The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS - DATED JULY 11, 2022
[
], 2022
Prospectus
Touchstone
ETF Trust
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Fund |
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Ticker
Symbol |
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Principal
U.S. Listing Exchange |
Touchstone
Dividend Select ETF |
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DVND |
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NYSE
Arca, Inc. |
Touchstone
Strategic Income Opportunities ETF |
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SIO |
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NYSE
Arca, Inc. |
Touchstone
US Large Cap Focused ETF |
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LCF |
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Cboe
BZX Exchange, Inc. |
Touchstone
Ultra Short Income ETF |
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TUSI |
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Cboe
BZX Exchange, Inc. |
The
Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
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Table of Contents
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Page |
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TOUCHSTONE
DIVIDEND SELECT ETF SUMMARY |
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TOUCHSTONE
STRATEGIC INCOME OPPORTUNITIES ETF SUMMARY |
7 |
TOUCHSTONE
US LARGE CAP FOCUSED ETF SUMMARY |
13 |
TOUCHSTONE
ULTRA SHORT INCOME ETF SUMMARY |
17 |
PRINCIPAL
INVESTMENT STRATEGIES AND RISKS |
22 |
THE
FUNDS’ MANAGEMENT |
37 |
DISTRIBUTION
AND FINANCIAL INTERMEDIARIES |
42 |
BUYING
AND SELLING SHARES |
42 |
DISTRIBUTIONS
AND TAXES |
44 |
FINANCIAL
HIGHLIGHTS |
47 |
TOUCHSTONE
DIVIDEND SELECT ETF SUMMARY
The
Fund’s Investment Goal
The
Touchstone Dividend Select ETF (the “Fund”) seeks current income and capital
appreciation.
The
Fund’s Fees and Expenses
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund. 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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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.55% |
Distribution
and/or Shareholder Service (12b-1) Fees(1) |
0.00% |
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Other
Expenses(2) |
0.40% |
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Total
Annual Fund Operating Expenses |
0.95% |
Fee
Waiver and/or Expense Reimbursement(3) |
(0.28)% |
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense
Reimbursement(3) |
0.67% |
___________________________________________
(1)The
Fund has adopted a Distribution (12b-1) Plan pursuant to which the Fund may
incur and pay a Distribution (12b-1) Fee of up to a maximum of 0.25%. No such
fee is currently incurred and paid by the Fund. The Fund will not incur and pay
such a Distribution (12b-1) Fee until such time as approved by the Fund’s Board
of Trustees (the “Board”).
(2)Other
Expenses are based on estimated amounts for the current fiscal
year.
(3)
Touchstone
Advisors, Inc. (the "Advisor" or "Touchstone Advisors") and Touchstone ETF
Trust (the "Trust") have entered into a contractual expense limitation agreement
whereby Touchstone Advisors will waive a portion of its fees or reimburse
certain Fund expenses (excluding dividend and interest expenses relating to
short sales; interest; taxes; brokerage commissions and other transaction costs;
portfolio transaction and investment related expenses; expenses associated with
the Fund's interfund lending program, if any; other expenditures which are
capitalized in accordance with U.S. generally accepted accounting principles;
the cost of “Acquired Fund Fees and Expenses,” if any; and other extraordinary
expenses not incurred in the ordinary course of business) in order to limit
annual Fund operating expenses to 0.67% of the Fund's average daily net assets.
This contractual expense limitation is effective through August 31, 2023, but
can be terminated by a vote of the Board if it deems the termination to be
beneficial to the Fund’s shareholders. The terms of the contractual expense
limitation agreement provide that Touchstone Advisors is entitled to recoup,
subject to approval by the Board, such amounts waived or reimbursed for a period
of up to three years from the date on which the Advisor reduced its compensation
or assumed expenses for the Fund. The Fund will make repayments to the Advisor
only if such repayment does not cause the annual Fund operating expenses (after
the repayment is taken into account) to exceed either (1) the expense cap in
place when such amounts were waived or reimbursed or (2) the Fund’s current
expense limitation.
Example.
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other exchange-traded funds ("ETFs"). The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then, except as indicated, redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year, that the Fund’s operating expenses remain the same and that all fee
waivers or expense limits for the Fund will expire after one year.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
Portfolio
Turnover.
The Fund pays transaction costs, such as brokerage 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 Fund shares are held in a taxable account. These
costs, which are not reflected in total annual Fund operating expenses or in the
example, affect the Fund’s performance. The Fund had not commenced
operations as of the date of this prospectus and, as a result, does not yet have
a portfolio turnover rate.
The
Fund’s Principal Investment Strategies
The
Fund invests, under normal market conditions, at least 80% of its assets in
equity securities of U.S. large-cap companies that have historically paid
dividends. The Fund’s 80% policy is a non-fundamental investment policy that can
be changed by the Fund's Board upon 60 days’ prior notice to shareholders. For
the purpose of the Fund's 80% policy, a large capitalization company has a
market capitalization within the range represented in the S&P 500 Index
(between approximately $5.2 billion and $2.9 trillion as of December 31, 2021)
at the time of purchase. These securities may be listed on an exchange or traded
over-the-counter.
In
selecting securities for the Fund, the Fund’s sub-advisor, Fort Washington
Investment Advisors, Inc. (the "Sub-Advisor"), seeks to invest in companies
that:
•Have
historically paid consistent, growing dividends;
•Have
sustainable competitive advantages that should result in excess profits to
support future dividend payments; and
•Trade
at reasonable valuations compared to their intrinsic value.
The
Sub-Advisor believes its unique approach results in a portfolio of high quality
companies with sustainable competitive advantages that should pay reliable,
growing dividends at reasonable valuations. The Sub-Advisor evaluates a
company’s competitive advantage by assessing its barrier(s) to entry. The
barrier(s) to entry can be created through a cost advantage, economies of scale,
high customer loyalty, or a government barrier (e.g., license or subsidy). The
Sub-Advisor believes that the strongest barrier to entry is the combination of
economies of scale and higher customer loyalty.
The
Fund will generally hold 40 to 55 companies, with residual cash and cash
equivalents expected to represent less than 10% of the Fund’s net assets. The
Fund may, at times, hold fewer securities and a higher percentage of cash and
cash equivalents when, among other reasons, the Sub-Advisor cannot find a
sufficient number of securities that meets its purchase
requirements.
The
Fund will generally sell a security if the security does not meet portfolio
guidelines, if the security stops paying a dividend and future prospects of
paying a dividend are limited, or if better opportunities exist based on the
fundamentals and valuation of the business.
The
Fund’s Principal Risks
The
Fund’s share price will fluctuate. You could lose money on your investment in
the Fund and the Fund could also return less than other investments.
Investments in the Fund are not bank guaranteed, are not deposits, and are not
insured by the Federal Deposit Insurance Corporation or any other federal
government agency. As with any ETF, there is no guarantee that the Fund will
achieve its investment goal. You can find more information about the
Fund’s investments and risks under the “Principal Investment Strategies and
Risks” section of the Fund’s prospectus. The Fund is subject to the principal
risks summarized below.
Equity
Securities Risk:
The Fund is subject to the risk that stock prices will fall over short or
extended periods of time. Individual companies may report poor results or be
negatively affected by industry and/or economic trends and developments,
as
a result of irregular and/or unexpected trading activity among retail
investors.
The prices of securities issued by these companies may decline in response to
such developments, which could result in a decline in the value of the Fund’s
shares.
•Large-Cap
Risk:
Large-cap companies may be unable to respond quickly to new competitive
challenges, such as changes in technology and consumer tastes, and also may not
be able to attain the high growth rate of successful smaller companies,
especially during extended periods of economic expansion.
Dividend
Risk:
There is no guarantee that the companies in which the Fund invests will declare
dividends in the future or that dividends, if declared, will remain at current
levels or increase over time. Securities that pay dividends may be sensitive to
changes in interest rates, and as interest rates rise or fall, the prices of
such securities may fall.
ETF
Risk:
As an ETF, the Fund is subject to the following risks:
•Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”), which are responsible for the creation and
redemption activity for the Fund. To the extent APs exit the business, become
unable or are otherwise unwilling to engage in creation and redemption
transactions with the Fund and no other AP steps in to create or redeem, Fund
shares may trade at a material discount to net asset value (“NAV”) and possibly
face delisting from the Exchange.
•
Premium/Discount
Risk: As
with all ETFs, Fund shares may only be bought and sold in the secondary market
at market prices. There may be times when the trading prices of Fund shares in
the secondary market are more than the NAV (a premium) or less than the NAV (a
discount). As a result, shareholders of the Fund may pay more than NAV when
purchasing shares and receive less than NAV when selling Fund shares. This risk
is heightened in times of market volatility or periods of steep market declines.
In such market conditions, market or stop loss orders to sell Fund shares may be
executed at prices well below a Fund's NAV.
•Secondary
Market Trading Risk:
Investors buying or selling shares in the secondary market will normally pay
brokerage commissions, which are often a fixed amount and may be a significant
proportional cost for investors buying or selling relatively small amounts of
Fund shares. Secondary market trading is subject to bid-ask spreads and trading
in Fund shares may be halted by the Exchange because of market conditions or
other reasons. If a trading halt occurs, a shareholder may temporarily be unable
to purchase or sell shares of the Fund. In addition, although the Fund’s shares
are listed on the Exchange, there can be no assurance that an active trading
market for shares will develop or be maintained or that the Fund’s shares will
continue to be listed.
Management
Risk :
In managing the Fund’s portfolio, the Advisor engages one or more sub-advisors
to make investment decisions for a portion of or the entire portfolio. There is
a risk that the Advisor may be unable to identify and retain sub-advisors who
achieve superior investment returns relative to other similar
sub-advisors. In
addition, t he
value of your investment may decrease if the Fund's portfolio managers
incorrectly judge the attractiveness, value, or market trends affecting a
particular security, issuer, industry, or sector.
Economic
and Market Events Risk:
Events in the U.S. and global financial markets, including actions taken by the
U.S. Federal Reserve or foreign central banks to stimulate or stabilize economic
growth, may at times, and for varying periods of time, result in unusually high
market volatility, which could negatively impact the Fund’s performance and
cause the Fund to experience illiquidity, shareholder redemptions, or other
potentially adverse effects. Reduced liquidity in credit and fixed-income
markets could negatively affect issuers worldwide. Financial institutions could
suffer losses as interest rates rise or economic conditions
deteriorate.
Value
Investing Risk :
Value investing presents the risk that the Fund’s security holdings may never
reach their full intrinsic value because the market fails to recognize what the
portfolio managers consider the true business value or because the portfolio
managers have misjudged those values. There is also the risk that the portfolio
managers may determine to sell a position prior to it reaching its intrinsic
value.
The
Fund’s Performance
The
Fund’s performance information is only shown when it has had a full calendar
year of operations. Since the Fund had not commenced operations as of the date
of this prospectus, there is no performance information included in this
prospectus.
The
Fund’s Management
Investment
Advisor
Touchstone
Advisors, Inc. serves as the Fund's investment advisor.
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Sub-Advisor |
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Portfolio
Managers |
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Investment Experience with the
Fund |
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Primary Title with Sub-Advisor |
Fort
Washington Investment Advisors, Inc. |
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Austin
R. Kummer, CFA |
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Since
inception in [ ] 2022 |
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Vice
President, Senior Portfolio Manager |
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Brendan
M. White, CFA |
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Since
inception in [ ] 2022 |
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Senior
Vice President, Co-Chief Investment Officer and Portfolio
Manager |
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James
E. Wilhelm, Jr. |
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Since
inception in [ ] 2022 |
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Managing
Director, Senior Portfolio Manager |
Buying
and Selling Fund Shares
The
Fund is an ETF. Individual Fund shares may only be purchased and sold on a
national securities exchange through a broker-dealer and may not be purchased or
redeemed directly with the Fund. The price of Fund shares is based on market
price, and because ETF shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than NAV (a discount). An
investor may incur costs attributable to the difference between the highest
price a buyer is
willing
to pay to purchase shares of the Fund (“bid”) and the lowest price a seller is
willing to accept for shares (“ask”) when buying or selling shares in the
secondary market (the “bid-ask spread”). Recent
information, including information about the Fund’s NAV, market price, premiums
and discounts, and bid-ask spreads, is included on the Fund’s website at
TouchstoneInvestments.com/ETFs.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or
capital gains except when shares are held through a tax-advantaged account, such
as a 401(k) plan or an IRA. Withdrawals from a tax-advantaged account, however,
may be taxable.
Financial
Intermediary Compensation
If
you purchase shares in the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Advisor and its related companies may pay the
intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other financial intermediary and your salesperson to recommend the Fund over
another investment. Ask your salesperson or visit your financial
intermediary’s website for more information.
TOUCHSTONE
STRATEGIC INCOME OPPORTUNITIES ETF SUMMARY
The
Fund’s Investment Goal
The
Touchstone Strategic Income Opportunities ETF (the “Fund”) seeks a high level of
current income with a focus on capital preservation.
The
Fund’s Fees and Expenses
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund. 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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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.55% |
Distribution
and/or Shareholder Service (12b-1) Fees(1) |
0.00% |
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Other
Expenses(2) |
0.42% |
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Total
Annual Fund Operating Expenses |
0.97% |
Fee
Waiver and/or Expense Reimbursement(3) |
(0.32)% |
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense
Reimbursement(3) |
0.65% |
___________________________________________
(1)The
Fund has adopted a Distribution (12b-1) Plan pursuant to which the Fund may
incur and pay a Distribution (12b-1) Fee of up to a maximum of 0.25%. No such
fee is currently incurred and paid by the Fund. The Fund will not incur and pay
such a Distribution (12b-1) Fee until such time as approved by the Fund’s Board
of Trustees (the “Board”).
(2)Other
Expenses are based on estimated amounts for the current fiscal
year.
(3)
Touchstone
Advisors, Inc. (the "Advisor" or "Touchstone Advisors") and Touchstone ETF
Trust (the "Trust") have entered into a contractual expense limitation agreement
whereby Touchstone Advisors will waive a portion of its fees or reimburse
certain Fund expenses (excluding dividend and interest expenses relating to
short sales; interest; taxes; brokerage commissions and other transaction costs;
portfolio transaction and investment related expenses; expenses associated with
the Fund's interfund lending program, if any; other expenditures which are
capitalized in accordance with U.S. generally accepted accounting principles;
the cost of “Acquired Fund Fees and Expenses,” if any; and other extraordinary
expenses not incurred in the ordinary course of business) in order to limit
annual Fund operating expenses to 0.65% of the Fund's average daily net assets.
This contractual expense limitation is effective through August 31, 2023, but
can be terminated by a vote of the Board if it deems the termination to be
beneficial to the Fund’s shareholders. The terms of the contractual expense
limitation agreement provide that Touchstone Advisors is entitled to recoup,
subject to approval by the Board, such amounts waived or reimbursed for a period
of up to three years from the date on which the Advisor reduced its compensation
or assumed expenses for the Fund. The Fund will make repayments to the Advisor
only if such repayment does not cause the annual Fund operating expenses (after
the repayment is taken into account) to exceed either (1) the expense cap in
place when such amounts were waived or reimbursed or (2) the Fund’s current
expense limitation.
Example.
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other exchange-traded funds ("ETFs"). The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then, except as indicated, redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year, that the Fund’s operating expenses remain the same and that all fee
waivers or expense limits for the Fund will expire after one year.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
Portfolio
Turnover.
The Fund pays transaction costs, such as brokerage 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 Fund shares are held in a taxable account. These
costs, which are not reflected in total annual Fund operating expenses or in the
example, affect the Fund’s performance. The Fund had not commenced
operations as of the date of this prospectus and, as a result, does not yet have
a portfolio turnover rate.
The
Fund’s Principal Investment Strategies
The
Fund invests, under normal market conditions, at least 80% of its assets in
income producing fixed-income securities. This is a non-fundamental investment
policy that the Fund's Board can change upon 60 days’ prior notice to
shareholders. Income producing securities generally include corporate debt
securities, mortgage-related securities, asset-backed securities, government
securities (both U.S. government securities and foreign sovereign debt), and
preferred stocks. The Fund will engage in frequent and active trading as part of
its principal investment strategies.
The
Fund’s sub-advisor, Fort Washington Investment Advisors, Inc. (“Fort
Washington”), seeks to employ a high conviction, yield-oriented investment
approach with a relatively focused number of issuers, coupled with sector
diversification and diligent risk management intended to result in attractive
risk-adjusted returns via high levels of income. In selecting individual
securities for the Fund, Fort Washington applies a rigorous bottom-up security
selection process. A key characteristic of this process is the identification
and implementation of high conviction ideas that can result in meaningful alpha
generation. Fort Washington utilizes a variety of proprietary tools to assist
with security screening and analysis.
A
starting point for Fort Washington's identification of attractive opportunities
is the quantification of return potential along with associated risk. Fort
Washington seeks to identify opportunities with the highest level of expected
return relative to the risk. Fort Washington quantifies risk as downside risk
(i.e., what can happen in a recession), not volatility. The quantification of
risk and reward are an important part of the investment process that is combined
with the company specific credit analysis.
In
building the Fund’s portfolio, Fort Washington invests at least 50% of the
Fund's portfolio in investment-grade rated debt securities. The Fund may also
invest up to 50% of the Fund's portfolio in non-investment-grade debt
securities. Non-investment-grade debt securities are often referred to as “junk
bonds” and are considered speculative. The Fund's investment policies are based
on credit ratings at the time of purchase. The proportion of non-investment
grade debt is influenced by the top-down component of Fort Washington’s
investment process that assesses the current macro environment focusing on
trends in the global economy, financial conditions, sentiment, and valuation.
Generally, the exposure to non-investment grade debt increases when credit
spreads are wide, taking account of economic growth, financial conditions, and
sentiment.The Fund may also invest up to 20% of its total assets in income
producing fixed-income securities that are emerging markets debt securities
denominated in either the U.S. dollar or a foreign currency.
Additionally,
in order to implement its investment strategy, the Fund may invest in mortgage
dollar-roll transactions, reverse repurchase agreements, and other derivatives,
including forwards, futures contracts, interest rate and credit default swap
agreements, and options. These investments may be used to gain or hedge market
exposure, to adjust the Fund’s duration, to manage interest rate risk, and for
any other purposes consistent with the Fund’s investment strategies and
limitations. Outside of the Fund's policy to invest at least 80% of its assets
in income producing fixed-income securities, the Fund may also invest up to 20%
of its assets in public equities.
The
Fund will generally sell a security if the price/yield no longer adequately
compensates for the risk profile or if there is a change to allocation between
sectors based on relative value.
The
Fund’s Principal Risks
The
Fund’s share price will fluctuate. You could lose money on your investment
in the Fund and the Fund could return less than other investments.
Investments in the Fund are not bank guaranteed, are not deposits, and are not
insured by the Federal Deposit Insurance Corporation or any other federal
government agency. As with any ETF, there is no guarantee that the Fund will
achieve its investment goal. You can find more information about the
Fund’s investments and risks under the “Principal Investment Strategies and
Risks” section of the Fund’s prospectus. The Fund is subject to the principal
risks summarized below.
Fixed-Income
Risk: The
market value of the Fund’s fixed-income securities responds to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund’s fixed-income securities will decrease in value if interest
rates rise and increase in value if interest rates fall. Normally, the longer
the maturity or duration of the fixed-income securities the Fund owns, the more
sensitive the value of the Fund’s shares will be to changes in interest
rates.
•Non-Investment-Grade
Debt Securities Risk: Non-investment-grade
debt securities are sometimes referred to as “junk bonds” and are considered
speculative with respect to their issuers’ ability to make payments of interest
and principal. There is a high risk that the Fund could suffer a loss from
investments in non-investment-grade debt securities caused by the default of an
issuer of such securities. Non-investment-grade debt securities may also be less
liquid than investment-grade debt securities.
•Asset-Backed
Securities Risk:
Asset-backed securities are fixed-income securities backed by other assets such
as credit card, automobile or consumer loan receivables, retail installment
loans, or participations in pools of leases. The values of these securities are
sensitive to changes in the credit quality of the underlying collateral, the
credit strength of any credit enhancement feature, changes in interest rates,
and, at times, the financial condition of the issuer.
•Mortgage-Backed
Securities Risk:
Mortgage-backed securities are fixed-income securities representing an interest
in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive
to changes in interest rates, but may respond to these changes differently from
other fixed-income securities due to the possibility of prepayment of the
underlying mortgage loans. Mortgage-backed securities may fluctuate in price
based on deterioration in the value of the collateral underlying the pool of
mortgage loans, which may result in the collateral being worth less than the
remaining principal amount owed on the mortgages in the pool.
•Credit
Risk:
The fixed-income securities in the Fund’s portfolio are subject to the
possibility that a deterioration, whether sudden or gradual, in the financial
condition of an issuer, or a deterioration in general economic conditions, could
cause an issuer to fail to make timely payments of principal or interest, when
due. This may cause the issuer’s securities to decline in value.
