such dividend holds the dividend-paying RIC
shares for at least 46 days of the 91-day period beginning 45 days before the
shares become ex-dividend, and is not under an obligation to make related
payments with respect to a position in substantially similar or related
property. The Fund is permitted to report such part of its dividends as section
199A dividends as are eligible, but is not required to do so.
REITs
in which the Fund invests often do not provide complete and final tax
information to the Fund until after the time that the Fund issues a tax
reporting statement. As a result, the Fund may at times find it necessary to
reclassify the amount and character of its distributions to you after it issues
your tax reporting statement. When such reclassification is necessary, the Fund
(or a financial intermediary, such as a broker, through which a shareholder owns
Shares) will send you a corrected, final Form 1099-DIV to reflect the
reclassified information. If you receive a corrected Form 1099-DIV, use the
information on this corrected form, and not the information on the previously
issued tax reporting statement, in completing your tax returns.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax adviser about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income
Taxes” in the SAI.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, each Fund is authorized
to pay an amount up to 0.25% of its average daily net assets each year for
certain distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of Fund assets, over time these fees will
increase the cost of your investment and may cost you more than certain other
types of sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often each Fund’s Shares traded on the Exchange at a price above
(i.e.,
at a premium) or below (i.e.,
at a discount) its NAV is available on the Funds’ website at
www.roundhillinvestments.com.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange makes no
representation or warranty, express or implied, to the owners of Shares or any
member of the public regarding the ability of a Fund to track the total return
performance of its Index or the ability of the Index identified herein to track
the performance of its constituent securities. The Exchange is not responsible
for, nor has it participated in, the determination of the compilation or the
calculation of the Index, nor in the determination of the timing, prices, or
quantities of Shares to be issued, nor in the determination or calculation of
the equation by which the Shares are redeemable. The Exchange has no obligation
or liability to owners of Shares in connection with the administration,
marketing, or trading of Shares.
The
Exchange does not guarantee the accuracy and/or the completeness of the Index or
the data included therein. The Exchange makes no warranty, express or implied,
as to results to be obtained by the Fund, owners of Shares, or any other person
or entity from the use
of
the Index or the data included therein. The Exchange makes no express or implied
warranties, and hereby expressly disclaims all warranties of merchantability or
fitness for a particular purpose with respect to the Index or the data included
therein. Without limiting any of the foregoing, in no event shall the Exchange
have any liability for any lost profits or indirect, punitive, special, or
consequential damages even if notified of the possibility thereof.
The
Adviser, the Sub-Adviser, the Exchange, and the Funds make no representation or
warranty, express or implied, to the owners of Shares or any member of the
public regarding the advisability of investing in securities generally or in a
Fund particularly or the ability of an Index to track general stock market
performance. Each Fund, the Adviser, and the Sub-Adviser do not guarantee the
accuracy, completeness, or performance of an Index or the data included therein
and shall have no liability in connection with the Index or Index calculation.
Each Index calculation agent maintains and calculates the Index used by the
respective Fund and shall have no liability for any errors or omissions in
calculating such Index.
FINANCIAL
HIGHLIGHTS
The
following financial highlights table shows the financial performance information
for a Fund’s five most recent fiscal years (or the life of a Fund, if shorter).
Certain information reflects financial results for a single share of a Fund. The
total returns in the table represent the rate that you would have earned or lost
on an investment in a Fund (assuming you reinvested all distributions). This
information has been audited by Cohen & Company, Ltd., the independent
registered public accounting firm of each Fund, whose report, along with each
Fund’s financial statements, is included in the Funds’ annual report, which is
available upon request.
Roundhill
ETFs
Financial
Highlights
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Per
Share Operating Performance (For a share outstanding throughout each
period) |
|
|
Income
from investment operations: |
Less
Distributions Paid From: |
|
Net
Asset Value, Beginning of Period |
Net
investment
income (loss)(1) |
Net
realized and unrealized gain (loss) on investments |
Total
from investment operations |
Net
investment income |
Net
realized gains |
Return
of Capital |
Total
distributions paid |
Roundhill
BITKRAFT Esports & Digital Entertainment ETF |
|
|
|
|
|
For
the year 01/01/2021 - 12/31/2021 |
$30.09 |
0.05 |
(5.17) |
(5.12) |
(0.01) |
— |
— |
(0.01) |
For
the year 01/01/2020 - 12/31/2020 |
$16.01 |
0.04 |
14.34 |
14.38 |
(0.10) |
(0.22) |
— |
(0.32) |
For
the period 06/03/2019(7)
- 12/31/2019 |
$14.86 |
0.08 |
1.11 |
1.19 |
(0.05) |
— |
(0.00)(8) |
(0.05) |
Roundhill
Sports Betting & iGaming ETF |
|
|
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|
For
the year 01/01/2021 - 12/31/2021 |
$25.86 |
0.08 |
(1.06) |
(0.98) |
— |
— |
— |
— |
For
the period 06/03/2020(7)
- 12/31/2020 |
$15.41 |
0.11 |
10.41 |
10.52 |
(0.07) |
— |
(0.00)(8) |
(0.07) |
Roundhill
Ball Metaverse ETF |
|
|
|
|
|
For
the period 06/29/2021(7)
- 12/31/2021 |
$15.07 |
(0.01) |
0.10 |
0.09 |
— |
— |
— |
— |
Roundhill
IO Digital Infrastructure ETF |
|
|
|
|
|
For
the period 10/27/2021(7)
- 12/31/2021 |
$14.85 |
0.03 |
0.23 |
0.26 |
(0.04) |
— |
— |
(0.04) |
Roundhill
MEME ETF |
|
|
|
|
|
For
the period 12/07/2021(7)
- 12/31/2021 |
$15.64 |
(0.01) |
(1.57) |
(1.58) |
— |
— |
— |
— |
(1)
Per share net investment income (loss) was calculated using average shares
outstanding.