•Interest
Rate Risk: In
general, when interest rates rise, the prices of debt securities fall, and when
interest rates fall, the prices of debt securities rise. The price volatility of
a debt security also depends on its maturity. Longer-term securities are
generally more volatile, so the longer the average maturity or duration of these
securities, the greater their price risk. Duration is a measure used to
determine the sensitivity of a security’s price to changes in interest rates
that incorporates a security’s yield, coupon, final maturity, and call features,
among other characteristics. The longer a fixed-income security’s duration, the
more sensitive it will be to changes in interest rates. Maturity, on the other
hand, is the date on which a fixed-income security becomes due for payment of
principal. Recent and potential future changes in government policy may affect
interest rates.
•Investment-Grade
Debt Securities Risk:
Investment-grade debt securities may be downgraded by a nationally recognized
statistical rating organization ("NRSRO") to below-investment-grade status,
which would increase the risk of holding these securities. Investment-grade debt
securities rated in the lowest rating category by a NRSRO involve a higher
degree of risk than fixed-income securities with higher credit
ratings.
•U.S.
Government Securities Risk: Certain
U.S. government securities are backed by the right of the issuer to borrow from
the U.S. Treasury while others are supported only by the credit of the issuer or
instrumentality. While the U.S. government is able to provide financial support
to U.S. government-sponsored agencies or instrumentalities, no assurance can be
given that it will always do so. Such securities are generally neither issued
nor guaranteed by the U.S. Treasury.
•Prepayment
Risk:
The risk that a debt security may be paid off and proceeds reinvested earlier
than anticipated. Prepayment impacts both the interest rate sensitivity of the
underlying asset, such as an asset-backed or mortgage-backed security and its
cash flow projections. Therefore, prepayment risk may make it difficult to
calculate the average duration of the Fund’s asset- or mortgage-backed
securities which in turn would make it difficult to assess the interest rate
risk of the Fund.
ETF
Risk:
As an ETF, the Fund is subject to the following risks:
•Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”), which are responsible for the creation and
redemption activity for the Fund. To the extent APs exit the business, become
unable or are otherwise unwilling to engage in creation and redemption
transactions with the Fund and no other AP steps in to create or redeem, Fund
shares may trade at a material discount to net asset value (“NAV”) and possibly
face delisting from the Exchange.
•
Premium/Discount
Risk: As
with all ETFs, Fund shares may only be bought and sold in the secondary market
at market prices. There may be times when the trading prices of Fund shares in
the secondary market are more than the NAV (a premium) or less than the NAV (a
discount). As a result, shareholders of the Fund may pay more than NAV when
purchasing shares and receive less than NAV when selling Fund shares. This risk
is heightened in times of market volatility or periods of steep market declines.
In such market conditions, market or stop loss orders to sell Fund shares may be
executed at prices well below a Fund's NAV.
•Secondary
Market Trading Risk:
Investors buying or selling shares in the secondary market will normally pay
brokerage commissions, which are often a fixed amount and may be a significant
proportional cost for investors buying or selling relatively small amounts of
Fund shares. Secondary market trading is subject to bid-ask spreads and trading
in Fund shares may be halted by the Exchange because of market conditions or
other reasons. If a trading halt occurs, a shareholder may temporarily be unable
to purchase or sell shares of the Fund. In addition, although the Fund’s shares
are listed on the Exchange, there can be no assurance that an active trading
market for shares will develop or be maintained or that the Fund’s shares will
continue to be listed.
Management
Risk: In
managing the Fund’s portfolio, the Advisor engages one or more sub-advisors to
make investment decisions for a portion of or the entire portfolio. There is a
risk that the Advisor may be unable to identify and retain sub-advisors who
achieve superior investment returns relative to other similar sub-advisors. In
addition, t he
value of your investment may decrease if the Fund's portfolio managers
incorrectly judge the attractiveness, value, or market trends affecting a
particular security, issuer, industry, or sector.
Economic
and Market Events Risk:
Events in the U.S. and global financial markets, including actions taken by the
U.S. Federal Reserve or foreign central banks to stimulate or stabilize economic
growth, may at times, and for varying periods of time, result in unusually high
market volatility, which could negatively impact the Fund’s performance and
cause the Fund to experience illiquidity, shareholder redemptions, or other
potentially adverse effects. Reduced liquidity in credit and fixed-income
markets could negatively affect issuers worldwide. Financial institutions could
suffer losses as interest rates rise or economic conditions deteriorate. In
addition, the Funds' service providers are susceptible to operational and
information or cyber security risks that could result in losses to a Fund and
its shareholders. Cyber security breaches are either intentional or
unintentional events that allow an unauthorized party to gain access to Fund
assets, customer data, or proprietary information, or cause a Fund or Fund
service provider to suffer data corruption or lose operational functionality. A
cyber security breach could result in the loss or theft of customer data or
funds, loss or theft of proprietary information or corporate data, physical
damage to a computer or network system, or costs associated with system repairs,
any of which could have a substantial impact on a Fund. Such incidents could
affect issuers in which a Fund invests, thereby causing the Fund’s investments
to lose value.
Equity
Securities Risk: The
Fund is subject to the risk that stock prices will fall over short or extended
periods of time. Individual companies may report poor results or be negatively
affected by industry and/or economic trends and developments, or as a result of
irregular and/or unexpected trading activity among retail investors. The prices
of securities issued by these companies may decline in response to such
developments, which could result in a decline in the value of the Fund’s
shares.
•Preferred
Stock Risk:
In
the event an issuer is liquidated or declares bankruptcy, the claims of owners
of bonds take precedence over the claims of those who own preferred and common
stock. If interest rates rise, the fixed dividend on preferred stocks may be
less attractive, causing the price of preferred stocks to decline.
Foreign
Securities Risk: Investing
in foreign securities poses additional risks since political and economic events
unique in a country or region will affect those markets and their issuers, while
such events may not necessarily affect the U.S. economy or issuers located in
the United States. In addition, investments in foreign securities are generally
denominated in foreign currency. As a result, changes in the value of those
currencies compared to the U.S. dollar may affect (positively or negatively) the
value of the Fund's investments. There are also risks associated with foreign
accounting standards, government regulation, market information, and clearance
and settlement procedures. Foreign markets may be less liquid and more volatile
than U.S. markets and offer less protection to investors.
•Emerging
Markets Risk:
Emerging markets may be more likely to experience political turmoil or rapid
changes in market or economic conditions than more developed countries. In
addition, the financial stability of issuers (including governments) in emerging
market countries may be more precarious than that of issuers in developed market
countries.
•Sovereign
Debt Risk: The
actions of foreign governments concerning their respective economies could have
an important effect on their ability or willingness to service their sovereign
debt. Such actions could have significant effects on market conditions and on
the prices of securities and instruments held by the Fund, including the
securities and instruments of foreign private issuers.
Derivatives
Risk:
The use of derivatives may expose the Fund to additional risks that it would not
be subject to if it invested directly in the securities underlying those
derivatives. Risks associated with derivatives may include the risk that the
derivative does not correlate well with the security, index, or currency to
which it relates, the risk that the Fund will be unable to sell or close out the
derivative due to an illiquid market, the risk that the counterparty may be
unwilling or unable to meet its obligations, and the risk that the derivative
could expose the Fund to the risk of magnified losses resulting from leverage.
These additional risks could cause the Fund to experience losses to which it
would otherwise not be subject.
•Leverage
Risk:
Leverage occurs when the Fund uses borrowings, derivatives (such as futures or
options), or similar instruments or techniques to gain exposure to investments
in an amount that exceeds the Fund's initial investment. The use of leverage
magnifies changes in the Fund's net asset value and thus may result in increased
portfolio volatility and increased risk of loss. Leverage can create an interest
expense that may lower the Fund’s overall returns. There can be no guarantee
that a leveraging strategy will be successful.
•Forward
Foreign Currency Exchange Contract Risk:
A forward foreign currency exchange contract is an agreement to buy or sell a
specific currency at a future date and at a price set at the time of the
contract. Forward foreign currency exchange contracts may reduce the risk of
loss from a change in value of a currency, but they also limit any potential
gains and do not protect against fluctuations in the value of the underlying
position.
•Futures
Contracts Risk:
The risks associated with the Fund’s futures positions include liquidity and
counterparty risks associated with derivative instruments.
•Options
Risk:
Options trading is a highly specialized activity that involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. The value of options can be highly volatile, and their
use can result in loss if the sub-advisor is incorrect in its expectation of
price fluctuations. Options, whether exchange-traded or over-the-counter, may
also be illiquid.
•Swap
Agreements Risk:
Swap agreements (“swaps”) are individually negotiated and structured to include
exposure to a variety of different types of investments or market factors. Swaps
may increase or decrease the overall volatility of the investments of the Fund
and its share price. The performance of swaps may be affected by a change in the
specific interest rate, currency, or other factors that determine the amounts of
payments due to and from the Fund. A swap can be a form of leverage, which can
magnify the Fund’s gains or losses.
Mortgage
Dollar Roll Risk:
Mortgage “dollar rolls” are transactions in which mortgage-backed securities are
sold for delivery in the current month and the seller simultaneously contracts
to repurchase substantially similar securities on a specified future date. If
the broker-dealer to whom the Fund sells the security becomes insolvent, the
Fund’s right to repurchase the security may be restricted. Other risks involved
in entering into mortgage dollar rolls include the risk that the value of the
security may change adversely over the term of the mortgage dollar roll and that
the security the Fund is required to repurchase may be worth less than the
security that the Fund held.
Portfolio
Turnover Risk: Frequent
and active trading may result in greater expenses to the Fund, which may lower
the Fund's performance and may result in the realization of substantial capital
gains, including net short-term capital gains. As a result, high portfolio
turnover may reduce the Fund's returns.
Repurchase
Agreement Risk:
Under all repurchase agreements entered into by the Fund, the Fund’s custodian
or its agent must take possession of the underlying collateral. However,
if the counterparty defaults, the Fund could realize a loss on the sale of the
underlying security to the extent that the proceeds of sale, including accrued
interest, are less than the resale price provided in the agreement including
interest. In addition, even though the Bankruptcy Code provides protection
for most repurchase agreements, if the seller should be involved in bankruptcy
or insolvency proceedings, the Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund
is treated as an unsecured creditor and is required to return the underlying
security to the seller’s estate. Repurchase agreements are considered
loans by the Fund.
The
Fund’s Performance
The
Fund’s performance information is only shown when it has had a full calendar
year of operations. Since the Fund had not commenced operations as of the date
of this prospectus, there is no performance information included in this
prospectus.
The
Fund’s Management
Investment
Advisor
Touchstone
Advisors, Inc. serves as the Fund's investment advisor.
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|
Sub-Advisor |
|
Portfolio Managers |
|
Investment Experience with the
Fund |
|
Primary Title with Sub-Advisor |
Fort
Washington Investment Advisors, Inc. |
|
Daniel
J. Carter, CFA |
|
Since
inception in [ ] 2022 |
|
Managing
Director and Senior Portfolio Manager |
|
|
Austin
R. Kummer, CFA |
|
Since
inception in [ ] 2022 |
|
Vice
President, Senior Portfolio Manager |
|
|
Brendan
M. White, CFA |
|
Since
inception in [ ] 2022 |
|
Senior
Vice President, Co-Chief Investment Officer and Portfolio
Manager |
Buying
and Selling Fund Shares
The
Fund is an ETF. Individual Fund shares may only be purchased and sold on a
national securities exchange through a broker-dealer and may not be purchased or
redeemed directly with the Fund. The price of Fund shares is based on market
price, and because ETF shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than NAV (a discount). An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase shares of the Fund (“bid”) and the
lowest price a seller is willing to accept for shares (“ask”) when buying or
selling shares in the secondary market (the “bid-ask spread”). Recent
information, including information about the Fund’s NAV, market price, premiums
and discounts, and bid-ask spreads, is included on the Fund’s website at
TouchstoneInvestments.com/ETFs.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or
capital gains except when shares are held through a tax-advantaged account, such
as a 401(k) plan or an IRA. Withdrawals from a tax-advantaged account, however,
may be taxable.
Financial
Intermediary Compensation
If
you purchase shares in the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Advisor and its related companies may pay the
intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other financial intermediary and your salesperson to recommend the Fund over
another investment. Ask your salesperson or visit your financial
intermediary’s website for more information.
TOUCHSTONE
US LARGE CAP FOCUSED ETF SUMMARY
The
Fund’s Investment Goal
The
Touchstone US Large Cap Focused ETF (the “Fund”) seeks to provide investors with
capital appreciation.
The
Fund’s Fees and Expenses
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund. 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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|
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
|
Management
Fees |
0.70% |
Distribution
and/or Shareholder Service (12b-1) Fees(1) |
0.00% |
|
|
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|
|
|
Other
Expenses(2) |
0.40% |
|
|
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|
Total
Annual Fund Operating Expenses |
1.10% |
Fee
Waiver and/or Expense Reimbursement(3) |
(0.41)% |
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense
Reimbursement(3) |
0.69% |
___________________________________________
(1)The
Fund has adopted a Distribution (12b-1) Plan pursuant to which the Fund may
incur and pay a Distribution (12b-1) Fee of up to a maximum of 0.25%. No such
fee is currently incurred and paid by the Fund. The Fund will not incur and pay
such a Distribution (12b-1) Fee until such time as approved by the Fund’s Board
of Trustees (the “Board”).
(2)Other
Expenses are based on estimated amounts for the current fiscal
year.
(3)
Touchstone
Advisors, Inc. (the "Advisor" or "Touchstone Advisors") and Touchstone ETF
Trust (the "Trust") have entered into a contractual expense limitation agreement
whereby Touchstone Advisors will waive a portion of its fees or reimburse
certain Fund expenses (excluding dividend and interest expenses relating to
short sales; interest; taxes; brokerage commissions and other transaction costs;
portfolio transaction and investment related expenses; expenses associated with
the Fund's interfund lending program, if any; other expenditures which are
capitalized in accordance with U.S. generally accepted accounting principles;
the cost of “Acquired Fund Fees and Expenses,” if any; and other extraordinary
expenses not incurred in the ordinary course of business) in order to limit
annual Fund operating expenses to 0.69% of the Fund's average daily net assets.
This contractual expense limitation is effective through August 31, 2023, but
can be terminated by a vote of the Board if it deems the termination to be
beneficial to the Fund’s shareholders. The terms of the contractual expense
limitation agreement provide that Touchstone Advisors is entitled to recoup,
subject to approval by the Board, such amounts waived or reimbursed for a period
of up to three years from the date on which the Advisor reduced its compensation
or assumed expenses for the Fund. The Fund will make repayments to the Advisor
only if such repayment does not cause the annual Fund operating expenses (after
the repayment is taken into account) to exceed either (1) the expense cap in
place when such amounts were waived or reimbursed or (2) the Fund’s current
expense limitation.
Example.
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other exchange-traded funds ("ETFs"). The example
assumes that you invest $10,000 in the Fund for the time periods indicated and
then, except as indicated, redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year, that the Fund’s operating expenses remain the same and that all fee
waivers or expense limits for the Fund will expire after one year.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
Portfolio
Turnover. The
Fund pays transaction costs, such as brokerage 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 Fund shares are held in a taxable account. These costs,
which are not reflected in total annual Fund operating expenses or in the
example, affect the Fund’s performance. The Fund had not commenced
operations as of the date of this prospectus and, as a result, does not yet have
a portfolio turnover rate.
The
Fund’s Principal Investment Strategies
The
Fund invests, under normal market conditions, at least 80% of its assets in
U.S.-listed large capitalization equity securities. For the purpose of the
Fund's 80% policy, a large capitalization company has a market capitalization,
at the time of purchase, above $5 billion. The Fund’s 80% policy is a
non-fundamental investment policy that can be changed by the Fund's Board upon
60 days’ prior notice to shareholders. Equity securities generally include
common stock. These securities may be listed on an exchange or traded
over-the-counter.
In
selecting securities for the Fund, the Fund’s sub-advisor, Fort Washington
Investment Advisors, Inc. (“Fort Washington”), seeks to invest in companies
that:
•Are
trading below its estimate of the companies’ intrinsic value; and
•
Have
sustainable competitive advantages in place. Fort Washington evaluates a
company’s competitive advantage by assessing its barrier(s) to entry. A
company's barrier(s) to entry can be created through a cost advantage, economies
of scale, high customer loyalty, or a government barrier (e.g., license or
subsidy). Fort Washington believes that the strongest barrier to entry is the
combination of economies of scale and higher customer loyalty.
The
Fund is non-diversified and, therefore may, from time to time, have significant
exposure to a limited number of issuers. The Fund will generally hold 25 to 45
companies, with residual cash and cash equivalents expected to represent less
than 10% of the Fund’s net assets. The Fund may, at times, hold fewer securities
and a higher percentage of cash and cash equivalents when, among other reasons,
Fort Washington cannot find a sufficient number of securities that meet its
purchase requirements. Although the Fund may invest in any economic sector, at
times it may emphasize one or more particular sectors.
The
Fund will generally sell a security if it reaches Fort Washington’s estimate of
fair value, if a more attractive investment opportunity is available, or if a
structural change has taken place and Fort Washington cannot reliably estimate
the impact of the change on the business fundamentals.
The
Fund’s Principal Risks
The
Fund’s share price will fluctuate. You could lose money on your investment
in the Fund and the Fund could return less than other investments.
Investments in the Fund are not bank guaranteed, are not deposits, and are not
insured by the Federal Deposit Insurance Corporation or any other federal
government agency. As with any ETF, there is no guarantee that the Fund will
achieve its investment goal. You can find more information about the
Fund’s investments and risks under the “Principal Investment Strategies and
Risks” section of the Fund’s prospectus. The Fund is subject to the principal
risks summarized below.
Equity
Securities Risk:
The
Fund is subject to the risk that stock prices will fall over short or extended
periods of time. Individual companies may report poor results or be negatively
affected by industry and/or economic trends and developments, or as a result of
irregular and/or unexpected trading activity among retail investors. The prices
of securities issued by these companies may decline in response to such
developments, which could result in a decline in the value of the Fund’s
shares.
•Large-Cap
Risk:
Large-cap
companies may be unable to respond quickly to new competitive challenges, such
as changes in technology and consumer tastes, and also may not be able to attain
the high growth rate of successful smaller companies, especially during extended
periods of economic expansion.
•Mid-Cap
Risk:
Stocks of mid-sized companies may be subject to more abrupt or erratic market
movements than stocks of larger, more established companies. Mid-sized companies
may have limited product lines or financial resources, and may be dependent upon
a particular niche of the market.
Non-Diversification
Risk: The
Fund is non-diversified, which means that it may invest a greater percentage of
its assets than a diversified ETF in the securities of a limited number of
issuers. The use of a non-diversified investment strategy may increase the
volatility of the Fund’s investment performance, as the Fund may be more
susceptible to risks associated with a single economic, political or regulatory
event.
ETF
Risk:
As an ETF, the Fund is subject to the following risks:
•Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”), which are responsible for the creation and
redemption activity for the Fund. To the extent APs exit the business, become
unable or are otherwise unwilling to engage in creation and redemption
transactions with the Fund and no other AP steps in to create or redeem, Fund
shares may trade at a material discount to net asset value (“NAV”) and possibly
face delisting from the Exchange.
•
Premium/Discount
Risk: As
with all ETFs, Fund shares may only be bought and sold in the secondary market
at market prices. There may be times when the trading prices of Fund shares in
the secondary market are more than the NAV (a premium) or less than the NAV (a
discount). As a result, shareholders of the Fund may pay more than NAV when
purchasing shares and receive less than NAV when selling Fund shares. This risk
is heightened in times of market volatility or periods of steep market declines.
In such market conditions, market or stop loss orders to sell Fund shares may be
executed at prices well below a Fund's NAV.
•Secondary
Market Trading Risk:
Investors buying or selling shares in the secondary market will normally pay
brokerage commissions, which are often a fixed amount and may be a significant
proportional cost for investors buying or selling relatively small amounts of
Fund shares. Secondary market trading is subject to bid-ask spreads and trading
in Fund shares may be halted by the Exchange because of market conditions or
other reasons. If a trading halt occurs, a shareholder may temporarily be unable
to purchase or sell shares of the Fund. In addition, although the Fund’s shares
are listed on the Exchange, there can be no assurance that an active trading
market for shares will develop or be maintained or that the Fund’s shares will
continue to be listed.
Management
Risk: In
managing the Fund’s portfolio, the Advisor engages one or more sub-advisors to
make investment decisions for a portion of or the entire portfolio. There is a
risk that the Advisor may be unable to identify and retain sub-advisors who
achieve superior investment returns relative to other similar sub-advisors. In
addition, t he
value of your investment may decrease if the Fund's portfolio managers
incorrectly judge the attractiveness, value, or market trends affecting a
particular security, issuer, industry, or sector.
Economic
and Market Events Risk:
Events in the U.S. and global financial markets, including actions taken by the
U.S. Federal Reserve or foreign central banks to stimulate or stabilize economic
growth, may at times, and for varying periods of time, result in unusually high
market volatility, which could negatively impact the Fund’s performance and
cause the Fund to experience illiquidity, shareholder redemptions, or other
potentially adverse effects. Reduced liquidity in credit and fixed-income
markets could negatively affect issuers worldwide. Financial institutions could
suffer losses as interest rates rise or economic conditions deteriorate. In
addition, the Funds' service providers are susceptible to operational and
information or cyber security risks that could result in losses to a Fund and
its shareholders. Cyber security breaches are either intentional or
unintentional events that allow an unauthorized party to gain access to Fund
assets, customer data, or proprietary information, or cause a Fund or Fund
service provider to suffer data corruption or lose operational functionality. A
cyber security breach could result in the loss or theft of customer data or
funds, loss or theft of proprietary information or corporate data, physical
damage to a computer or network system, or costs associated with system repairs,
any of which could have a substantial impact on a Fund. Such incidents could
affect issuers in which a Fund invests, thereby causing the Fund’s investments
to lose value.
Sector
Focus Risk: A
fund that focuses its investments in the securities of a particular market
sector is subject to the risk that adverse circumstances will have a greater
impact on the fund than a fund that does not focus its investments in a
particular sector.
The
Fund’s Performance
The
Fund’s performance information is only shown when it has had a full calendar
year of operations. Since the Fund had not commenced operations as of the date
of this prospectus, there is no performance information included in this
prospectus.
The
Fund’s Management
Investment
Advisor
Touchstone
Advisors, Inc. serves as the Fund's investment advisor.
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Sub-Advisor |
|
Portfolio
Manager |
|
Investment Experience with the Fund |
|
Primary Title with
Sub-Advisor |
Fort
Washington Investment Advisors, Inc. |
|
James
E. Wilhelm, Jr. |
|
Since
inception in [ ] 2022 |
|
Managing
Director & Senior Portfolio Manager |
Buying
and Selling Fund Shares
The
Fund is an ETF. Individual Fund shares may only be purchased and sold on a
national securities exchange through a broker-dealer and may not be purchased or
redeemed directly with the Fund. The price of Fund shares is based on market
price,
and
because ETF shares trade at market prices rather than NAV, shares may trade at a
price greater than NAV (a premium) or less than NAV (a discount). An investor
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase shares of the Fund (“bid”) and the lowest price a
seller is willing to accept for shares (“ask”) when buying or selling shares in
the secondary market (the “bid-ask spread”). Recent
information, including information about the Fund’s NAV, market price, premiums
and discounts, and bid-ask spreads, is included on the Fund’s website at
TouchstoneInvestments.com/ETFs.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or
capital gains except when shares are held through a tax-advantaged account, such
as a 401(k) plan or an IRA. Withdrawals from a tax-advantaged account, however,
may be taxable.
Financial
Intermediary Compensation
If
you purchase shares in the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Advisor and its related companies may pay the
intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other financial intermediary and your salesperson to recommend the Fund over
another investment. Ask your salesperson or visit your financial
intermediary’s website for more information.
TOUCHSTONE
ULTRA SHORT INCOME ETF SUMMARY
The
Fund’s Investment Goal
The
Touchstone Ultra Short Income ETF (the “Fund”) seeks maximum total return
consistent with the preservation of capital.
The
Fund’s Fees and Expenses
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund. 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.
|
|
|
|
|
|
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
|
Management
Fees |
0.25% |
Distribution
and/or Shareholder Service (12b-1) Fees(1) |
0.00% |
|
|
|
|
|
|
Other
Expenses(2) |
0.36% |
|
|
|
|
Total
Annual Fund Operating Expenses |
0.61% |
Fee
Waiver and/or Expense Reimbursement(3) |
(0.27)% |
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense
Reimbursement(3) |
0.34% |
___________________________________________
(1)The
Fund has adopted a Distribution (12b-1) Plan pursuant to which the Fund may
incur and pay a Distribution (12b-1) Fee of up to a maximum of 0.25%. No such
fee is currently incurred and paid by the Fund. The Fund will not incur and pay
such a Distribution (12b-1) Fee until such time as approved by the Fund’s Board
of Trustees (the “Board”).
(2)Other
Expenses are based on estimated amounts for the current fiscal
year.
(3)
Touchstone
Advisors, Inc. (the "Advisor" or "Touchstone Advisors") and Touchstone ETF
Trust (the "Trust") have entered into a contractual expense limitation agreement
whereby Touchstone Advisors will waive a portion of its fees or reimburse
certain Fund expenses (excluding dividend and interest expenses relating to
short sales; interest; taxes; brokerage commissions and other transaction costs;
portfolio transaction and investment related expenses; expenses associated with
the Fund's interfund lending program, if any; other expenditures which are
capitalized in accordance with U.S. generally accepted accounting principles;
the cost of “Acquired Fund Fees and Expenses,” if any; and other extraordinary
expenses not incurred in the ordinary course of business) in order to limit
annual Fund operating expenses to 0.34% of the Fund's average daily net assets.
This contractual expense limitation is effective through August 31, 2023, but
can be terminated by a vote of the Board if it deems the termination to be
beneficial to the Fund’s shareholders. The terms of the contractual expense
limitation agreement provide that Touchstone Advisors is entitled to recoup,
subject to approval by the Board, such amounts waived or reimbursed for a period
of up to three years from the date on which the Advisor reduced its compensation
or assumed expenses for the Fund. The Fund will make repayments to the Advisor
only if such repayment does not cause the annual Fund operating expenses (after
the repayment is taken into account) to exceed either (1) the expense cap in
place when such amounts were waived or reimbursed or (2) the Fund’s current
expense limitation.
Example.
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other exchange-traded funds ("ETFs").
The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then, except as indicated, redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5%
return each year, that the Fund’s operating expenses remain the same and that
all fee waivers or expense limits for the Fund will expire after one year.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
|
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1
Year |
|
$ |
35 |
|
3
Years |
|
$ |
168 |
|
Portfolio
Turnover.
The Fund pays transaction costs, such as brokerage 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 Fund shares are held in a taxable account. These costs,
which are not reflected in total annual Fund operating expenses or in the
example, affect the Fund’s performance. The Fund had not commenced
operations as of the date of this prospectus and, as a result, does not yet have
a portfolio turnover rate.
The
Fund’s Principal Investment Strategies
The
Fund invests, under normal market conditions, at least 80% of its assets in
fixed-income securities. This is a non-fundamental investment policy that can be
changed by the Fund's Board upon 60 days’ prior notice to shareholders. The Fund
invests in a diversified portfolio of securities of different maturities,
including U.S. Treasury securities, U.S. government agency securities,
securities of U.S. government-sponsored enterprises, corporate bonds (including
those of foreign issuers), mortgage-backed securities, commercial
mortgage-backed securities, asset-backed securities, municipal bonds,
collateralized loan obligations and cash equivalent securities including
repurchase agreements, commercial paper and variable rate demand
notes.
The
Fund invests primarily in investment-grade debt securities. Investment-grade
debt securities are those having a rating of BBB-/Baa3 or higher from a
nationally recognized statistical rating organization ("NRSRO") or, if a rating
is not available, deemed to be of comparable quality by the sub-advisor, Fort
Washington Investment Advisors, Inc. ("Fort Washington"). The Fund's investment
policies are based on credit ratings at the time of purchase. The Fund can also
invest up to 15% of its net assets in non-investment-grade debt securities.
Non-investment-grade debt securities are often referred to as "junk bonds" and
are considered speculative.
The
Fund’s investment strategy places a greater emphasis on fixed-income securities
that are structured products, and therefore the Fund expects to maintain a
greater exposure to the structured products sectors (i.e., mortgage-backed
securities, commercial mortgage-backed securities, asset-backed securities, and
collateralized loan obligations) than other types of fixed-income securities.
Fort Washington also expects to maintain a meaningful exposure to corporate
credit. The remainder of Fund assets are expected to be invested in other
sectors, which may include municipal bonds, U.S. Treasuries, and various types
of cash-equivalent securities. Fort Washington’s targeted sector and risk
positioning for the Fund will vary in different types of market conditions.
In
selecting investments for the Fund, Fort Washington chooses fixed-income
securities that it believes are attractively priced relative to the market or to
similar instruments. An investment may be determined to be “attractively priced”
if it is offered at a level that is expected to yield a return greater than it
historically has and/or a greater return than generally available in the market
for other securities of a similar risk profile (i.e., similar credit quality,
duration, liquidity and expected volatility).
In
addition, Fort Washington considers the “effective duration” of the Fund’s
entire portfolio. Effective duration is a measure of a security’s price
volatility or the risk associated with changes in interest rates. While the Fund
may invest in securities with any maturity or duration, Fort Washington seeks to
maintain an effective duration for the Fund of one year or less under normal
market conditions.
The
Fund may engage in frequent and active trading of securities as a part of its
principal investment strategy.
The
Fund’s Principal Risks
The
Fund’s share price will fluctuate. You could lose money on your investment in
the Fund and the Fund could also return less than other investments. Investments
in the Fund are not bank guaranteed, are not deposits, and are not insured by
the Federal Deposit Insurance Corporation (the "FDIC") or any other federal
government agency. As with any ETF, there is no guarantee that the Fund will
achieve its investment goal. You can find more information about the
Fund’s investments and risks under the “Principal Investment Strategies and
Risks” section of the Fund’s prospectus. The Fund is subject to the principal
risks summarized below.
Fixed-Income
Risk: The
market value of the Fund’s fixed-income securities responds to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund’s fixed-income securities will decrease in value if interest
rates rise and increase in value if interest rates fall. Normally, the longer
the maturity or duration of the fixed-income securities the Fund owns, the more
sensitive the value of the Fund’s shares will be to changes in interest
rates.
•Asset-Backed
Securities Risk:
Asset-backed securities are fixed-income securities backed by other assets such
as credit card, automobile or consumer loan receivables, retail installment
loans, or participations in pools of leases. The values of these securities are
sensitive to changes in the credit quality of the underlying collateral, the
credit strength of any credit enhancement feature, changes in interest rates,
and, at times, the financial condition of the issuer.
•Credit
Risk:
The fixed-income securities in the Fund’s portfolio are subject to the
possibility that a deterioration, whether sudden or gradual, in the financial
condition of an issuer, or a deterioration in general economic conditions, could
cause an issuer to fail to make timely payments of principal or interest, when
due. This may cause the issuer’s securities to decline in value.
•Interest
Rate Risk: In
general, when interest rates rise, the prices of debt securities fall, and when
interest rates fall, the prices of debt securities rise. The price volatility of
a debt security also depends on its maturity. Longer-term securities are
generally more volatile, so the longer the average maturity or duration of these
securities, the greater their price risk. Duration is a measure used to
determine the sensitivity of a security’s price to changes in interest rates
that incorporates a security’s yield, coupon, final maturity, and call features,
among other characteristics. The longer a fixed-income security’s duration, the
more sensitive it will be to changes in interest rates. Maturity, on the other
hand, is the date on which a fixed-income security becomes due for payment of
principal. Recent and potential future changes in government policy may affect
interest rates.
•Investment-Grade
Debt Securities Risk:
Investment-grade debt securities may be downgraded by a NRSRO to
below-investment-grade status, which would increase the risk of holding these
securities. Investment-grade debt securities rated in the lowest rating category
by a NRSRO involve a higher degree of risk than fixed-income securities with
higher credit ratings.
•Mortgage-Backed
Securities Risk:
Mortgage-backed securities are fixed-income securities representing an interest
in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive
to changes in interest rates, but may respond to these changes differently from
other fixed-income securities due to the possibility of prepayment of the
underlying mortgage loans. Mortgage-backed securities may fluctuate in price
based on deterioration in the value of the collateral underlying the pool of
mortgage loans, which may result in the collateral being worth less than the
remaining principal amount owed on the mortgages in the pool.
•Non-Investment-Grade
Debt Securities Risk: Non-investment-grade
debt securities are sometimes referred to as “junk bonds” and are considered
speculative with respect to their issuers’ ability to make payments of interest
and principal. There is a high risk that the Fund could suffer a loss from
investments in non-investment-grade debt securities caused by the default of an
issuer of such securities. Non-investment-grade debt securities may also be less
liquid than investment-grade debt securities.
•Prepayment
Risk:
The risk that a debt security may be paid off and proceeds reinvested earlier
than anticipated. Prepayment impacts both the interest rate sensitivity of the
underlying asset, such as an asset-backed or mortgage-backed security and its
cash flow projections. Therefore, prepayment risk may make it difficult to
calculate the average duration of the Fund’s asset- or mortgage-backed
securities which in turn would make it difficult to assess the interest rate
risk of the Fund.
•U.S.
Government Securities Risk: Certain
U.S. government securities are backed by the right of the issuer to borrow from
the U.S. Treasury while others are supported only by the credit of the issuer or
instrumentality. While the U.S. government is able to provide financial support
to U.S. government-sponsored agencies or instrumentalities, no assurance can be
given that it will always do so. Such securities are generally neither issued
nor guaranteed by the U.S. Treasury.
ETF
Risk:
As an ETF, the Fund is subject to the following risks:
•Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”), which are responsible for the creation and
redemption activity for the Fund. To the extent APs exit the business, become
unable or are otherwise unwilling to engage in creation and redemption
transactions with the Fund and no other AP steps in to create or redeem, Fund
shares may trade at a material discount to net asset value (“NAV”) and possibly
face delisting from the Exchange.
•
Premium/Discount
Risk: As
with all ETFs, Fund shares may only be bought and sold in the secondary market
at market prices. There may be times when the trading prices of Fund shares in
the secondary market are more than the NAV (a premium) or less than the NAV (a
discount). As a result, shareholders of the Fund may pay more than NAV when
purchasing shares and receive less than NAV when selling Fund shares. This risk
is heightened in times of market volatility or periods of steep market declines.
In such market conditions, market or stop loss orders to sell Fund shares may be
executed at prices well below a Fund's NAV.
•Secondary
Market Trading Risk:
Investors buying or selling shares in the secondary market will normally pay
brokerage commissions, which are often a fixed amount and may be a significant
proportional cost for investors buying or selling relatively small amounts of
Fund shares. Secondary market trading is subject to bid-ask spreads and trading
in Fund shares may be halted by the Exchange because of market conditions or
other reasons. If a trading halt
occurs,
a shareholder may temporarily be unable to purchase or sell shares of the Fund.
In addition, although the Fund’s shares are listed on the Exchange, there can be
no assurance that an active trading market for shares will develop or be
maintained or that the Fund’s shares will continue to be listed.
Management
Risk: In
managing the Fund’s portfolio, the Advisor engages one or more sub-advisors to
make investment decisions for a portion of or the entire portfolio. There is a
risk that the Advisor may be unable to identify and retain sub-advisors who
achieve superior investment returns relative to other similar sub-advisors. In
addition, t he
value of your investment may decrease if the Fund's portfolio managers
incorrectly judge the attractiveness, value, or market trends affecting a
particular security, issuer, industry, or sector.
Economic
and Market Events Risk:
Events in the U.S. and global financial markets, including actions taken by the
U.S. Federal Reserve or foreign central banks to stimulate or stabilize economic
growth, may at times, and for varying periods of time, result in unusually high
market volatility, which could negatively impact the Fund’s performance and
cause the Fund to experience illiquidity, shareholder redemptions, or other
potentially adverse effects. Reduced liquidity in credit and fixed-income
markets could negatively affect issuers worldwide. Financial institutions could
suffer losses as interest rates rise or economic conditions deteriorate. In
addition, the Funds' service providers are susceptible to operational and
information or cyber security risks that could result in losses to a Fund and
its shareholders. Cyber security breaches are either intentional or
unintentional events that allow an unauthorized party to gain access to Fund
assets, customer data, or proprietary information, or cause a Fund or Fund
service provider to suffer data corruption or lose operational functionality. A
cyber security breach could result in the loss or theft of customer data or
funds, loss or theft of proprietary information or corporate data, physical
damage to a computer or network system, or costs associated with system repairs,
any of which could have a substantial impact on a Fund. Such incidents could
affect issuers in which a Fund invests, thereby causing the Fund’s investments
to lose value.
Collateralized
Loan Obligations Risk:
Typically, collateralized loan obligations are privately offered and sold, and
thus are not registered under the securities laws. As a result, the Fund may in
certain circumstances characterize its investments in collateralized loan
obligations as illiquid. Collateralized loan obligations are subject to the
typical risks associated with debt instruments (i.e., interest rate risk and
credit risk). Additional risks of collateralized loan obligations include the
possibility that distributions from collateral securities will be insufficient
to make interest or other payments, the potential for a decline in the quality
of the collateral, and the possibility that the Fund may invest in a subordinate
tranche of a collateralized loan obligation.
Foreign
Securities Risk: Investing
in foreign securities poses additional risks since political and economic events
unique in a country or region will affect those markets and their issuers, while
such events may not necessarily affect the U.S. economy or issuers located in
the United States. In addition, investments in foreign securities are generally
denominated in foreign currency. As a result, changes in the value of those
currencies compared to the U.S. dollar may affect (positively or negatively) the
value of the Fund's investments. There are also risks associated with foreign
accounting standards, government regulation, market information, and clearance
and settlement procedures. Foreign markets may be less liquid and more volatile
than U.S. markets and offer less protection to investors.
Municipal
Securities Risk:
The value of municipal securities may be affected by uncertainties in the
municipal market related to legislation or litigation involving the taxation of
municipal securities or the rights of municipal securities holders in the event
of bankruptcy. In addition, a downturn in the national economy may negatively
impact the economic performance of issuers of municipal securities, and may
increase the likelihood that issuers of securities in which the Fund may invest
may be unable to meet their obligations. Also, some municipal obligations may be
backed by a letter of credit issued by a bank or other financial institution.
Adverse developments affecting banks or other financial institutions could have
a negative effect on the value of the Fund’s portfolio securities.
Portfolio
Turnover Risk: Frequent
and active trading may result in greater expenses to the Fund, which may lower
the Fund's performance and may result in the realization of substantial capital
gains, including net short-term capital gains. As a result, high portfolio
turnover may reduce the Fund's returns.
Repurchase
Agreement Risk:
Under all repurchase agreements entered into by the Fund, the Fund’s custodian
or its agent must take possession of the underlying collateral. However,
if the counterparty defaults, the Fund could realize a loss on the sale of the
underlying security to the extent that the proceeds of sale, including accrued
interest, are less than the resale price provided in the agreement including
interest. In addition, even though the Bankruptcy Code provides protection
for most repurchase agreements, if the seller should be involved in bankruptcy
or insolvency proceedings, the Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund
is treated as an unsecured creditor and is required to return the underlying
security to the seller’s estate. Repurchase agreements are considered
loans by the Fund.
The
Fund’s Performance
The
Fund’s performance information is only shown when it has had a full calendar
year of operations. Since the Fund had not commenced operations as of the date
of this prospectus, there is no performance information included in this
prospectus.
The
Fund’s Management
Investment
Advisor
Touchstone
Advisors, Inc. serves as the Fund's investment advisor.
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Sub-Advisor |
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Portfolio Managers |
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Investment Experience
with the Fund |
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Primary Title with Sub-Advisor |
Fort
Washington Investment Advisors, Inc. |
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Scott
D. Weston |
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Since
inception in [ ] 2022 |
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Managing
Director and Senior Portfolio Manager |
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Brent
A. Miller, CFA |
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Since
inception in [ ] 2022 |
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Vice
President and Senior Portfolio Manager |
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Laura
L. Mayfield |
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Since
inception in [ ] 2022 |
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Senior
Portfolio Manager |
Buying
and Selling Fund Shares
The
Fund is an ETF. Individual Fund shares may only be purchased and sold on a
national securities exchange through a broker-dealer and may not be purchased or
redeemed directly with the Fund. The price of Fund shares is based on market
price, and because ETF shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than NAV (a discount). An
investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase shares of the Fund (“bid”) and the
lowest price a seller is willing to accept for shares (“ask”) when buying or
selling shares in the secondary market (the “bid-ask spread”). Recent
information, including information about the Fund’s NAV, market price, premiums
and discounts, and bid-ask spreads, is included on the Fund’s website at
TouchstoneInvestments.com/ETFs.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or
capital gains except when shares are held through a tax-advantaged account, such
as a 401(k) plan or an IRA. Withdrawals from a tax-advantaged account, however,
may be taxable.
Financial
Intermediary Compensation
If
you purchase shares in the Fund through a broker-dealer or other financial
intermediary (such as a bank), the Advisor and its related companies may pay the
intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other financial intermediary and your salesperson to recommend the Fund over
another investment. Ask your salesperson or visit your financial
intermediary’s website for more information.
PRINCIPAL
INVESTMENT STRATEGIES AND RISKS
How
Do The Funds Implement Their Investment Goal?
The
investment goal(s) and principal investment strategies of Touchstone Dividend
Select ETF ("Dividend Select ETF"), Touchstone Strategic Income Opportunities
ETF ("Strategic Income Opportunities ETF"), Touchstone US Large Cap Focused ETF
("US Large Cap Focused ETF") and Touchstone Ultra Short Income ETF ("Ultra Short
Income ETF") (each, a “Fund” and collectively, the “Funds”) are described in the
"Principal Investment Strategies" sections in each Fund's summary above.