(2)
Annualized for periods less than one year.
(3)
Total return in the table represents the rate that the investor would have
earned or lost on an investment in the Fund, assuming reinvestment of
dividends.
(4)
Not annualized for periods less than one year.
(5)
Excludes in-kind transactions associated with creations and redemptions of the
Fund.
(6)
The returns reflect the actual performance for the period and do not include the
impact of trades executed on the last business day of the period that were
recorded on the first business day of the next period.
(7)
Commencement of operations.
(8)
Less than $0.005.
(9)
Includes tax expense of 0.06%.
Roundhill
ETFs
Financial
Highlights
For
a Share Outstanding Throughout the Period (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Operating Performance (For a share outstanding throughout each
period) |
Ratios/Supplemental
Data |
Capital
Share Transactions: |
|
|
|
|
Ratios
to Average Net Assets of:(2) |
|
Transaction
Fees |
Net
Asset Value, End of Period |
Total
return, at NAV(3)(4) |
Total
return at Market(3)(4) |
Net
assets, end of period (000’s) |
Expenses,
before waivers |
Expenses,
after waivers |
Net
investment income (loss), before waivers |
Net
investment income (loss), after waivers |
Portfolio
turnover rate(4)(5) |
|
|
|
|
|
|
|
|
|
0.03 |
$24.99 |
-16.93% |
-17.57% |
$62,475 |
0.50% |
0.50% |
0.16% |
0.16% |
52% |
0.02 |
$30.09 |
89.88%(6) |
89.62%(6) |
$73,717 |
0.50% |
0.44% |
0.12% |
0.18% |
93% |
0.01 |
$16.01 |
8.11%(6) |
8.42%(6) |
$10,810 |
0.50% |
0.25% |
0.65% |
0.90% |
34% |
|
|
|
|
|
|
|
|
|
|
0.00(8) |
$24.88 |
-3.78% |
-3.91% |
$290,507 |
0.75% |
0.75% |
0.26% |
0.26% |
52% |
0.00(8) |
$25.86 |
68.28% |
68.15% |
$206,891 |
0.75% |
0.75% |
0.92% |
0.92% |
43% |
|
|
|
|
|
|
|
|
|
|
0.01 |
$15.17 |
0.63% |
0.73% |
$933,059 |
0.75% |
0.75% |
-0.13% |
-0.13% |
41% |
|
|
|
|
|
|
|
|
|
|
0.00(8) |
$15.07 |
1.76% |
2.01% |
$1,884 |
0.81%(9) |
0.81%(9) |
1.16% |
1.16% |
3% |
|
|
|
|
|
|
|
|
|
|
— |
$14.06 |
-10.09% |
-10.10% |
$2,109 |
0.69% |
0.69% |
-0.69% |
-0.69% |
32% |
Roundhill
BITKRAFT Esports & Digital Entertainment ETF
Roundhill
Sports Betting & iGaming ETF
Roundhill
Ball Metaverse ETF
Roundhill
IO Digital Infrastructure ETF
Roundhill
MEME ETF
|
|
|
|
|
|
|
|
|
|
|
|
Adviser |
Roundhill
Financial Inc.
154
West 14th Street, 2nd Floor
New
York, New York 10011 |
Transfer
Agent, Index Receipt Agent, and Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Sub-Adviser |
Exchange
Traded Concepts, LLC
10900
Hefner Pointe Drive, Suite 400
Oklahoma
City, Oklahoma 73120 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
Custodian |
U.S.
Bank National Association
1555
North Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Independent
Registered Public Accounting Firm |
Cohen
& Company, Ltd.
1350
Euclid Avenue, Suite 800
Cleveland,
Ohio 44115 |
|
|
Investors
may find more information about the Funds in the following
documents:
Statement
of Additional Information: The
Funds’ SAI provides additional details about the investments of each Fund and
certain other additional information. The SAI is on file with the SEC and is
incorporated by reference into this Prospectus. It is legally considered a part
of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about each Fund’s investments is available in the Funds’ annual and
semi-annual reports to shareholders. In the Annual
Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected a Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Funds by contacting the Funds at c/o U.S. Bank
Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or by
calling 1-800-617-0004.
Shareholder
reports and other information about the Funds are also available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Funds’ Internet web site at www.roundhillinvestments.com;
or
(SEC
Investment Company Act File No. 811-23226)