The
Funds are actively managed exchange-traded funds (“ETFs”). Shares of the
Dividend Select ETF (ticker: DVND) and the Strategic Income Opportunities ETF
(ticker: SIO) are listed for trading on NYSE Arca, Inc. and shares of US Large
Cap Focused ETF (ticker: LCF) and the Ultra Short Income ETF (ticker: TUSI) are
listed for trading on Cboe BZX Exchange, Inc. NYSE Arca, Inc. and Cboe BZX
Exchange, Inc. are referred to individually as an "Exchange" and together as the
"Exchanges". The market price for a share of each Fund may be different from a
Fund's most recent net asset value (“NAV”). ETFs are funds that trade like other
publicly traded securities. Unlike shares of a mutual fund, which can be bought
and redeemed from the issuing fund by all shareholders at a price based on NAV,
shares of the Funds may be purchased or redeemed directly from the Funds at NAV
solely by Authorized Participants. Also, unlike shares of a mutual fund, shares
of the Funds are listed on an Exchange and trade in the secondary market at
market prices that change throughout the day.
Dividend
Select ETF. In
selecting securities for the Fund, the Fund’s sub-advisor, Fort Washington
Investment Advisors, Inc. (“Fort Washington”), seeks to invest in companies
that:
•Have
historically paid consistent, growing dividends;
•Have
sustainable competitive advantages that should result in excess profits to
support future dividend payments; and
•Trade
at reasonable valuations compared to their intrinsic value
For
purposes of the Fund, historical dividend payout and growth generally focuses on
companies that tend to have at least a three-year track record of consistent
dividend growth; however, many of the Fund's portfolio companies have historical
track records of growing their dividend annually beyond three years.
The
Sub-Advisor believes its unique approach results in a portfolio of high quality
companies with sustainable competitive advantages that should pay reliable,
growing dividends at reasonable valuations. Fort Washington evaluates a
company’s competitive advantage by assessing its barrier(s) to entry. The
barrier(s) to entry can be created through a cost advantage, economies of scale,
high customer loyalty, or a government barrier (e.g., license or subsidy). Fort
Washington believes that the strongest barrier to entry is the combination of
economies of scale and higher customer loyalty.
Fort
Washington believes that a key determinant of whether or not a company has a
competitive advantage is its return on capital. For example, Fort Washington
believes that if a company has a competitive advantage, this is often evidenced
by its historical returns on capital exceeding its cost of capital. Knowing
this, if a company has a competitive advantage, Fort Washington would expect
returns on capital to exceed the cost of capital. This excess profit is then
available to support future dividend payments. Fort Washington also assesses the
amount of dividends paid relative to a company’s operating profit, and how that
might change in different operating environments. As such, key metrics to assess
whether a corporate competitive advantage should result in excess profits to
support future dividend growth are historical excess returns on capital and low
payout ratios.
Fort
Washington believes the strength of a company’s competitive advantage can be
assessed through various metrics such as: market share stability, returns on
capital, pricing power, return stability, dominant competitors, and failed
entry. Regarding valuations, Fort Washington assesses valuation through internal
analysis and leveraging of third-party data. Fort Washington’s approach to
valuation focuses on reliability classes where a company’s return on capital is
a key input to assessing valuation. Fort Washington believes reasonable
valuations are those where a company is trading below or near fair value and
seeks to avoid companies that are trading well above Fort Washington’s
assessment of fair value.
The
Fund will generally hold 40 to 55 companies, with residual cash and cash
equivalents expected to represent less than 10% of the Fund’s net assets. The
Fund may, at times, hold fewer securities and a higher percentage of cash and
cash equivalents when, among other reasons, Fort Washington cannot find a
sufficient number of securities that meets its purchase
requirements.
The
Fund’s portfolio is typically repositioned by Fort Washington
monthly.
The
Fund will generally sell a security if the security does not meet portfolio
guidelines, if the security stops paying a dividend and future prospects of
paying a dividend are limited, or if better opportunities exist based on the
fundamentals and valuation of the business.
Strategic
Income Opportunities ETF. The
Fund invests, under normal market conditions, at least 80% of its assets in
income producing fixed-income securities. Income producing securities generally
include corporate debt securities, mortgage-related securities, asset-backed
securities, government securities (both U.S. government securities and foreign
sovereign debt), and preferred stocks.
The
Fund’s sub-advisor, Fort Washington Investment Advisors, Inc. (“Fort
Washington”), seeks to employ a high conviction, yield-oriented investment
approach with a relatively focused number of issuers, coupled with sector
diversification and diligent risk management that is intended to result in
attractive risk-adjusted returns via high levels of income. In selecting
individual securities for the Fund, Fort Washington applies a rigorous bottom-up
security selection process. A key characteristic of this process is the
identification and implementation of high conviction ideas that can result in
meaningful alpha generation. Fort Washington utilizes a variety of proprietary
tools to assist with security screening and analysis. The Fund seeks to
incorporate the best investment ideas available to Fort Washington, utilizing
Fort Washington’s core competencies of bottom-up credit and structure analysis.
The portfolio management team believes risk monitoring, performance measurement,
and active management are key components to achieving attractive risk-adjusted
returns.
A
starting point for Fort Washington's identification of attractive opportunities
is the quantification of return potential along with associated risk. Fort
Washington seeks to identify opportunities with the highest level of expected
return relative to the risk. Fort Washington quantifies risk as downside risk
(i.e., what can happen in a recession), not volatility. The quantification of
risk and reward are an important part of the investment process that is combined
with the company specific credit analysis.
In
building the Fund’s portfolio, Fort Washington invests at least 50% of the
Fund's portfolio in investment-grade rated debt securities. The Fund may also
invest up to 50% of the Fund's portfolio in non-investment-grade debt
securities. Non-investment-grade debt securities are often referred to as “junk
bonds” and are considered speculative. The Fund's investment policies are based
on credit ratings at the time of purchase. The proportion of non-investment
grade debt is influenced by the top-down component of the Sub-Advisor’s
investment process that assesses the current macro environment focusing on
trends in the global economy, financial conditions, sentiment, and valuation.
Generally, the exposure to non-investment grade debt increases when credit
spreads are wide, taking account of economic growth, financial conditions, and
sentiment. Once the targets for macro risks are determined, the Fund’s portfolio
managers and research teams analyze the individual sectors on a risk-adjusted
basis using proprietary tools, including qualitative and quantitative methods.
Analysis is performed to determine a sector’s potential excess return compared
to the downside risk in a stress scenario. This allows the Sub-Advisor to
compare sectors with different characteristics using a consistent
methodology.
With
respect to the criteria used to select from among the asset- and mortgage-backed
securities available, the Sub-Advisor believes in-depth specialization is
critical to valuing structured products and maximizing returns. These securities
tend to have more complex and uncertain cash flows, offering the potential for
more inefficient markets. To capitalize on this inefficiency, the Sub-Advisor’s
asset specialists apply a rigorous and quantitative valuation process to each
potential holding, utilizing both proprietary models and third-party systems to
evaluate the complexities of collateral, structure, credit, relative value, and
econometric modeling. This process involves a loan-level analysis of the
underlying collateral, followed by a robust analysis of the security’s cash flow
structure. As a result of this analysis, the Sub-Advisor’s asset specialists are
able to identify securities that they believe have the most attractive risk and
return characteristics.
The
Fund may also invest up to 20% of its total assets in income producing
fixed-income securities that are emerging markets debt securities denominated in
either the U.S. dollar or a foreign currency. Within the emerging markets debt
(or “EMD”) sleeve of the Fund's portfolio, there is no specific geographic limit
or focus. Fort Washington’s EMD research and screening process begins with
assessing global market and economic conditions and their impact on emerging
market fixed income assets. This assessment provides context for Fort
Washington’s views on individual credits, and helps drive portfolio positioning
and risk parameters. A bottom up approach is utilized in analyzing individual
sovereign issuers applying both qualitative and quantitative methods. Fort
Washington starts with a fundamental base assessment of the country, evaluating
economic resiliency as well as the strength of fiscal and external accounts.
Fort Washington then builds on the fundamental base assessment by evaluating the
impact of government policy on credit quality going forward. The investment
process analyzes multiple policy areas, ranging from those that directly shape
country fundamentals such as structural economic reforms and fiscal frameworks,
to international relations and potential impacts on policy continuity from
upcoming elections.
Additionally,
in order to implement its investment strategy, the Fund may invest in mortgage
dollar-roll transactions, reverse repurchase agreements, and other derivatives,
including forwards, futures contracts, interest rate and credit default swap
agreements,
and options. These investments may be used to gain or hedge market exposure, to
adjust the Fund’s duration, to manage interest rate risk, and for any other
purposes consistent with the Fund’s investment strategies and limitations. The
use of derivatives in the Fund’s portfolio allows the Sub-Advisor to hedge risks
and/or express views in the portfolio that may not be possible given
availability of cash or securities to buy/sell. Fort Washington believes that
the use of derivatives increases the flexibility of the strategy to react
swiftly to changes in market conditions and adds another method to add value and
diversify Fund returns over time.
Although
not expected to be a principal investment strategy, the Fund may also invest up
to 20% of its assets in public equities and may also invest in other ETFs.
The
Fund will generally sell a security if the price/yield no longer adequately
compensates for the risk profile or if there is a change to allocation between
sectors based on relative value.
US
Large Cap Focused ETF .
The Fund invests, under normal market conditions, at least 80% of its assets in
U.S.-listed large capitalization equity securities. For the purpose of the
Fund's 80% policy, a large capitalization company has a market capitalization,
at the time of purchase, above $5 billion. For purposes of the Fund's principal
investment strategy, equity securities generally include common stocks; however,
the Fund may also invest to a lesser extent in preferred stocks. These
securities may be listed on an exchange or traded over-the-counter.
In
selecting securities for the Fund, the Fund’s sub-advisor, Fort Washington,
seeks to invest in companies that:
•Are
trading below its estimate of the companies’ intrinsic value; and
•
Have
a sustainable competitive advantage in place. Fort Washington evaluates a
company’s competitive advantage by assessing its barrier(s) to entry. A
company's barrier(s) to entry can be created through a cost advantage,
economies of scale, high customer loyalty, or a government barrier (e.g.,
license or subsidy). Fort Washington believes that the strongest barrier to
entry is the combination of economies of scale and higher customer
loyalty.
The
Fund is non-diversified and, therefore may, from time to time, have significant
exposure to a limited number of issuers. The Fund will generally hold 25 to 45
companies, with residual cash and cash equivalents expected to represent less
than 10% of the Fund’s net assets. The Fund may, at times, hold fewer securities
and a higher percentage of cash and cash equivalents when, among other reasons,
Fort Washington cannot find a sufficient number of securities that meets its
purchase requirements. Although the Fund may invest in any economic sector, at
times it may emphasize one or more particular sectors.
The
Fund will generally sell a security if it reaches Fort Washington’s estimate of
fair value, if a more attractive investment opportunity is available, or if a
structural change has taken place and Fort Washington cannot reliably estimate
the impact of the change on the business fundamentals.
The
Fund is restricted from investing in securities of foreign issuers, including
through the use of ordinary shares or depositary receipts such as American
Depositary Receipts (“ADRs”). This restriction is a non-fundamental investment
policy that can be changed by the Fund's Board upon 60 days’ prior notice to
shareholders.
Ultra
Short Income ETF .
The Fund invests, under normal market conditions, at least 80% of its assets in
fixed-income securities. This is a non-fundamental investment policy that can be
changed by the Fund's Board upon 60 days’ prior notice to shareholders. The Fund
invests in a diversified portfolio of securities of different maturities,
including U.S. Treasury securities, U.S. government agency securities,
securities of U.S. government-sponsored enterprises, corporate bonds (including
those of foreign issuers), mortgage-backed securities, commercial
mortgage-backed securities, asset-backed securities, municipal bonds,
collateralized loan obligations and cash equivalent securities including
repurchase agreements, commercial paper and variable rate demand notes. The Fund
invests primarily in U.S. fixed-income securities, but may invest to a lesser
extent in U.S. dollar-dominated foreign securities generally in the form of
corporate bonds of foreign issuers.
The
Fund invests primarily in investment-grade debt securities. Investment-grade
debt securities are those having a rating of BBB-/Baa3 or higher from a
nationally recognized statistical rating organization ("NRSRO") or, if a rating
is not available, deemed to be of comparable quality by the sub-advisor, Fort
Washington Investment Advisors, Inc. ("Fort Washington"). The Fund's investment
policies are based on credit ratings at the time of purchase. The Fund can also
invest up to 15% of its net assets in non-investment-grade debt securities.
Non-investment-grade debt securities are often referred to as "junk bonds" and
are considered speculative.
The
Fund’s strategy places a greater emphasis on fixed-income securities that are
structured products, and therefore the Fund expects to maintain a greater
exposure to the structured products sectors (i.e., mortgage-backed securities,
commercial
mortgage-backed
securities, asset-backed securities, and collateralized loan obligations) than
other types of fixed-income securities. Generally, total structured product
exposure is expected to be approximately 50-70% of the Fund’s overall portfolio,
although it may fall outside that range from time to time.
Fort
Washington also expects to maintain a meaningful exposure to corporate credit,
which generally is not expected to represent less than 20% of the Fund’s
portfolio. The remainder of Fund assets are expected to be invested in other
sectors, which may include municipal bonds, U.S. Treasuries, and various types
of cash-equivalent securities.
Fort
Washington maintains strategic (long-term) and tactical (short-term) allocation
ranges for each of these sectors, which may be revised over time based on Fort
Washington’s assessment of risk and return across sectors, in conjunction with
the market outlook and desired risk positioning of the Fund. Bottom-up security
selection is executed by sector specialists within the parameters of the
targeted sector allocations and desired risk positioning.
Securities
within each subsector may serve a variety of purposes within the Fund, including
contributing high credit quality exposure (across any sector), providing
liquidity (cash equivalents or short, high quality securities), providing
near-term cashflow for reinvestment or liquidity purposes (amortizing
securities, or securities with short-dated maturities), providing attractive
yield for a given risk profile (across any sector), or contributing toward the
targeted duration positioning (any sector), among other things. These attributes
are not mutually exclusive, and Fort Washington’s security-level selection
process is intended to optimize the benefit and/or positioning gained from each
security in the portfolio, within the overall sector allocation and risk
budgeting framework.
Fort
Washington’s targeted sector and risk positioning for the Fund will vary in
different types of market conditions. For example, during periods of elevated
market uncertainty or increased redemption activity, Fort Washington may seek to
increase liquidity in the Fund via higher exposure to cash-equivalents,
Treasuries, or other short duration, high quality securities. During periods of
a compressed credit curve (relatively flat credit spreads across the credit
spectrum) the Sub-Advisor may seek to reduce exposure to securities with higher
risk profiles or lower credit ratings, which may represent a reduction in those
types of securities across any structured product or corporate sector. Fort
Washington may also seek to increase or reduce exposure to specific sectors
based on relevant fundamental or economic views—either favorable or unfavorable.
Sector and risk targets will vary depending on myriad factors, and the
Sub-Advisor seeks to execute security selection in such a manner as to optimize
positioning relative to the target at any given time.
In
selecting investments for the Fund, Fort Washington chooses fixed-income
securities that it believes are attractively priced relative to the market or to
similar instruments. Fort Washington is continually assessing the risk and
return profile available in the market across a broad range of sectors and
security types. An investment may be determined to be “attractively priced” if
it is offered at a level that is expected to yield a return greater than it
historically has and/or a greater return than generally available in the market
for other securities of a similar risk profile (i.e., similar credit quality,
duration, liquidity and expected volatility). This comparison is made not only
to securities within the same sector, but also across all relevant, investible
sectors available to the Fund .
In
addition, Fort Washington considers the “effective duration” of the Fund’s
entire portfolio. Effective duration is a measure of a security’s price
volatility or the risk associated with changes in interest rates. While the Fund
may invest in securities with any maturity or duration, Fort Washington seeks to
maintain an effective duration for the Fund of one year or less under normal
market conditions.
Can
a Fund Depart From its Principal Investment Strategies?
In
addition to the investments and strategies described in this prospectus, each
Fund may invest in other securities, use other strategies and engage in other
investment practices. These permitted investments and strategies are described
in detail in the Funds’ Statement of Additional Information
(“SAI”).
Each
Fund’s investment goal is non-fundamental and may be changed by the Board of
Trustees (the “Board”) without shareholder approval. Shareholders will be
notified at least 60 days before any change takes effect.
The
investments and strategies described throughout this prospectus are those that
the Funds use under normal circumstances. During unusual economic or market
conditions, or for temporary defensive purposes, each Fund may invest up to 100%
of its assets in cash, repurchase agreements, and short-term obligations (i.e.,
fixed and variable rate securities and high quality debt securities of corporate
and government issuers) that would not ordinarily be consistent with each Fund's
investment strategy. This defensive investing may increase a Fund’s taxable
income, and when a Fund is invested defensively, it may not
achieve
its investment goal. A Fund will do so only if the Fund’s sub-advisor
believes that the risk of loss in using the Fund’s normal strategies and
investments outweighs the opportunity for gains. Of course, there can be no
guarantee that any Fund will achieve its investment goal.
80%
Investment Policy. Each
Fund has adopted a policy to invest, under normal circumstances, at least 80% of
the value of its “assets” in certain types of investments suggested by its name
(the “80% Policy”). For purposes of this 80% Policy, the term “assets” means net
assets plus the amount of borrowings for investment purposes. Each Fund must
comply with its 80% Policy at the time the Fund invests its assets. Accordingly,
when a Fund no longer meets the 80% requirement as a result of circumstances
beyond its control, such as changes in the value of portfolio holdings, it would
not have to sell its holdings but would have to make any new investments in such
a way as to comply with the 80% Policy. This policy may be changed by the Board
without shareholder approval. Shareholders will be notified at least 60 days'
before any change in a Fund's 80% Policy takes effect.
Other
Investment Companies.
A
Fund may invest in securities issued by other investment companies to the extent
permitted by the Investment Company Act of 1940, as amended (the "1940 Act") the
rules thereunder and applicable Securities and Exchange Commission (“SEC”) staff
interpretations thereof, or applicable exemptive relief granted by the
SEC.
Lending
of Portfolio Securities.
The
Funds may lend their portfolio securities to brokers, dealers, and financial
institutions under guidelines adopted by the Board, including a requirement that
a Fund must receive collateral equal to no less than 100% of the market value of
the securities loaned. The risk in lending portfolio securities, as with other
extensions of credit, consists of possible loss of rights in the collateral
should the borrower fail financially. In determining whether to lend securities,
the Advisor will consider all relevant facts and circumstances, including the
creditworthiness of the borrower. More information on securities lending is
available in the SAI.
What
are the Principal Risks of Investing in the Funds?
The
risks that may apply to your investment in a Fund are listed below in a table of
principal risks followed by a description of each risk. Unless otherwise noted,
in this section, references to a single Fund apply equally to all of the Funds.
Further information about investment strategies and risks is available in the
Funds’ SAI:
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Dividend
Select ETF |
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Strategic
Income Opportunities ETF |
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US
Large Cap Focused ETF |
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Ultra
Short Income ETF |
Asset-Backed
Securities Risk |
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X |
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X |
Authorized
Participants Concentration Risk |
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X |
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X |
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X |
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X |
Collateralized
Loan Obligations Risk |
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X |
Counterparty
Risk |
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X |
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X |
Credit
Risk |
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X |
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X |
Derivatives
Risk |
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X |
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Dividend
Risk |
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X |
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Economic
and Market Events Risk |
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X |
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X |
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X |
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X |
Emerging
Markets Risk |
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X |
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Equity
Securities Risk |
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X |
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X |
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X |
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Fixed-Income
Risk |
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X |
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X |
ETF
Risk |
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X |
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X |
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X |
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X |
Foreign
Securities Risk |
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X |
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X |
Forward
Foreign Currency Exchange Contract Risk |
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X |
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Futures
Contracts Risk |
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X |
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Interest
Rate Risk |
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X |
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X |
Investment-Grade
Debt Securities Risk |
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X |
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X |
Large-Cap
Risk |
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X |
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X |
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Leverage
Risk |
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X |
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Management
Risk |
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X |
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X |
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X |
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X |
Mid-Cap
Risk |
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X |
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Mortgage-Backed
Securities Risk |
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X |
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X |
Mortgage
Dollar Roll Risk |
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X |
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Municipal
Securities Risk |
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X |
Non-Diversification
Risk |
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X |
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Non-Investment-Grade
Debt Securities Risk |
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X |
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X |
Options
Risk |
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X |
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Portfolio
Turnover Risk |
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X |
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X |
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X |
Preferred
Stock Risk |
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X |
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X |
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Premium/Discount
Risk |
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X |
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X |
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X |
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X |
Prepayment
Risk |
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X |
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X |
Repurchase
Agreement Risk |
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X |
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X |
Secondary
Market Trading Risk |
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X |
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X |
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X |
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X |
Sector
Focus Risk |
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X |
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Sovereign
Debt Risk |
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X |
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Swap
Agreement Risk |
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X |
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U.S.
Government Securities Risk |
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X |
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X |
Value
Investing Risk |
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X |
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Collateralized
Loan Obligations Risk:
A collateralized loan obligation is a type of asset-backed security that is an
obligation of a trust typically collateralized by pools of loans, which may
include domestic and foreign senior secured and unsecured loans and subordinate
corporate loans, including loans that may be rated below investment grade, or
equivalent unrated loans. The cash flows from the trust are split into two
or more portions, called tranches, which vary in risk and yield. The riskier
portion is the residual, or “equity,” tranche, which bears some or all of the
risk of default by the loans in the trust. The risks of an investment in a CLO
largely depend on the type of underlying collateral securities and the tranche
in which an underlying fund invests. Typically, CLOs are privately offered and
sold, and thus are not registered under the securities laws. As a result, an
underlying fund may in certain circumstances characterize its investments in
CLOs as illiquid. In assessing liquidity, an underlying fund will consider
various factors including whether the CLO may be purchased and sold in
Rule 144A transactions
and
whether an active dealer market exists. CLOs are subject to the typical
risks associated with debt instruments (i.e., interest rate risk and credit
risk). Additional risks of CLOs include the possibility that distributions from
collateral securities will be insufficient to make interest or other payments,
the potential for a decline in the quality of the collateral, and the
possibility that an underlying fund may invest in a subordinate tranche of a
CLO. In addition, due to the complex nature of a CLO, an investment in a CLO may
not perform as expected. An investment in a CLO also is subject to the risk that
the issuer and the investors may interpret the terms of the instrument
differently, giving rise to disputes.
Counterparty
Risk: The
issuer or guarantor of a fixed-income security, a counterparty (the other party
to a transaction or an agreement ) to a transaction with the Fund, or a borrower
of the Fund's securities may be unable or unwilling to make timely principal,
interest or settlement payments, or otherwise honor its
obligations.
Derivatives
Risk: The
use of derivatives may expose the Fund to additional risks that it would not be
subject to if it invested directly in the securities underlying those
derivatives. Risks associated with derivatives may include correlation risk,
which is the risk that the derivative does not correlate well with the security,
index, or currency to which it relates. Other risks include liquidity risk,
which is the risk that the Fund may be unable to sell or close out the
derivative due to an illiquid market, counterparty risk, which is the risk that
the counterparty to a derivative instrument may be unwilling or unable to make
required payments or otherwise meet its obligations, and leverage risk, which is
the risk that a derivative could expose the Fund to magnified losses resulting
from leverage. The use of derivatives for hedging purposes may result in losses
that partially or completely offset gains in portfolio positions. Using
derivatives can increase the volatility of the Fund’s share price. For some
derivatives, it is possible for the Fund to lose more than the amount invested
in the derivative instrument. Derivatives may, for federal income tax purposes,
affect the character of gain and loss realized by the Fund, accelerate
recognition of income to the Fund, affect the holding periods for certain of the
Fund’s assets and defer recognition of certain of the Fund’s losses. The Fund’s
ability to invest in derivatives may be restricted by certain provisions of the
federal income tax laws relating to the Fund’s qualification as a regulated
investment company (“RIC”). These additional risks could cause the Fund to
experience losses to which it would otherwise not be subject. Regulatory changes
in derivatives markets could impact the cost of or the Fund's ability to engage
in derivative transactions.
In
addition, new Rule 18f-4 (the “Derivatives Rule”), adopted by the SEC on October
28, 2020, replaces the asset segregation regime of Investment Company Act
Release No. 10666 (Release 10666) with a new framework for the use of
derivatives by registered funds. For funds using a significant amount of
derivatives, the Derivatives Rule mandates a fund adopt and/or implement: (i)
value at risk limitations in lieu of asset segregation requirements; (ii) a
written derivatives risk management program; (iii) new Board oversight
responsibilities; and (iv) new reporting and recordkeeping requirements. The
Derivative Rule provides an exception for funds with derivative exposure not
exceeding 10% of its net assets, excluding certain currency and interest rate
hedging transactions. In addition, the Derivatives Rule provides special
treatment for reverse repurchase agreements and similar financing transactions
and unfunded commitment agreements. Funds will be required to comply with the
Derivatives Rule starting on August 19, 2022. Each Fund is expected to fit
within the exception to the Derivatives Rule for funds with derivative exposure
not exceeding 10% of its net assets. As a result, the Derivatives Rule is not
expected to have a material impact on the Funds.
•Forward
Foreign Currency Exchange Contract Risk:
A forward foreign currency exchange contract is an agreement to buy or sell a
specific currency at a future date and at a price set at the time of the
contract. Forward foreign currency exchange contracts may reduce the risk of
loss from a change in value of a currency, but they also limit any potential
gains and do not protect against fluctuations in the value of the underlying
position and are subject to counterparty risk. The forecasting of currency
market movement is extremely difficult, and whether any hedging strategy will be
successful is highly uncertain. Moreover, it is impossible to forecast with
precision the market value of portfolio securities at the expiration of a
forward foreign currency contract. Accordingly, a Fund may be required to buy or
sell additional currency on the spot market (and bear the expense of such
transaction) if the sub-advisor’s predictions regarding the movement of foreign
currency or securities markets prove inaccurate. Because foreign currency
forward contracts are privately negotiated transactions, there can be no
assurance that a Fund will have flexibility to rollover a forward foreign
currency contract upon its expiration if it desires to do so. Additionally,
there can be no assurance that the other party to the contract will perform its
services under the contract.
•Futures
Contracts Risk:
Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security at a specified future time and at a
specified price. An option on a futures contract gives the purchaser the right,
in exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. There are risks
associated with these activities, including the following: (1) the success of a
hedging strategy may depend on an ability to predict movements in the prices of
individual securities, fluctuations in markets and movements in interest rates;
(2) there may be an imperfect or no correlation between the changes in market
value
of the securities held by a Fund and the prices of futures and options on
futures; (3) there may not be a liquid secondary market for a futures contract
or option; (4) trading restrictions or limitations may be imposed by an
exchange; and (5) government regulations may restrict trading in futures
contracts and futures options.
•Leverage
Risk: Leverage
occurs when a Fund uses derivatives or similar instruments or techniques to gain
exposure to investments in an amount that exceeds a Fund’s initial investment.
The use of leverage magnifies changes in a Fund’s net asset value and thus
results in increased portfolio volatility and increased risk of loss. Leverage
can also create an interest expense that may lower a Fund’s overall returns.
There can be no guarantee that a Fund's use of a leveraging strategy will be
successful.
•Options
Risk: Options
trading is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities
transactions. The value of options can be highly volatile, and their use can
result in loss if the Sub-Advisor is incorrect in its expectation of price
fluctuations. The successful use of options for hedging purposes also depends in
part on the ability of the Sub-Advisor to predict future price fluctuations and
the degree of correlation between the options and securities markets. When
options are purchased over the counter, the Fund bears counterparty risk, which
is the risk that the counterparty that wrote the option will be unable or
unwilling to perform its obligations under the option contract. Such options may
also be illiquid, and in such cases, the Fund may have difficulty closing out
its position.
•Swap
Agreements Risk: Swap
agreements (“swaps”) are individually negotiated and structured to include
exposure to a variety of different types of investments or market factors, such
as interest rates, foreign currency rates, mortgage securities, corporate
borrowing rates, security prices, indexes or inflation rates. Swaps may increase
or decrease the overall volatility of the investments of the Fund and its share
price. The performance of swaps may be affected by a change in the specific
interest rate, currency, or other factors that determine the amounts of payments
due to and from the Fund. If a swap calls for payments by the Fund, the Fund
must be prepared to make such payments when due. Additionally, if the
counterparty’s creditworthiness declines, the value of a swap may decline. If
the counterparty is unable to meet its obligations under the contract, declares
bankruptcy, defaults, or becomes insolvent, the Fund may not be able to recoup
the money it expected to receive under the contract. Finally, a swap can be a
form of leverage, which can magnify the Fund’s gains or losses.
Dividend
Risk: Dividends
the Fund receives on common stocks are not fixed but are declared at the
discretion of an issuer’s board of directors. There is no guarantee that the
companies in which the Fund invests will declare dividends in the future or that
dividends, if declared, will remain at current levels or increase over time.
Securities that pay dividends may be sensitive to changes in interest rates, and
as interest rates rise, or fall, the prices of such securities may fall. A sharp
rise in interest rates, or other market downturn, could result in a decision to
decrease or eliminate a dividend.
Economic
and Market Events Risk: Events
in certain sectors historically have resulted, and may in the future result, in
an unusually high degree of volatility in the financial markets, both domestic
and foreign. These events have included, but are not limited to: bankruptcies,
corporate restructurings, and other similar events; governmental efforts to
limit short selling and high frequency trading; measures to address U.S. federal
and state budget deficits; social, political, and economic instability in
Europe; economic stimulus by the Japanese central bank; dramatic changes in
energy prices and currency exchange rates; and China’s economic slowdown.
Interconnected global economies and financial markets increase the possibility
that conditions in one country or region might adversely impact issuers in a
different country or region. Both domestic and foreign equity markets have
experienced increased volatility and turmoil, with issuers that have exposure to
the real estate, mortgage, and credit markets particularly affected. Financial
institutions could suffer losses as interest rates rise or economic conditions
deteriorate.
In
addition, relatively high market volatility and reduced liquidity in credit and
fixed-income markets may negatively affect many issuers worldwide. Actions taken
by the U.S. Federal Reserve (“Fed”) or foreign central banks to stimulate or
stabilize economic growth, such as interventions in currency markets, could
cause high volatility in the equity and fixed-income markets. Reduced liquidity
may result in less money being available to purchase raw materials, goods, and
services from emerging markets, which may, in turn, bring down the prices of
these economic staples. It may also result in emerging-market issuers having
more difficulty obtaining financing, which may, in turn, cause a decline in
their securities prices.
In
addition, while interest rates have been historically low in recent years in the
United States and abroad, any decision by the Fed to adjust the target fed funds
rate, among other factors, could cause markets to experience continuing high
volatility. A significant increase in interest rates may cause a decline in the
market for equity securities. Also, regulators have expressed concern that rate
increases may contribute to price volatility. These events and the possible
resulting market volatility may have an adverse effect on the Fund.
Political
turmoil within the United States and abroad may also impact the Fund. Although
the U.S. government has honored its credit obligations, it remains possible that
the United States could default on its obligations. While it is impossible to
predict the consequences of such an unprecedented event, it is likely that a
default by the United States would be highly disruptive to the U.S. and global
securities markets and could significantly impair the value of the Fund’s
investments. Similarly, political events within the United States at times have
resulted, and may in the future result, in a shutdown of government services,
which could negatively affect the U.S. economy, decrease the value of many Fund
investments, and increase uncertainty in or impair the operation of the U.S. or
other securities markets. The U.S. is also considering significant new
investments in infrastructure which, coupled with lower federal taxes, could
lead to increased government borrowing and higher interest rates. While these
proposed policies are going through the political process, the equity and debt
markets may react strongly to expectations, which could increase volatility,
especially if the market’s expectations for changes in government policies are
not borne out. In recent years, the U.S. renegotiated many of its global trade
relationships and has imposed or threatened to impose significant import
tariffs. These actions could lead to price volatility and overall declines in
U.S. and global investment markets.
Uncertainties
surrounding the sovereign debt of a number of European Union (EU) countries and
the viability of the EU have disrupted and may in the future disrupt markets in
the United States and around the world. If one or more countries leave the EU or
the EU dissolves, the world’s securities markets likely will be significantly
disrupted. On January 31, 2020, the United Kingdom (UK) left the EU, commonly
referred to as “Brexit,” and the UK ceased to be a member of the EU. Following a
transition period during which the EU and the UK Government engaged in a series
of negotiations regarding the terms of the UK’s future relationship with the EU,
the EU and UK Government signed an agreement on December 30, 2020 regarding the
economic relationship between the UK and the EU. This agreement became effective
on a provisional basis on January 1, 2021 and formally entered into force on May
1, 2021. While the full impact of Brexit is unknown, Brexit has already resulted
in volatility in European and global markets. There remains significant market
uncertainty regarding Brexit’s ramifications, and the range and potential
implications of possible political, regulatory, economic, and market outcomes
are difficult to predict. This uncertainty may affect other countries in the EU
and elsewhere, and may cause volatility within the EU, triggering prolonged
economic downturns in certain countries within the EU. Despite the influence of
the lockdowns, and the economic bounce back, Brexit has had a material impact on
the UK's economy. Additionally, trade between the UK and the EU did not benefit
from the global rebound in trade in 2021, and remained at the very low levels
experienced at the start of the coronavirus (“COVID-19”) pandemic in 2020,
highlighting Brexit's potential long-term effects on the UK economy.
In
addition, Brexit may create additional and substantial economic stresses for the
UK, including a contraction of the UK economy and price volatility in UK stocks,
decreased trade, capital outflows, devaluation of the British pound, wider
corporate bond spreads due to uncertainty and declines in business and consumer
spending as well as foreign direct investment. Brexit may also adversely affect
UK-based financial firms that have counterparties in the EU or participate in
market infrastructure (trading venues, clearing houses, settlement facilities)
based in the EU. Additionally, the spread of the COVID-19 pandemic is likely to
continue to stretch the resources and deficits of many countries in the EU and
throughout the world, increasing the possibility that countries may be unable to
make timely payments on their sovereign debt. These events and the resulting
market volatility may have an adverse effect on the performance of the Fund.
An
epidemic outbreak and governments’ reactions to such an outbreak could cause
uncertainty in the markets and may adversely affect the performance of the
global economy. An outbreak of respiratory disease caused by a coronavirus was
first detected in China in late 2019 and subsequently spread globally. This
coronavirus resulted in closing borders, enhanced health screenings, disruptions
to healthcare service preparation and delivery, quarantines, cancellations, and
disruptions to supply chains and consumer activity, as well as general concern
and uncertainty. The impact of this coronavirus may last for an extended period
of time and has resulted in substantial economic volatility. Health crises
caused by outbreaks, such as the coronavirus outbreak, may exacerbate other
pre-existing political, social and economic risks. The impact of this outbreak,
and other epidemics and pandemics that may arise in the future, could continue
to negatively affect the worldwide economy, as well as the economies of
individual countries, individual companies, including certain Fund service
providers and issuers of the Fund's investments and the market in general in
significant and unforeseen ways. Any such impact could adversely affect the
Fund’s performance, the performance of the securities in which the Fund invests
and may lead to losses on your investment in the Fund.
The
United States responded to the COVID-19 pandemic and resulting economic distress
with fiscal and monetary stimulus packages. In late March 2020, the government
passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”),
a stimulus package providing for over $2.2 trillion in resources to small
businesses, state and local governments, and individuals adversely impacted by
the COVID-19 pandemic. In late December 2020, the government also passed a
spending bill that included $900 billion in stimulus relief for the COVID-19
pandemic. Further, in March 2021, the government passed the American Rescue Plan
Act of 2021, a $1.9 trillion stimulus bill to accelerate the United States’
recovery from the economic and health effects of the COVID-19 pandemic. In
addition, in mid-March 2020 the U.S. Federal Reserve (“Fed”) cut interest rates
to historically low levels and promised unlimited and open-ended quantitative
easing, including purchases of corporate
and
municipal government bonds. The Fed also enacted various programs to support
liquidity operations and funding in the financial markets, including expanding
its reverse repurchase agreement operations, adding $1.5 trillion of liquidity
to the banking system; establishing swap lines with other major central banks to
provide dollar funding; establishing a program to support money market funds;
easing various bank capital buffers; providing funding backstops for businesses
to provide bridging loans for up to four years; and providing funding to help
credit flow in asset-backed securities markets. The Fed also extended credit to
small- and medium-sized businesses.
To
the extend the Fed “tapers” or reduces the amount of securities it purchases
pursuant to quantitative easing, and/or raises the federal funds rate, there is
a risk that interest rates will rise, which could expose fixed-income and
related markets to heightened volatility and could cause the value of a Fund's
investments, and the Fund's NAV, to decline, potentially suddenly and
significantly. As a result, the Fund may experience high redemptions and, as a
result, increased portfolio turnover, which could increase the costs that the
Fund incurs and may negatively impact the Fund's performance.
Political
and military events, including in North Korea, Venezuela, Russia, Ukraine, Iran,
Syria, and other areas of the Middle East, and nationalist unrest in Europe and
South America, also may cause market disruptions. As a result of continued
political tensions and armed conflicts, including the Russian invasion of
Ukraine commencing in February of 2022, the extent and ultimate result of which
are unknown at this time, the United States and the EU, along with the
regulatory bodies of a number of countries, have imposed economic sanctions on
certain Russian corporate entities and individuals, and certain sectors of
Russia’s economy, which may result in, among other things, the continued
devaluation of Russian currency, a downgrade in the country’s credit rating,
and/or a decline in the value and liquidity of Russian securities, property or
interests. These sanctions could also result in the immediate freeze of Russian
securities and/or funds invested in prohibited assets, impairing the ability of
a fund to buy, sell, receive or deliver those securities and/or assets. These
sanctions or the threat of additional sanctions could also result in Russia
taking counter measures or retaliatory actions, which may further impair the
value and liquidity of Russian securities. The United States and other nations
or international organizations may also impose additional economic sanctions or
take other actions that may adversely affect Russia exposed issuers and
companies in various sectors of the Russian economy. Any or all of these
potential results could lead Russia’s economy into a recession. Economic
sanctions and other actions against Russian institutions, companies, and
individuals resulting from the ongoing conflict may also have a substantial
negative impact on other economies and securities markets both regionally and
globally, as well as on companies with operations in the conflict region, the
extent to which is unknown at this time. The United States and the EU have also
imposed similar sanctions on Belarus for its support of Russia’s invasion of
Ukraine. Additional sanctions may be imposed on Belarus and other countries that
support Russia. Any such sanctions could present substantially similar risks as
those resulting from the sanctions imposed on Russia, including substantial
negative impacts on the regional and global economies and securities
markets.
In
addition, there is a risk that the prices of goods and services in the United
States and many foreign economies may decline over time, known as deflation.
Deflation may have an adverse effect on stock prices and creditworthiness and
may make defaults on debt more likely. If a country’s economy slips into a
deflationary pattern, it could last for a prolonged period and may be difficult
to reverse. Further, there is a risk that the present value of assets or income
from investments will be less in the future, known as inflation. Inflation rates
may change frequently and drastically as a result of various factors, including
unexpected shifts in the domestic or global economy, and a Fund’s investments
may be affected, which may reduce a Fund's performance. Further, inflation may
lead to the rise in interest rates, which may negatively affect the value of
debt instruments held by the Fund, resulting in a negative impact on a Fund's
performance. Generally, securities issued in emerging markets are subject to a
greater risk of inflationary or deflationary forces, and more developed markets
are better able to use monetary policy to normalize markets.
In
addition, with the increased use of technologies, such as mobile devices and
"cloud"-based service offerings and the dependence on the Internet and computer
systems to perform necessary business functions, the Funds' service providers
are susceptible to operational and information or cyber security risks that
could result in losses to a Fund and its shareholders. Cyber security breaches
are either intentional or unintentional events that allow an unauthorized party
to gain access to Fund assets, customer data, or proprietary information, or
cause a Fund or Fund service provider to suffer data corruption or lose
operational functionality. Intentional cyber security incidents include:
unauthorized access to systems, networks, or devices (such as through “hacking”
activity or "phishing"); infection from computer viruses or other malicious
software code; and attacks that shut down, disable, slow, or otherwise disrupt
operations, business processes, or website access or functionality.
Cyber-attacks can also be carried out in a manner that does not require gaining
unauthorized access, such as causing denial-of-service attacks on the service
providers' systems or websites rendering them unavailable to intended users or
via "ransomware" that renders the systems inoperable until appropriate actions
are taken. In addition, unintentional incidents can occur, such as the
inadvertent release of confidential information (possibly resulting in the
violation of applicable privacy laws).
A
cyber security breach could result in the loss or theft of customer data or
funds, loss or theft of proprietary information or corporate data, physical
damage to a computer or network system, or costs associated with system repairs,
any of which could
have
a substantial impact on a Fund. For example, in a denial of service, Fund
shareholders could lose access to their electronic accounts indefinitely, and
employees of the Advisor, a Sub-Advisor, or the Funds’ other service providers
may not be able to access electronic systems to perform critical duties for the
Funds, such as trading, NAV calculation, shareholder accounting, or fulfillment
of Fund share purchases and redemptions. Cyber security incidents could cause a
Fund, the Advisor, a Sub-Advisor, or other service provider to incur regulatory
penalties, reputational damage, compliance costs associated with corrective
measures, litigation costs, or financial loss. They may also result in
violations of applicable privacy and other laws. In addition, such incidents
could affect issuers in which a Fund invests, thereby causing the Fund’s
investments to lose value.
Cyber-events
have the potential to materially affect the Funds', the Advisor and the
sub-advisor’s relationships with accounts, shareholders, clients, customers,
employees, products, and service providers. The Funds have established risk
management systems reasonably designed to seek to reduce the risks associated
with cyber-events. There is no guarantee that the Funds will be able to prevent
or mitigate the impact of any or all cyber-events.
The
Funds are exposed to operational risk arising from a number of factors,
including, but not limited to, human error, processing and communication errors,
errors of the Funds’ service providers, counterparties, or other third parties,
failed or inadequate processes, and technology or system failures.
The
Advisor, Sub-Advisor, and their affiliates have established risk management
systems that seek to reduce cybersecurity and operational risks, and business
continuity plans in the event of a cybersecurity breach or operational failure.
However, there are inherent limitations in such plans, including that certain
risks have not been identified, and there is no guarantee that such efforts will
succeed, especially since none of the Advisor, a Sub-Advisor, or their
affiliates controls the cybersecurity or operations systems of the Funds’ third
party service providers (including the Funds’ custodian), or those of the
issuers of securities in which the Funds invest.
In
addition, other disruptive events, including (but not limited to) natural
disasters and public health crises (such as the COVID-19 pandemic), may
adversely affect a Fund’s ability to conduct business, in particular if the
Fund’s employees or the employees of its service providers are unable or
unwilling to perform their responsibilities as a result of any such event. Even
if the Fund’s employees and the employees of its service providers are able to
work remotely, those remote work arrangements could result in the Fund’s
business operations being less efficient than under normal circumstances, could
lead to delays in its processing of transactions, and could increase the risk of
cyber-events.
ETF
Risk:
As an ETF, each Fund is subject to the following risks:
•Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants (“APs”), which are responsible for the creation and
redemption activity for the Fund. To the extent APs exit the business, become
unable or are otherwise unwilling to engage in creation and redemption
transactions with the Fund and no other AP steps in to create or redeem, Fund
shares may trade at a material discount to net asset value (“NAV”) and possibly
face delisting.
•
Premium/Discount
Risk: As
with all ETFs, Fund shares may only be bought and sold in the secondary market
at market prices. The NAV of the Fund’s shares will generally fluctuate with
changes in the market value of the Fund’s portfolio holdings. The trading prices
of Fund shares in the secondary market will generally fluctuate in accordance
with changes in the Fund’s NAV and supply and demand of shares on the secondary
market. It cannot be predicted whether Fund shares will trade below, at or above
its NAV. As a result, shareholders of the Fund may pay more than NAV when
purchasing shares (a premium) and receive less than NAV when selling Fund shares
(a discount). This risk is heightened in times of market volatility or periods
of steep market declines. In such market conditions, market or stop-loss orders
to sell the ETF shares may be executed at market prices that are significantly
below a Fund's NAV. The market prices of Fund shares may deviate significantly
from the NAV of the shares during periods of market volatility or if the Fund’s
holdings are or become more illiquid. Disruptions to creations and redemptions
may result in trading prices that differ significantly from the Fund’s NAV. In
addition, market prices of Fund shares may deviate significantly from the NAV if
the number of Fund shares outstanding is smaller or if there is less active
trading in a Fund's shares. Investors purchasing and selling Fund shares in the
secondary market may not experience investment results consistent with those
experienced by those creating and redeeming directly with the Fund.
•Secondary
Market Trading Risk:
Investors buying or selling shares in the secondary market will normally pay
brokerage commissions, which are often a fixed amount and may be a significant
proportional cost for investors buying or selling relatively small amounts of
Fund shares. In addition, an investor may also incur the cost of the spread (the
difference between the bid price (the price secondary market investors are
willing to pay for shares) and the ask price (the price at which secondary
market investors are willing to sell shares)). 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
tighter if a Fund’s shares have more trading volume and market liquidity and
wider if the Fund’s shares have little trading volume and market liquidity.
Increased market volatility may cause increased bid/ask spreads.
Although
Fund shares are listed for trading on an Exchange, there can be no assurance
that an active trading market for such shares will develop or be maintained or
that the Fund’s shares will continue to be listed. Trading in Fund shares may be
halted due to market conditions or for reasons that, in the view of the
Exchanges, make trading in shares inadvisable. In addition, trading in shares is
subject to trading halts caused by extraordinary market volatility pursuant to
Exchange “circuit breaker” rules. There can be no assurance that the
requirements of the Exchanges necessary to maintain the listing of any Fund will
continue to be met or will remain unchanged or that the shares will trade with
any volume, or at all.
Equity
Securities Risk: A
Fund is subject to the risk that stock prices will fall over short or extended
periods of time. Individual companies may report poor results or be negatively
affected by industry and/or economic trends and developments, or as a result of
irregular and/or unexpected trading activity among retail investors. The prices
of securities issued by these companies may decline in response to such
developments, which could result in a decline in the value of the Funds’ shares.
These factors contribute to price volatility. In addition, common stocks
represent a share of ownership in a company, and rank after bonds and preferred
stock in their claim on the company’s assets in the event of
liquidation.
•Large-Cap
Risk:
A Fund is subject to the risk that stocks of larger companies may underperform
relative to those of small- and mid-sized companies. Large-cap companies may be
unable to respond quickly to new competitive challenges, such as changes in
technology and consumer tastes, and also may not be able to attain the high
growth rate of successful smaller companies, especially during extended periods
of economic expansion.
•Mid-Cap
Risk: A
Fund is subject to the risk that medium capitalization stocks may underperform
other types of stocks or the equity markets as a whole. Stocks of mid-sized
companies may be subject to more abrupt or erratic market movements than stocks
of larger, more established companies. Mid-sized companies may have limited
product lines or financial resources, and may be dependent upon a particular
niche of the market.
•Preferred
Stock Risk: Preferred
stock represents an equity interest in an issuer that pays dividends at a
specified rate and that has precedence over common stock in the payment of
dividends. In the event an issuer is liquidated or declares bankruptcy, the
claims of owners of bonds take precedence over the claims of those who own
preferred and common stock. If interest rates rise, the fixed dividend on
preferred stocks may be less attractive, causing the price of preferred stocks
to decline. Preferred stock may have mandatory sinking fund provisions, as well
as provisions allowing the stock to be called or redeemed prior to its maturity,
both of which can have a negative impact on the stock’s price when interest
rates decline.
Fixed
Income Risk: The
market value of the Fund’s fixed-income securities responds to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund’s fixed-income securities will decrease in value if interest
rates rise and increase in value if interest rates fall. Normally, the longer
the maturity or duration of the fixed-income securities the Fund owns, the more
sensitive the value of the Fund’s shares will be to changes in interest rates.
The fixed-income securities market has been and may continue to be negatively
affected by the coronavirus (COVID-19) pandemic. As with other serious economic
disruptions, governmental authorities and regulators are responding to this
crisis with significant fiscal and monetary policy changes, including
considerably lowering interest rates, which, in some cases could result in
negative interest rates. These actions, including their possible unexpected or
sudden reversal or potential ineffectiveness, could further increase volatility
in securities and other financial markets and reduce market liquidity. To the
extent the Fund has a bank deposit or holds a debt instrument with a negative
interest rate to maturity, the Fund would generate a negative return on that
investment. Similarly, negative rates on investments by money market funds and
similar cash management products could lead to losses on investments, including
on investments of the Fund's uninvested cash.
•Asset-Backed
Securities Risk: Asset-backed
securities are fixed income securities backed by other assets such as credit
card, automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the structural features such as subordination or overcollateralization
and/or provided through credit enhancements by a third party. Even with a credit
enhancement by a third party, there is still risk of loss. There could be
inadequate collateral or no collateral for asset-backed securities. The values
of these securities are sensitive to changes in the credit quality of the
underlying collateral, the credit strength of the credit enhancement, changes in
interest rates, and, at times, the financial condition of the issuer. Some
asset-backed securities also may receive prepayments that can change the
securities’ effective durations.
•Credit
Risk: The
fixed-income securities in the Fund’s portfolio are subject to the possibility
that a deterioration, whether sudden or gradual, in the financial condition of
an issuer, or a deterioration in general economic conditions, could cause an
issuer to fail to make timely payments of principal or interest when due. This
may cause the issuer’s securities to decline in value. Credit risk is
particularly relevant to those portfolios that invest a significant amount of
their assets in non-investment grade (or "junk") bonds or lower-rated
securities.
•Interest
Rate Risk: The
market price of debt securities is generally linked to the prevailing market
interest rates. In general, when interest rates rise, the prices of debt
securities fall, and when interest rates fall, the prices of debt securities
rise. The price volatility of a debt security also depends on its maturity.
Longer-term securities are generally more volatile, so the longer the average
maturity or duration of these securities, the greater their price risk. Duration
is a measure used to determine the sensitivity of a security’s price to changes
in interest rates that incorporates a security’s yield, coupon, final maturity,
and call features, among other characteristics. The longer a fixed-income
security’s duration, the more sensitive it will be to changes in interest rates.
Specifically, duration is the change in the value of a fixed-income security
that will result from a 1% change in interest rates, and generally is stated in
years. For example, as a general rule a 1% rise in interest rates means a 1%
fall in value for every year of duration. Maturity, on the other hand, is the
date on which a fixed-income security becomes due for payment of principal.
There may be less governmental intervention in the securities markets in the
near future. An increase in interest rates could negatively impact a Fund’s net
asset value. Recent and potential future changes in government monetary policy
may affect the level of interest rates.
•Investment-Grade
Debt Securities Risk: Investment-grade
debt securities may be downgraded by a NRSRO to below-investment-grade status,
which would increase the risk of holding these securities. Investment-grade debt
securities rated in the lowest rating category by a NRSRO involve a higher
degree of risk than fixed-income securities with higher credit ratings. While
such securities are considered investment-grade quality and are deemed to have
adequate capacity for payment of principal and interest, such securities lack
outstanding investment characteristics and may share certain speculative
characteristics with non-investment-grade securities.
•Mortgage-Backed
Securities Risk: Mortgage-backed
securities are fixed income securities representing an interest in a pool of
underlying mortgage loans. Mortgage-backed securities are sensitive to changes
in interest rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage re-financings, with the result that the
average life and volatility of the security will increase, exacerbating its
decrease in market price. When interest rates fall, however, mortgage-backed
securities may not gain as much in market value because of the expectation of
additional mortgage prepayments that must be reinvested at lower interest rates.
Prepayment risk may make it difficult to calculate the average duration of the
Fund’s mortgage-backed securities and, therefore, to fully assess the interest
rate risk of the Fund. An unexpectedly high rate of defaults on the mortgages
held by a mortgage pool may adversely affect the value of mortgage-backed
securities and could result in losses to the Fund. The risk of such defaults is
generally higher in the cases of mortgage pools that include subprime mortgages.
Subprime mortgages refer to loans made to borrowers with weakened credit
histories or with lower capacity to make timely payments on their mortgages. In
addition, mortgage-backed securities may fluctuate in price based on
deterioration in the perceived or actual value of the collateral underlying the
pool of mortgage loans, typically residential or commercial real estate, which
may result in negative amortization or negative equity meaning that the value of
the collateral would be worth less than the remaining principal amount owed on
the mortgages in the pool. The mortgage-backed securities market has been and
may continue to be negatively affected by the coronavirus (COVID-19) pandemic.
The U.S. government, its agencies or its instrumentalities may implement
initiatives in response to the economic impacts of the coronavirus (COVID-19)
pandemic applicable to federally backed mortgage loans. These initiatives could
involve forbearance of mortgage payments or suspension or restrictions of
foreclosures and evictions. The Fund cannot predict with certainty the extent to
which such initiatives or the economic effects of the pandemic generally may
affect rates of prepayment or default or adversely impact the value of the
Fund's investments in securities in the mortgage industry as a
whole.
•Non-Investment-Grade
Debt Securities Risk:
Non-investment-grade debt securities are sometimes referred to as “junk bonds”
and are considered speculative with respect to their issuers’ ability to make
payments of interest and principal. There is a high risk that a Fund could
suffer a loss from investments in non-investment-grade debt securities caused by
the default of an issuer of such securities. Part of the reason for this high
risk is that non-investment-grade debt securities are generally unsecured and
therefore, in the event of a default or bankruptcy, holders of
non-investment-grade debt securities generally will not receive payments until
the holders of all other debt have been paid. Non-investment-grade debt
securities may also be less liquid than investment-grade debt
securities.
•Prepayment
Risk:
Prepayment risk is the risk that a debt security may be paid off and proceeds
invested earlier than anticipated. Prepayment risk is more prevalent during
periods of falling interest rates. Prepayment impacts both the interest rate
sensitivity of the underlying asset, such as an asset-backed or mortgage-backed
security, and its cash flow projections. Therefore, prepayment risk may make it
difficult to calculate the average duration of the Fund's asset- or
mortgage-backed securities which in turn would make it difficult to assess the
interest rate risk of the Fund.
•U.S.
Government Securities Risk: Certain
U.S. government securities are backed by the right of the issuer to borrow from
the U.S. Treasury while others are supported only by the credit of the issuer or
instrumentality. While the U.S. government is able to provide financial support
to U.S. government-sponsored agencies or instrumentalities, no assurance can be
given that it will always do so. Such securities are neither issued nor
guaranteed by the U.S. Treasury.
Foreign
Securities Risk:
Investing in foreign securities poses additional risks since political and
economic events unique in a country or region will affect those markets and
their issuers, while such events may not necessarily affect the U.S. economy or
issuers located in the United States. In addition, investments in foreign
securities are generally denominated in foreign currency. As a result, changes
in the value of those currencies compared to the U.S. dollar may affect the
value of the Fund’s investments. These currency movements may happen separately
from, or in response to, events that do not otherwise affect the value of the
security in the issuer’s home country. There is a risk that issuers of foreign
securities may not be subject to accounting standards or governmental
supervision comparable to those to which U.S. companies are subject and that
less public information about their operations may exist. There is risk
associated with the clearance and settlement procedures in non-U.S. markets,
which may be unable to keep pace with the volume of securities transactions and
may cause delays. Foreign markets may be less liquid and more volatile than U.S.
markets and offer less protection to investors. Over-the-counter securities may
also be less liquid than exchange-traded securities. Investments in securities
of foreign issuers may be subject to foreign withholding and other taxes. In
addition, it may be more difficult and costly for the Fund to seek recovery from
an issuer located outside the United States in the event of a default on a
portfolio security or an issuer’s insolvency proceeding. To the extent a Fund
focuses its investments in a single country or only a few countries in a
particular geographic region, economic, political, regulatory or other
conditions affecting such country or region may have a greater impact on Fund
performance relative to a more geographically diversified fund.
While
a Fund’s net assets are valued in U.S. dollars, the securities of foreign
companies are frequently denominated in foreign currencies. Thus, a change in
the value of a foreign currency against the U.S. dollar will result in a
corresponding change in value of securities denominated in that currency. Some
of the factors that may impair the investments denominated in a foreign currency
are: (1) it may be expensive to convert foreign currencies into U.S. dollars and
vice versa; (2) complex political and economic factors may significantly affect
the values of various currencies, including U.S. dollars, and their exchange
rates; (3) government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts, since
exchange rates may not be free to fluctuate in response to other market forces;
(4) there may be no systematic reporting of last sale information for foreign
currencies or regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis; (5) available
quotation information is generally representative of very large round-lot
transactions in the inter-bank market and thus may not reflect exchange rates
for smaller odd-lot transactions (less than $1 million) where rates may be less
favorable; and (6) the inter-bank market in foreign currencies is a global,
around-the-clock market. To the extent that a market is closed while the markets
for the underlying currencies remain open, certain markets may not always
reflect significant price and rate movements.
•Emerging
Markets Risk: Investments
in the securities of issuers based in countries with emerging-market economies
are subject to greater levels of risk and uncertainty than investments in
more-developed foreign markets, since emerging-market securities may present
market, credit, currency, liquidity, legal, political, and other risks greater
than, or in addition to, the risks of investing in developed foreign countries.
These risks include high currency exchange-rate fluctuations; increased risk of
default (including both government and private issuers); greater social,
economic, and political uncertainty and instability (including the risk of war);
more substantial governmental involvement in the economy; less governmental
supervision and regulation of the securities markets and participants in those
markets; controls on foreign investment and limitations on repatriation of
invested capital and on a fund’s ability to exchange local currencies for U.S.
dollars; unavailability of currency hedging techniques in certain
emerging-market countries; the fact that companies in emerging-market countries
may be newly organized, smaller, and less seasoned; the difference in, or lack
of, auditing and financial reporting requirements or standards, which may result
in the unavailability of material information about issuers; different clearance
and settlement procedures, which may be unable to keep pace with the volume of
securities transactions or otherwise make it difficult to engage in such
transactions; difficulties in obtaining and/or enforcing legal judgments against
non-U.S. companies and non-U.S. persons, including company directors and
officers, in foreign jurisdictions; and significantly smaller market
capitalizations of emerging-market issuers. In addition, shareholders of
emerging market issuers, such as the Fund, often have limited rights and few
practical remedies in emerging markets. Finally, the risks
associated
with investments in emerging markets often are significant, and vary from
jurisdiction to jurisdiction and company to company.
•Sovereign
Debt Risk: The
actions of foreign governments concerning their respective economies could have
an important effect on their ability or willingness to service their sovereign
debt. Such actions could have significant effects on market conditions and on
the prices of securities and instruments held by a Fund, including the
securities and instruments of foreign private issuers. Factors which may
influence the ability or willingness of foreign sovereigns to service debt
include, but are not limited to: the availability of sufficient foreign exchange
on the date payment is due; the relative size of its debt service burden to the
economy as a whole; its balance of payments (including export performance) and
cash flow situation; its access to international credits and investments;
fluctuations in interest and currency rates and reserves; and its government's
policies towards the International Monetary Fund, the World Bank, and other
international agencies. If a foreign sovereign defaults on all or a portion of
its foreign debt, a Fund may have limited legal recourse against the issuer
and/or guarantor. In some cases, remedies must be pursued in the courts of the
defaulting party itself, and the ability of the holder of foreign sovereign debt
securities to obtain recourse may be subject to the political climate in the
prevailing country which could substantially delay or defeat any
recovery.
Management
Risk: In
managing a Fund’s portfolio, the Advisor may engage one or more sub-advisors to
make investment decisions on a portion of or the entire portfolio. There
is a risk that the Advisor may be unable to identify and retain sub-advisors who
achieve superior investment returns relative to other similar
sub-advisors. The value of your investment may decrease if the sub-advisor
incorrectly judges the attractiveness, value, or market trends affecting a
particular security, issuer, industry, or sector.
Mortgage
Dollar Roll Risk:
Mortgage “dollar rolls” are transactions in which mortgage-backed securities are
sold for delivery in the current month and the seller simultaneously contracts
to repurchase substantially similar securities on a specified future date. The
difference between the sale price and the purchase price (plus any interest
earned on the cash proceeds of the sale) is netted against the interest income
foregone on the securities sold to arrive at an implied borrowing rate.
Alternatively, the sale and purchase transactions can be executed at the same
price, with the Fund being paid a fee as consideration for entering into the
commitment to purchase. If the broker-dealer to whom the Fund sells the security
becomes insolvent, the Fund’s right to repurchase the security may be
restricted. Other risks involved in entering into mortgage dollar rolls include
the risk that the value of the security may change adversely over the term of
the mortgage dollar roll and that the security the Fund is required to
repurchase may be worth less than the security that the Fund originally
held.
Municipal
Securities Risk:
The value of municipal securities may be affected by uncertainties in the
municipal market related to legislation or litigation involving the taxation of
municipal securities or the rights of municipal securities holders in the event
of a bankruptcy. In addition, the ongoing issues facing the national economy may
negatively impact the economic performance of issuers of municipal securities,
and may increase the likelihood that issuers of securities in which the Fund may
invest may be unable to meet their obligations. Proposals to restrict or
eliminate the federal income tax exemption for interest on municipal securities
are introduced before Congress from time to time. Proposals also may be
introduced before state legislatures that would affect the state tax treatment
of a municipal fund's distributions. If such proposals were enacted, the
availability of municipal securities and the value of a municipal fund's
holdings would be affected, and the Trustees would reevaluate the Fund's
investment goals and policies. Municipal bankruptcies are relatively rare, and
certain provisions of the U.S. Bankruptcy Code governing such bankruptcies are
unclear and remain untested. Further, the application of state law to municipal
issuers could produce varying results among the states or among municipal
securities issuers within a state. The ability of a municipal issuer to seek
bankruptcy protection may be subject to the authorization of the executive or
legislative branch of the state's government, and a municipal bankruptcy may be
subject to challenge in the state's courts. These legal uncertainties
could affect the municipal securities market generally, certain specific
segments of the market, or the relative credit quality of particular securities.
There is also the possibility that as a result of litigation or other
conditions, the power or ability of issuers to meet their obligations for the
payment of interest and principal on their municipal securities may be
materially affected or their obligations may be found to be invalid or
unenforceable. Such litigation or conditions may from time to time have the
effect of introducing uncertainties in the market for municipal securities or
certain segments thereof, or of materially affecting the credit risk with
respect to particular bonds. Adverse economic, business, legal or political
developments might affect all or a substantial portion of the Fund's municipal
securities in the same manner. Also, some municipal obligations may be backed by
a letter of credit issued by a bank or other financial institution. Adverse
developments affecting banks or other financial institutions could have a
negative effect on the value of the Fund's portfolio securities.
In
making investments, the Fund and the investment sub-advisor will rely on the
opinion of issuers' bond counsel. Neither the Fund nor the sub-advisor will
independently review the basis for those tax opinions. If any of those tax
opinions are ultimately determined to be incorrect, the Fund and its
shareholders could be subject to substantial tax liabilities. Certain provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), relating to the
issuance of municipal obligations may reduce the
volume
of municipal securities that qualify for federal tax exemptions. Proposals that
may further restrict or eliminate the income tax exemptions for interest on
municipal obligations may be introduced in the future. If any such proposal
became law, it may reduce the number of municipal obligations available for
purchase by the Fund and could adversely affect the Fund's shareholders by
subjecting the income from the Fund to tax. If this occurs, the Fund would
reevaluate its investment goals and policies to the extent that legislative or
legal developments materially affect the Fund.
In
order to be tax exempt, tax-exempt securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable. The Fund may invest
in securities whose interest is subject to state tax, federal regular income
tax, or AMT. Consult your tax professional for more information.
The
costs associated with combating the coronavirus (COVID-19) pandemic and the
negative impact on tax revenues has adversely affected the financial condition
of many states and their political subdivisions. The effects of this pandemic
could affect the ability of states and their political subdivisions to make
payments on debt obligations when due and could adversely impact the value of
their bonds, which could negatively impact the performance of the
Fund.
Non-Diversification
Risk: A
non-diversified fund may invest a significant percentage of its assets in the
securities of a limited number of issuers, subject to federal income tax
restrictions relating to the fund’s qualification as a regulated investment
company. Because a higher percentage of a non-diversified fund’s holdings may be
invested in the securities of a limited number of issuers, the fund may be more
susceptible to risks associated with a single economic, business, political or
regulatory event than a diversified fund.
Portfolio
Turnover Risk: Each
Fund may sell its portfolio securities, regardless of the length of time that
they have been held, if the sub-advisor determines that it would be in the
Fund’s best interest to do so. It may be appropriate to buy or sell portfolio
securities due to economic, market, or other factors that are not within the
sub-advisor’s control. These transactions will increase a Fund’s “portfolio
turnover.” A 100% portfolio turnover rate would occur if all of the securities
in the Fund were replaced during a given period. Frequent and active trading may
result in greater expenses to the Fund, which may lower the Fund’s performance
and may result in the realization of substantial capital gains, including net
short-term capital gains. As a result, high portfolio turnover may reduce the
Fund’s returns.
Repurchase
Agreement Risk:
Under all repurchase agreements entered into by the Fund, the Fund’s custodian
or its agent must take possession of the underlying collateral. However,
if the counterparty defaults, the Fund could realize a loss on the sale of the
underlying security to the extent that the proceeds of sale, including accrued
interest, are less than the resale price provided in the agreement including
interest. In addition, even though the Bankruptcy Code provides protection
for most repurchase agreements, if the seller should be involved in bankruptcy
or insolvency proceedings, the Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund
is treated as an unsecured creditor and is required to return the underlying
security to the seller’s estate. Repurchase agreements are considered
loans by the Fund.
Sector
Focus Risk:
A fund that focuses its investments in the securities of a particular market
sector is subject to the risk that adverse circumstances will have a greater
impact on the fund than a fund that does not focus its investments in a
particular sector. It is possible that economic, business or political
developments or other changes affecting one security in the sector of focus will
affect other securities in that sector of focus in the same manner, thereby
increasing the risk of such investments.
Value
Investing Risk: Value
investing presents the risk that a fund’s security holdings may never reach
their full market value because the market fails to recognize what the portfolio
managers consider the true business value or because the portfolio managers have
misjudged those values. In addition, value investing may fall out of favor and
underperform growth or other styles of investing during given certain periods.
There
is also the risk that the portfolio managers may determine to sell a position
prior to it reaching its intrinsic value.
THE
FUNDS’ MANAGEMENT
Investment
Advisor
Touchstone
Advisors, Inc. ("Touchstone Advisors"),
located at
303
Broadway, Suite 1100, Cincinnati, Ohio 45202, serves as the Funds'
investment advisor.
Touchstone
Advisors has been a registered investment advisor since 1994. As of March
31, 2022, Touchstone Advisors had approximately $30.8 billion in assets under
management. As the Funds’ investment advisor, Touchstone Advisors reviews,
supervises, and administers the Funds’ investment programs and also ensures
compliance with the Funds’ investment policies and guidelines.
Touchstone
Advisors is responsible for selecting each Fund’s sub-advisor(s), subject to
approval by the Board. Touchstone Advisors selects a sub-advisor that has
shown good investment performance in its areas of expertise. Touchstone
Advisors considers various factors in evaluating a sub-advisor, including:
•Level
of knowledge and skill;
•Performance
as compared to its peers or benchmark;
•Consistency
of performance over 5 years or more;
•Level
of compliance with investment rules and strategies;
•Employees,
facilities and financial strength; and
•Quality
of service.
Touchstone
Advisors will also continually monitor each sub-advisor’s performance through
various analyses and through in-person, telephone, and written consultations
with a sub-advisor. Touchstone Advisors discusses its expectations for
performance with each sub-advisor and provides evaluations and recommendations
to the Board of Trustees, including whether or not a sub-advisor’s contract
should be renewed, modified, or terminated.
The
SEC has granted an exemptive order that permits Touchstone ETF Trust (the
"Trust") or Touchstone Advisors, under certain conditions, to select or change
unaffiliated sub-advisors, enter into new sub-advisory agreements, or amend
existing sub-advisory agreements without first obtaining shareholder
approval. The Funds must still obtain shareholder approval of any
sub-advisory agreement with a sub-advisor affiliated with the Trust or
Touchstone Advisors other than by reason of serving as a sub-advisor to one or
more Touchstone Funds. Shareholders of a Fund will be notified of any changes to
its sub-advisor.
The
Trust has applied for and intends to rely upon an order from the SEC that will
permit the Advisor, subject to approval by the Board of Trustees, to appoint an
affiliated sub-advisor or change the terms of such a sub-advisory agreement
without obtaining shareholder approval. Once received, the Trust would be
permitted to rely upon the SEC order to change affiliated sub-advisors, or the
fees paid to such a sub-advisor, without the expense and delays associated with
obtaining shareholder approval of the change. This order does not, however,
permit the Advisor to increase the aggregate advisory fee rate of each Fund
without the approval of the shareholders.
Two
or more sub-advisors may manage a Fund, from time to time, with each managing a
portion of the Fund’s assets. If a Fund has more than one sub-advisor,
Touchstone Advisors allocates how much of a Fund’s assets are managed by each
sub-advisor. Touchstone Advisors may change these allocations from time to time,
often based upon the results of its evaluations of the sub-advisors.
Touchstone
Advisors is also responsible for running all of the operations of the Funds,
except those that are subcontracted to a sub-advisor, custodian, transfer agent,
sub-administrative agent or other parties. For its services, Touchstone
Advisors is entitled to receive an investment advisory fee from the Funds at an
annualized rate, based on the average daily net assets of each Fund.
Touchstone Advisors pays sub-advisory fees to the sub-advisor from its advisory
fee.
|
|
|
|
|
|
|
|
|
Fund |
|
Annual
Investment Advisory Fee Rate |
Dividend
Select ETF |
|
0.55%
on the first $1 billion; and 0.50% on assets over $1 billion
|
Strategic
Income Opportunities ETF |
|
0.55%
on the first $250 million; 0.50% on the next $250 million;
and 0.45% on assets over $500 million |
US
Large Cap Focused ETF |
|
0.70%
on the first $500 million; 0.65% on the next $300 million; 0.60%
on the next $200 million; 0.50% on the next $1 billion; and 0.40%
on assets over $2 billion |
Ultra
Short Income ETF |
|
0.25%
on all assets |
Advisory
and Sub-Advisory Agreement Approval.
A discussion of the basis for the Board's approval of the Funds’ advisory and
sub-advisory agreements will be included in the Trust’s December 31, 2022
annual report, once available.
Fort
Washington Investment Advisors, Inc. (“Fort Washington”) is an affiliate of
Touchstone Advisors and serves as sub-advisor to the Funds. Therefore,
Touchstone Advisors may have a conflict of interest when making decisions to
keep Fort Washington as sub-advisor to these Funds. The Board will review
Touchstone Advisors’ decisions, with respect to the retention of Fort
Washington, to reduce the possibility of a conflict of interest
situation.
Additional
Information
The
Board oversees generally the operations of each Fund and the Trust. The Trust
enters into contractual arrangements with various parties, including, among
others, the Funds' investment advisor, custodian, transfer agent, accountants
and distributor, who provide services to each Fund. Shareholders are not parties
to, or intended (or “third-party”) beneficiaries of, any of those contractual
arrangements, and those contractual arrangements are not intended to create in
any such individual shareholder or group of shareholders any right to enforce
the terms of the contractual arrangements against the service providers or to
seek any remedy under the contractual arrangements against the service
providers, either directly or on behalf of the Trust.
This
prospectus provides information concerning the Trust and the Funds that you
should consider in determining whether to purchase shares of a Fund. The Funds
may make changes to this information from time to time. Neither this prospectus,
the SAI or any document filed as an exhibit to the Trust’s registration
statement, is intended to, nor does it, give rise to an agreement or contract
between the Trust or a Fund and its shareholders, or give rise to any contract
or other rights in any such individual shareholder or group of shareholders or
other person other than any rights conferred explicitly by federal or state
securities laws that may not be waived.
Sub-Advisor
and Portfolio Managers
Listed
below is the sub-advisor and its respective portfolio managers that have
responsibility for the day-to-day management of each Fund. A brief biographical
description of each portfolio manager is also provided. The SAI provides
additional information about the portfolio managers’ investments in the Fund or
Funds that they manage, a description of their compensation structure, and
information regarding other accounts that they manage.
Fort
Washington Investment Advisors, Inc. (“Fort Washington”), located
at 303 Broadway, Suite 1200, Cincinnati, Ohio 45202, serves as the
sub-advisor to the Funds. As the sub-advisor, Fort Washington makes
investment decisions for the Funds and also ensures compliance with the
Touchstone Funds’ investment policies and guidelines. Fort Washington is
controlled by Western & Southern Mutual Holding Company. Jill T.
McGruder and E. Blake Moore, Jr., interested Trustees of the Trust, may be
deemed to be affiliates of Fort Washington. As of March 31, 2022, Fort
Washington had approximately $75.8 billion in assets under management, which
includes $4.8 billion in commitments managed by Fort Washington Capital Partners
Group, a division of Fort Washington.
Dividend
Select ETF
Austin
R. Kummer, CFA,
Vice President and Senior Portfolio Manager. Mr. Kummer joined Fort Washington
in 2013. He focuses on portfolio management and research functions within
Multi-Sector Fixed Income and Dividend Equity strategies. He also contributes to
asset allocation and macro positioning for the firm and has shared
responsibility for the company’s Private Debt portfolio. Mr. Kummer received a
BBA from Ohio University in Finance and Business Economics and an MBA in Finance
from Xavier University. He is a CFA charterholder.
Brendan
M. White, CFA. Mr.
White
is
a Senior Vice President and Co-Chief Investment Officer of Fort Washington. In
this role, Mr. White is responsible for overseeing the investment activity for
all assets under management with emphasis on all fixed-income functions while
collaborating with James Vance, Co-Chief Investment Officer, on all investment
decisions. Mr. White also shares responsibility for asset allocation and
macro-positioning for both Fort Washington and Western & Southern Financial
Group. Mr. White joined Fort Washington in 1993 and has more than 30 years of
industry experience. Prior to joining the firm, he was with Ohio Casualty
Corporation where he was a securities analyst supporting the High Yield and
Mortgage-Backed Securities portfolios. He is a CFA charterholder.
James
E. Wilhelm, Jr. Mr.
Wilhelm joined Fort Washington in 2002. Mr. Wilhelm has investment experience
dating back to 1993. He began as a Senior Equity Analyst in 2002 and was named
Portfolio Manager in 2005. He became Assistant Vice President in 2007, Vice
President in 2008, Managing Director in 2014, and was Head of Public Equities
from 2015 to 2020.
Prior
Performance for Similar Accounts Managed by Fort Washington
The
following table sets forth composite performance data relating to the historical
performance of all accounts (except as noted below) managed by Fort Washington
for the periods indicated with investment objectives, policies, strategies, and
risks substantially similar to those of the Dividend Select ETF. The data is
provided to illustrate the past performance of Fort Washington in managing
substantially similar accounts as measured against market indices and does not
represent the performance of the Fund. The following accounts are excluded from
the composite: accounts that do not pay fees, accounts that are not fully
discretionary, and accounts that have less than $25 million under management,
which is the minimum amount necessary to fully implement the investment
strategy.
The
following performance information is not the Dividend Select ETF’s performance,
should not be considered indicative of the past or future performance of the
Fund, and should not be considered a substitute for the Fund’s
performance.
Average
Annual Total Returns
For
the periods ended December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year |
|
Since
Inception* |
Fort
Washington Dividend Select Equity Composite (Gross) |
25.84% |
|
18.12% |
Fort
Washington Dividend Select Equity Composite
(Net) |
25.78% |
|
18.06% |
Russell
1000® Value Index
(reflects no deductions for fees, expenses or taxes) |
25.16% |
|
13.43% |
*The
inception date for the Composite is January 1, 2020.
The
Fort Washington Dividend Select Equity Composite (the “Composite”) represents
the investment performance track record of Fort Washington's dividend select
equity strategy, which is the strategy that will be used to manage the Fund. The
accounts comprising the Composite are not subject to the same types of expenses
to which the Fund is subject, certain investment limitations, diversification
requirements, and other restrictions imposed by the 1940 Act and the Internal
Revenue Code of 1986, as amended. Thus, the performance results for the account
could have been adversely affected if the account had been regulated as
investment companies under federal securities and tax laws. The method for
computing historical performance information for the Composite differs from the
SEC's method for computing the historical performance of the Dividend Select
ETF.
The
Composite’s returns shown above are presented gross and net of management fees
and include the reinvestment of all income. Gross returns will be reduced by
investment advisory fees and other expenses that may be incurred in the
management of the account. Net of fee performance was calculated using all
actual fees and expenses including the management fee. Individual portfolio
returns are calculated on a daily valuation basis. These fees and expenses are
not
reflective
of the fees and expenses of the Dividend Select ETF and may vary depending on,
among other things, the applicable fee schedule and portfolio size. All returns
are expressed in U.S. dollars. The Dividend Select ETF’s fees are reflected in
its fee table in the "Summary" section of this prospectus.
The
performance information for the Composite was calculated in accordance with
Global Investment Performance Standards (GIPS®). The Composite performance
information is intended to illustrate past performance for substantially
similarly managed accounts by Fort Washington. Past performance of the Composite
is not indicative of future results. As with any investment there is always the
potential for gains as well as the possibility of losses. The Composite
performance information presented herein has been calculated and provided by the
Dividend Select ETF''s sub-advisor.
Strategic
Income Opportunities ETF
Daniel
J. Carter, CFA,
Managing Director and Senior Portfolio Manager. Mr. Carter began as an Assistant
Portfolio Manager of Fort Washington in 2000 and has been an Assistant Vice
President and Portfolio Manager since 2007. Mr. Carter’s responsibilities
include portfolio management of diversified broad market fixed income portfolios
and the Emerging Markets Debt strategy. He also serves as an asset specialist
for the Government (Treasury/Agency/TIPS) sectors within the fixed income
markets. Mr. Carter joined the firm in 2000 as a credit analyst. Prior to
joining Fort Washington, Mr. Carter was an analyst focusing on fixed income with
the Ohio Casualty Group and Provident Financial Group. He received a BS in
Business (Finance and Accounting) from Miami University and is a CFA
charterholder.
Austin
R. Kummer, CFA,
Vice President and Senior Portfolio Manager. Mr. Kummer joined Fort Washington
in 2013. He focuses on portfolio management and research functions within
Multi-Sector Fixed Income and Dividend Equity strategies. He also contributes to
asset allocation and macro positioning for the firm and has shared
responsibility for the company’s Private Debt portfolio. Mr. Kummer received a
BBA from Ohio University in Finance and Business Economics and an MBA in Finance
from Xavier University. He is a CFA charterholder.
Brendan
M. White, CFA, is
a Senior Vice President and Co-Chief Investment Officer of Fort Washington. In
this role, Mr. White is responsible for overseeing the investment activity for
all assets under management with emphasis on all fixed-income functions while
collaborating with James Vance, Co-Chief Investment Officer, on all investment
decisions. Mr. White also shares responsibility for asset allocation and
macro-positioning for both Fort Washington and Western & Southern Financial
Group. Mr. White joined Fort Washington in 1993 and has more than 30 years of
industry experience. Prior to joining the firm, he was with Ohio Casualty
Corporation where he was a securities analyst supporting the High Yield and
Mortgage-Backed Securities portfolios. He is a CFA charterholder.
Prior
Performance for Similar Accounts Managed by Fort Washington
The
following table sets forth composite performance data relating to the historical
performance of all accounts (except as noted below) managed by Fort Washington
for the periods indicated with investment objectives, policies, strategies, and
risks substantially similar to those of the Strategic Income Opportunities ETF.
The data is provided to illustrate the past performance of Fort Washington in
managing substantially similar accounts as measured against market indices and
does not represent the performance of the Fund. The following accounts are
excluded from the composite: accounts that do not pay fees, accounts that are
not fully discretionary, and accounts that have less than $25 million under
management, which is the minimum amount necessary to fully implement the
investment strategy.
The
following performance information is not the Strategic Income Opportunities
ETF’s performance, should not be considered indicative of the past or future
performance of the Fund, and should not be considered a substitute for the
Fund’s performance.
Average
Annual Total Returns
For
the periods ended December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
|
3
Years |
|
Since
Inception* |
Fort
Washington Strategic Income Composite (Gross) |
3.24 |
% |
|
8.85 |
% |
|
6.66 |
% |
Fort
Washington Strategic Income Composite (Net) |
2.99 |
% |
|
8.66 |
% |
|
6.51 |
% |
Bloomberg
U.S. Aggregate Bond Index (reflects
no deductions for fees, expenses or taxes) |
(1.54) |
% |
|
4.79 |
% |
|
3.46 |
% |
*The
inception date for the Composite is July 1, 2017.
The
Fort Washington Strategic Income Composite
(the “Composite”) represents the investment performance track record of Fort
Washington's strategic income strategy, which is the strategy that will be used
to manage the Fund. The accounts comprising the Composite are not subject to the
same types of expenses to which the Fund is subject, certain investment
limitations, diversification requirements, and other restrictions imposed by the
1940 Act and the Internal Revenue Code of 1986, as amended. Thus, the
performance results for the account could have been adversely affected if the
account had been regulated as investment companies under federal securities and
tax laws. The method for computing historical performance information for the
Composite differs from the SEC's method for computing the historical performance
of the Strategic Income Opportunities ETF.
The
Composite’s returns shown above are presented gross and net of management fees
and include the reinvestment of all income. Gross returns will be reduced by
investment advisory fees and other expenses that may be incurred in the
management of the account. Net of fee performance was calculated using all
actual fees and expenses including the management fee. Individual portfolio
returns are calculated on a daily valuation basis. These fees and expenses are
not reflective of the fees and expenses of the Strategic Income Opportunities
ETF and may vary depending on, among other things, the applicable fee schedule
and portfolio size. All returns are expressed in U.S. dollars. The Strategic
Income Opportunities ETF’s fees are reflected in its fee table in the "Summary"
section of this prospectus.
The
performance information for the Composite was calculated in accordance with
Global Investment Performance Standards (GIPS®). The Composite performance
information is intended to illustrate past performance for substantially
similarly managed accounts by Fort Washington. Past performance of the Composite
is not indicative of future results. As with any investment there is always the
potential for gains as well as the possibility of losses. The Composite
performance information presented herein has been calculated and provided by the
Strategic Income Opportunities ETF''s sub-advisor.
US
Large Cap Focused ETF
James
E. Wilhelm, Jr.,
Managing Director and Senior Portfolio Manager, joined Fort Washington in 2002.
He has investment experience dating back to 1993. He began as a Senior
Equity Analyst in 2002 and was named Portfolio Manager in 2005. He became
Assistant Vice President in 2007, Vice President in 2008, Managing Director in
2014, and was Head of Public Equities from 2015 to 2020.
Ultra
Short Income ETF
Scott
D. Weston ,
Managing Director and Senior Portfolio Manager, joined Fort Washington in
September 1999. He is also Fort Washington’s head of structured
products and lead sector specialist in collateralized loan
obligations. Mr. Weston is a graduate of the University of Utah with a
BS in Political Science and the University of Cincinnati with an MBA in
Finance. He has investment experience dating back to 1992 and is jointly
and primarily responsible for the management of the Fund.
Brent
A. Miller ,
CFA, Vice President and Senior Portfolio Manager, joined Fort Washington in
June 2001 and is jointly and primarily responsible for the management of
the Fund. He became a portfolio manager in 2008 and was an assistant
portfolio manager prior to 2008. He is also lead sector specialist in
mortgage-backed securities. Mr. Miller graduated Magna Cum Laude from the
University of Evansville with a BS in Mathematics. He has investment
experience dating back to 1999. He is a CFA charterholder.
Laura
L. Mayfield ,
Senior Portfolio Manager, joined Fort Washington in 2007. She
became Senior Portfolio Manager in 2020 and is lead sector specialist in
asset-backed securities. Ms. Mayfield graduated from Olivet Nazarene University
with a BA in Marketing and Spanish, and received her MBA from Xavier
University. She
has investment experience dating back to 2010 and is jointly and primarily
responsible for the management of the Fund.
DISTRIBUTION
AND FINANCIAL INTERMEDIARIES
Distributor.
Foreside
Fund Services, LLC (the "Distributor") serves as the distributor of each Fund.
Touchstone Advisors will pay from its own resources and not from a Fund's assets
the Distributor for distribution-related services provided to the Funds.
Rule
12b-1 Distribution Plans.
The Board has adopted a Rule 12b-1 plan, which allows payment of marketing fees
of up to 0.25% of a Fund’s average net assets; however, the Funds' Board of
Trustees has not authorized such payments to be made. The Rule 12b-1 plan is
intended to remain dormant. None of the Funds will accrue or incur any Rule
12b-1 fees under the Rule 12b-1 plan until such future date as the Board
determines to activate the plan.
Additional
Compensation to Financial Intermediaries.
Touchstone Advisors may pay certain broker-dealers, banks and other financial
intermediaries, from its own resources, that
support the sale of Fund shares or provide services to Fund shareholders or
for
participating in activities that are designed to make registered representatives
and other professionals more knowledgeable about exchange traded products,
including each Fund, or for other activities such as participating in marketing
activities and presentations, educational training programs, conferences, the
development of technology platforms and reporting systems.
The amounts of these payments could be significant, and may create an incentive
for the financial intermediary or its employees or associated persons to
recommend or sell shares of the Fund to you. Not all financial intermediaries
receive such payments, and the amount of compensation may vary by intermediary.
In some cases, such payments may be made by or funded from the resources of
companies affiliated with Touchstone Advisors. These payments are not reflected
in the fees and expenses listed in the fee table sections of the Funds'
Prospectus and described above because they are not paid by the
Fund.
For
more information on payment arrangements, please see the section entitled “The
Advisor” in the SAI.
BUYING
AND SELLING SHARES
Choosing
the Appropriate Investments to Match Your Goals.
Investing well requires a plan. We recommend that you meet with your
financial advisor to plan a strategy that will best meet your financial
goals.
Individual
Shares
Shares
of the Funds are listed for trading on a national securities exchange. Shares of
the Dividend Select ETF (ticker: DVND) and the Strategic Income Opportunities
ETF (ticker: SIO) are principally listed on NYSE Arca, Inc. ("NYSE Arca") and
shares of US Large Cap Focused ETF (ticker: LCF) and the Ultra Short Income ETF
(ticker: TUSI) are principally listed on Cboe BZX Exchange, Inc. ("Cboe BZX").
NYSE Arca and Cboe BZX are referred to individually as an "Exchange" and
together as the "Exchanges".
Any
amount of shares can be bought and sold throughout the trading day like shares
of other publicly traded companies, and when you buy or sell a Fund’s shares in
the secondary market, you will pay or receive the market price. However, there
can be no guarantee that an active trading market will develop or be maintained,
or that the Fund shares listing will continue or remain unchanged. Buying or
selling a Fund’s shares involves certain costs that apply to all securities
transactions. For example, when buying or selling shares of a Fund through a
financial intermediary, you may incur a brokerage commission or other charges
determined by your financial intermediary. The commission is frequently a fixed
amount and may be a significant cost for investors seeking to buy or sell small
amounts of shares. In addition, you may also incur the cost of the spread (the
difference between the bid price (the price secondary market investors are
willing to pay for shares) and the ask price (the price at which secondary
market investors are willing to sell shares)). The spread varies over time for
shares of a Fund based on its trading volume and market liquidity, and is
generally less if a Fund has more trading volume and market liquidity and more
if a Fund has less trading volume and market liquidity.
Creations
and Redemptions
Shares
of the Funds may only be acquired through the Distributor and redeemed directly
with the Fund by or through an Authorized Participant in Creation Units or
multiples thereof. “Authorized Participants” are registered clearing agents that
enter into an agreement with the Distributor to transact in Creation Units. Once
created, shares of the Funds normally trade in the secondary market in amounts
less than a Creation Unit. See the "Purchases and Redemptions" section of the
SAI for more information on Creation Units.
The
Funds are open on every “Business Day,” which is any day a Fund's respective
Exchange is open. The Exchanges are open for trading Monday through Friday and
are generally closed on the following holidays: New Year’s Day, Martin Luther
King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Juneteenth,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On days when an
Exchange closes earlier than normal, a Fund may require orders to create or
redeem Creation Units to be placed earlier in the day. See the “Purchases and
Redemptions” section of the SAI.
Purchases
and redemptions of Creation Units will take place in-kind and/or for cash at the
discretion of the Funds. The determination of whether purchases and redemptions
of Creation Units will be for cash or in-kind depends primarily on the
regulatory
requirements and settlement mechanisms relevant to a Fund’s portfolio holdings
and a Fund is not limited to engaging in in-kind transactions to any particular
market circumstances. As further described in the SAI, Creation Units typically
are issued on a two Business Days (“T+2”) basis after a purchase order has been
received in good order and the transfer of good title to a Fund of any in-kind
securities and/or cash required to purchase a Creation Unit have been completed
(subject to certain exceptions). Similarly, and also as further described in the
SAI, deliveries of redemption proceeds by the Fund generally will be made on a
T+2 basis after a redemption order has been received in good order and the
requisite number of Fund shares have been delivered (subject to certain
exceptions). The Funds reserve the right to settle Creation Unit transactions on
a basis other than T+2 in order to, among other matters, accommodate non-U.S.
market holiday schedules, closures and settlement cycles, to account for
different treatment among non-U.S. and U.S. markets of dividend record dates and
ex-dividend dates (i.e., the last day the holder of a security can sell the
security and still receive dividends payable on the security) and in certain
other circumstances. The Funds may delay settlement for up to 15 days from the
date an order has been submitted in good order and the requisite cash and/or
assets delivered to the relevant Fund to accommodate foreign holidays, as
further described in the SAI, and otherwise may delay redemptions up to seven
days or longer as permitted by applicable law, regulations and interpretations,
such as where unusual market conditions affect the NYSE Arca or Cboe BZX, as
applicable, or an emergency exists which makes it impracticable for a Fund to
dispose of or value securities it owns or a Fund has received an SEC exemptive
order.
The
Funds intend to comply with the U.S. federal securities laws in accepting
securities for deposit and satisfying redemptions with redemption securities by,
among other means, assuring that any securities accepted for deposit and any
securities used to satisfy redemption requests will be sold in transactions that
would be exempt from registration under the Securities Act of 1933, as amended
(the "Securities Act"). Further, an Authorized Participant that is not a
“qualified institutional buyer,” as such term is defined under Rule 144A of the
Securities Act, will not be able to receive restricted securities eligible for
resale under Rule 144A.
For
more information on how to buy and sell shares of the Fund, contact Touchstone
Investments at (833)
368-7383.
Share
Trading Prices
The
trading prices of a Fund’s shares listed on its Exchange may differ from a
Fund’s daily NAV and will normally be affected by market forces, such as supply
and demand, economic conditions, the market value of a Fund’s disclosed
portfolio holdings and other factors. As a result, trading prices may be lower,
higher or the same as a Fund’s NAV and investors may pay more than NAV when
buying shares and receive less than NAV when selling shares through the
Exchanges.
Book
Entry
Shares
of the Funds 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 of the Funds and is recognized as the owner of
all shares for all purposes.
Investors
owning shares of the Funds are beneficial owners as shown on the records of DTC
or its participants. DTC serves as the securities depository for shares of the
Fund. DTC 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 exchange-traded
securities that you hold in book-entry or “street name” form.
Premium/Discount
Information
The
NAV of a Fund will fluctuate with changes in the market value of its portfolio
holdings. The market price of a Fund will fluctuate in accordance with changes
in its NAV, as well as market supply and demand.
There
may be differences — premiums or discounts — between the daily market prices on
secondary markets for shares of a Fund and a Fund’s NAV. NAV is the price per
share at which a Fund issues and redeems its shares in transactions with APs. A
Fund’s market price may be at, above or below its NAV. A premium is the amount
that a Fund is trading above the reported NAV, expressed as a percentage of the
NAV. A discount is the amount that a Fund is trading below the reported NAV,
expressed as a percentage of the NAV. A discount or premium could be
significant. Information regarding a Fund’s NAV, market price and daily premiums
or discounts can be found at TouchstoneInvestments.com/ETFs.
Continuous
Offering
The
method by which Creation Units of Fund shares are created and traded may raise
certain issues under applicable securities laws. Because new Creation Units of
shares are issued and sold by a Fund on an ongoing basis, a “distribution,” as
such term is used in the Securities Act, may occur at any point. Broker-dealers
and other persons are cautioned that some activities on their part may,
depending on the circumstances, result in their being deemed participants in a
distribution in a manner which could render them statutory underwriters and
subject them to the prospectus delivery requirement and liability provisions of
the Securities Act.
For
example, a broker-dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with the
Distributor, breaks them down into constituent shares and sells the shares
directly to customers or if it chooses to couple the creation of a supply of new
shares with an active selling effort involving solicitation of secondary market
demand for shares. A determination of whether one is an underwriter for purposes
of the Securities Act must take into account all the facts and circumstances
pertaining to the activities of the broker-dealer or its client in the
particular case, and the examples mentioned above should not be considered a
complete description of all the activities that could lead to a characterization
as an underwriter.
Broker-dealer
firms should also note that dealers who are not “underwriters” but are effecting
transactions in shares, whether or not participating in the distribution of
shares, are generally required to deliver a prospectus. This is because the
prospectus delivery exemption in Section 4(3) of the Securities Act is not
available in respect of such transactions as a result of Section 24(d) of the
1940 Act. As a result, broker-dealer firms should note that dealers who are not
“underwriters” but are participating in a distribution (as contrasted with
engaging in ordinary secondary market transactions) and thus dealing with the
shares that are part of an overallotment within the meaning of Section 4(3)(C)
of the Securities Act, will be unable to take advantage of the prospectus
delivery exemption provided by Section 4(3) of the Securities Act. For delivery
of prospectuses to exchange members, the prospectus delivery mechanism of Rule
153 under the Securities Act is only available with respect to transactions on a
national exchange.
Dealers
effecting transactions in a Fund’s shares, whether or not participating in this
distribution, are generally required to deliver a prospectus. This is in
addition to any obligation of dealers to deliver a prospectus when acting as
underwriters.
DISTRIBUTIONS
AND TAXES
The
Funds intend to distribute to their shareholders substantially all of their net
investment income and capital gains. Dividends, if any, of net investment
income are declared and paid annually by the US Large Cap Focused ETF, quarterly
by the Dividend Select ETF and monthly by both the Strategic Income
Opportunities ETF and the Ultra Short Income ETF. Each Fund makes distributions
of capital gains, if any, at least annually. If you own shares on a Fund’s
distribution record date, you will be entitled to receive the distribution.
Dividend payments are made through DTC participants and indirect participants to
beneficial owners then of record with proceeds received from a Fund.
No
dividend reinvestment service is provided by the Trust. Financial intermediaries
may make available the DTC book-entry Dividend Reinvestment Service for use by
beneficial owners of Fund shares for reinvestment of their dividend
distributions. Beneficial owners should contact their financial intermediary to
determine the availability and costs of the service and the details of
participation therein. Financial intermediaries may require beneficial owners to
adhere to specific procedures and timetables. If this service is available and
used, dividend distributions of both income and net capital gains will be
automatically reinvested in additional whole shares of the Fund purchased in the
secondary market.
A
Fund’s dividends and other distributions are taxable to shareholders (other than
retirement plans and other tax-exempt investors) whether received in cash or
reinvested in additional shares of the Fund. A dividend or distribution
paid by a Fund has the effect of reducing the NAV per share on the ex-dividend
date by the amount of the dividend or distribution. A dividend or
distribution declared shortly after a purchase of shares by an investor would,
therefore, represent, in substance, a return of capital to the shareholder with
respect to such shares even though it would be subject to federal income taxes.
For
most shareholders, a statement will be sent to you within 45 days after the end
of each year detailing the federal income tax status of your
distributions. Please see “Federal Income Tax Information” below for more
information on the federal income tax consequences of dividends and other
distributions made by a Fund.
Federal
Income Tax Information
The
tax information in this prospectus is provided only for general information
purposes for U.S. taxpayers and should not be considered as tax advice or relied
on by a shareholder or prospective investor.
General.
The
Funds intend to qualify annually to be treated as RICs under Subchapter M of
Chapter 1, Subtitle A of the Code. As such, the Funds will not be subject
to federal income taxes on the earnings they distribute to shareholders provided
they satisfy certain requirements and restrictions of the Code, one of which is
to distribute to a Fund’s shareholders substantially all of the Fund’s net
investment income and net short-term capital gains each year. If for any
taxable year a Fund fails to qualify as a RIC: (1) it will be subject to
tax in the same manner as an ordinary corporation and thus will be subject to
federal income tax at the corporate tax rate; and (2) distributions from
its earnings and profits (as determined under federal income tax principles)
will be taxable as ordinary dividend income and generally eligible for the
dividends-received deduction for corporate shareholders and for “qualified
dividend income” treatment for non-corporate shareholders. In addition, the Fund
could be required to recognize unrealized gains, pay substantial taxes and
interest and make substantial distributions before requalifying for RIC
treatment.
Taxes
on Creations and Redemptions of Creation Units. A
person who purchases a Creation Unit by exchanging securities in-kind generally
will recognize a gain or loss equal to the difference between (i) the sum of the
market value of the Creation Units at the time of the exchange and any net
amount of cash received by the Authorized Participant in the exchange and (ii)
the sum of the purchaser’s aggregate basis in the securities surrendered and any
net amount of cash paid for the Creation Units. A person who redeems Creation
Units and receives securities in-kind from a Fund will generally recognize a
gain or loss equal to the difference between the redeemer’s basis in the
Creation Units, and the aggregate market value of the securities received and
any net cash received. The IRS, however, may assert that a loss realized upon an
in-kind exchange of securities for Creation Units or an exchange of Creation
Units for securities cannot be deducted currently under the rules governing
“wash sales,” or on the basis that there has been no significant change in
economic position. Persons effecting in-kind creations or redemptions should
consult their own tax adviser with respect to these matters. The Funds have the
right to reject an order for Creation Units if the purchaser (or a group of
purchasers) would, upon obtaining the Fund shares so ordered, own 80% or more of
the outstanding shares of a Fund and if, pursuant to section 351 of the Code, a
Fund would have a basis in the deposit securities different from the market
value of such securities on the date of deposit. The Funds also have the right
to require information necessary to determine beneficial share ownership for
purposes of the 80% determinations.
Distributions.
The Funds will make distributions to you that may be taxed as ordinary income or
capital gains. The dividends and distributions you receive may be subject
to federal, foreign, state and local taxation, depending upon your tax
situation. Distributions are taxable whether you reinvest such
distributions in additional shares of the Fund or choose to receive cash.
Taxable Fund distributions are taxable to a shareholder even if the
distributions are paid from income or gains earned by a Fund prior to the
shareholder’s investment and, thus, were included in the price the shareholder
paid for the shares. For example, a shareholder who purchases shares on or just
before the record date of a Fund distribution will pay full price for the shares
and may receive a portion of the investment back as a taxable distribution.
Distributions declared by a Fund during October, November or
December to shareholders of record during such month and paid by
January 31 of the following year are treated for federal income tax
purposes as if received by shareholders and paid by the Fund on December 31
of the year in which the distribution was declared.
Ordinary
Income.
Net investment income, except for qualified dividend income and income
designated as tax-exempt, and short-term capital gains that are distributed to
you are taxable as ordinary income for federal income tax purposes regardless of
how long you have held your Fund shares. Certain dividends distributed to
non-corporate shareholders and designated by a Fund as “qualified dividend
income” are eligible for the long-term capital gains rate, provided certain
holding period and other requirements are satisfied.
Net
Capital Gains.
Net capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses) distributed to you, if any, are taxable as long-term
capital gains for federal income tax purposes regardless of how long you have
held your Fund shares.
Returns
of Capital. If
a Fund makes a distribution in excess of its current and accumulated earnings
and profits, the excess will be treated as a return of capital to the extent of
a shareholder’s basis in his or her shares, and thereafter as capital
gain. A return of capital is not taxable, but it reduces a shareholder’s
basis in his or her shares, thus reducing any loss or increasing any gain on a
subsequent taxable disposition by the shareholder of such shares.
Backup
Withholding.
A Fund (or a financial intermediary, such as a broker, through which a
shareholder holds Fund shares) may be required to withhold U.S. federal income
tax on all distributions and sales proceeds payable to shareholders who fail to
provide their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service (the
“IRS”) that they are subject to backup withholding.
Medicare
Tax.
An additional 3.8% Medicare tax is imposed on certain net investment income
(including dividends and distributions received from a Fund and net gains from
redemptions or other taxable dispositions of Fund shares) of U.S. individuals,
estates and trusts to the extent that such person’s “modified adjusted gross
income” (in the case of an individual) or “adjusted gross income” (in the case
of an estate or trust) exceeds a threshold amount.
Foreign
Taxes.
Income received by a Fund or underlying fund from sources within foreign
countries may be subject to foreign withholding and other taxes. If a Fund
qualifies (by having more than 50% of the value of its total assets at the close
of the taxable year consist of stock or securities in foreign corporations or by
being a qualified fund of funds) and elects to pass through foreign taxes paid
on its investments during the year, such taxes will be reported to you as
income. You may, however, be able to claim an offsetting tax credit or deduction
on your federal income tax return, depending on your particular circumstances
and provided you meet certain holding period and other requirements. Tax-exempt
holders of Fund shares, such as qualified tax-advantaged retirement plans, will
not benefit from such a deduction or credit.
Non-U.S.
Shareholders.
Non-U.S. shareholders may be subject to U.S. tax as a result of an investment in
a Fund. This prospectus does not discuss the U.S. or foreign tax
consequences of an investment by a non-U.S. shareholder in a
Fund. Accordingly, non-U.S. shareholders are advised to consult their own
tax advisors as to the U.S. and foreign tax consequences of an investment in a
Fund.
Statements
and Notices.
You will receive an annual statement outlining the tax status of your
distributions. You may also receive written notices of certain foreign
taxes paid by a Fund during the prior taxable year.
Important
Tax Reporting Considerations.
The Funds or brokers are required to report cost basis and holding period
information to both the IRS and shareholders for gross proceeds from the sales
of Fund shares purchased on or after January 1, 2012 ("covered shares").
This information is reported on Form 1099-B. Please consult your tax
adviser for additional information regarding cost basis reporting and your
situation.
This
section is only a summary of some important federal income tax considerations
that may affect your investment in a Fund. More information regarding
these considerations is included in the Funds’ SAI. You are urged and
advised to consult your own tax advisor regarding the effects of an investment
in a Fund on your tax situation, including the application of foreign, state,
local and other tax laws to your particular situation.
FINANCIAL
HIGHLIGHTS
Since
the Funds had not commenced operations as of the date of this prospectus,
financial highlights are not included in this prospectus.
TOUCHSTONE
INVESTMENTS*
INVESTMENT
ADVISOR
Touchstone
Advisors, Inc.*
303
Broadway, Suite 1100
Cincinnati,
Ohio 45202-4203
DISTRIBUTOR
Foreside
Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101
TRANSFER
AGENT
The
Bank of New York Mellon
6023
Airport Road
Oriskany,
New York 13424
*A
Member of Western & Southern Financial Group
The
following are federal trademark registrations and applications owned by either
IFS Financial Services, Inc. or Touchstone Advisors, Inc., each a member of
Western & Southern Financial Group: Touchstone, Touchstone Funds, Touchstone
Investments, the Touchstone Family of Funds, and Distinctively
Active.
303
Broadway, Suite 1100
Cincinnati,
Ohio 45202-4203
(833)
368-7383
For
investors who want more information about the Funds, the following documents are
available free upon request:
Statement
of Additional Information (“SAI”): The
SAI provides more detailed information about the Funds and is incorporated
herein by reference, which means it is legally a part of this
prospectus.
Annual/Semiannual
Reports (“Financial Reports”):
The Funds’ Financial Reports, when available, will provide additional
information about a Fund’s investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected a Fund’s performance during its most recent fiscal year.
You
can get free copies of the SAI, the Financial Reports, other information and
answers to your questions about the Funds by contacting your financial advisor
or by contacting Touchstone Investments at (833)
368-7383.
The SAI and Financial Reports are also available on the Touchstone Investments
website at: TouchstoneInvestments.com/Resources.
Reports
and other information about the Funds are available on the EDGAR database of the
SEC’s internet site at http://www.sec.gov. You may obtain copies of these
reports and other information after paying a duplicating fee, by sending an
e-mail request to: publicinfo@sec.gov.
Investment
Company Act File No. 811-23789