ANNUAL REPORT

OCTOBER 31, 2023

HENNESSY STANCE ESG ETF

This ETF is different from traditional ETFs.

 

Traditional ETFs tell the public what assets they hold each day. This ETF will not. This may create additional risks for your investment. For example:

 

• You may have to pay more money to trade the ETF’s shares. This ETF will provide less information to traders, who tend to charge more for trades when they have less information.

 

• The price you pay to buy ETF shares on an exchange may not match the value of the ETF’s portfolio. The same is true when you sell shares. These price differences may be greater for this ETF compared to other ETFs because it provides less information to traders.

 

• These additional risks may be even greater in bad or uncertain market conditions.

 

• The ETF will publish on its website each day a “Portfolio Reference Basket” designed to help trading in shares of the ETF. While the Portfolio Reference Basket includes all the names of the ETF’s holdings, it is not the ETF’s actual portfolio.

 

The differences between this ETF and other ETFs may also have advantages. By keeping certain information about the ETF portfolio secret, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF’s performance. If other traders are able to copy or predict the ETF’s investment strategy, however, this may hurt the ETF’s performance.

 

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Contents

 

HENNESSY FUNDS

1-800-966-4354

November 2023

 

Dear Hennessy Funds Shareholder:

Market Myopia: Tough Beginnings & Fantastic Finishes

 

During an interview this summer, I was reminded how important it is to maintain a long-term view of the market and investing and how easy it is to focus on the very recent past. In mid-July, when the Nasdaq Composite Index was soaring to new 2023 highs and large-cap tech was once again dominating both returns and news headlines, the interviewer seemed confused – and somewhat disappointed – when I mentioned that even with 2023’s stellar performance, the Nasdaq was negative if you included the prior year (2022) and that during that same time, utilities had outperformed. As of the time of writing this letter, a similar story can be seen when considering eight technology giants: Microsoft, Tesla, Facebook (Meta), Apple, Amazon, Netflix, Nvidia, and Google, or “MT. FAANNG” as a much easier to say (and remember) acronym.⁽¹⁾  MT. FAANNG is up on average a whopping 89.69% in 2023 on a total return basis as of November 7, 2023. However, this same group was down -46.71% in 2022, a dismal year for large-cap tech. Due to the unforgiving nature of percentages, from the end of 2021 until now, this group of highflyers, believe it or not, is still down -3.14% on average, despite an incredible 2023.

 

I like to call this phenomenon “market myopia.” Investors tend to be optimists, as am I. This makes it so much more comforting to forget the “tough beginnings” when you’d rather remember the “fantastic finishes.” In continuing with the example above, unless you were an investor with prescient foresight, you likely didn’t sell all your MT. FAANNG stocks on January 4, 2022, as the market started its correction, and you probably didn’t then buy them all back on September 30, 2022, when the market hit its low. An average investor’s experience would be much different than that. Which brings me to the point of all this: what are some elements of our investment philosophy here at Hennessy Funds?

 

First, what about timing the market? Simply put, we don’t do it. As Neil Hennessy, our Chief Market Strategist and long-tenured Portfolio Manager, aptly put it, “It’s not about timing the market, but rather about time in the market.” The long-term annualized return of the market, as measured by the Dow Jones Industrial Average going back 104 years to 1920, is about 9.6%, and that number would be closer to 7-8% on a real return basis when factoring in inflation. If an investor is poorly timing when to enter and when to exit the market, it would be very difficult to achieve similar, attractive returns to what they would experience simply by staying invested through a complete market cycle.

 

We are optimistic investors. We understand that some years or months may be tougher than others, but we tend to think in longer timeframes. An investor solely invested in the Nasdaq might have looked at their portfolio at the end of 2022 and been extremely disappointed with a -32.51% return. But as Josh Wein, one of our Portfolio Managers with over 25 years of experience, pointed out, “2022 was what 8% real returns look like.” In other words, with the year prior (2021) providing a +22.21% return and the year after (2023) hitting a +31.21% return, 2022’s dismal performance of -32.51% created an annualized total return for the Nasdaq of 8.22% over the entire period (December 31, 2020, to November 7, 2023). Josh simply observed that while corrections happen over the course of a market cycle, it’s best not to panic by selling when stocks are hitting new lows.

 

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Downside risk mitigation is relevant. While we normally remain fully invested within our individual funds, we seek to reduce risk through other means, including sector diversification and investing in companies that exhibit strong fundamentals at compelling valuations. Dave Ellison, the long-tenured Portfolio Manager of our two financial funds, consistently reminds us, “Losing less money in difficult markets is more important than making the most in rising ones.”

 

Finally, we are investors in companies, not traders of stocks. Many of our portfolios hold certain positions for long periods of time, a demonstration of the Portfolio Managers’ convictions. In fact, both the Hennessy Focus Fund and the Hennessy Large Cap Financial Fund have held some positions for 25 years or more. We recognize that much of the performance of the Hennessy Funds comes from the actual stocks we own (stock selection) and not from our weightings within certain sectors (sector allocation). Moving in and out of sectors can enhance performance, but it can also hinder it in the same way as market timing, and it takes a significant number of correct “calls” regarding the macro-environment. We’d rather invest long term than rely on lucky calls. Our highly experienced energy funds Portfolio Manager, Ben Cook, summed up our philosophy on the macro environment nicely: “While macro-economic trends help to inform our investment process, ultimately it’s the individual stocks with solid fundamentals and attractive valuations that, over time, drive positive risk-adjusted returns for our funds.”

 

We are long term investors, staying ever mindful of downside risk while striving to participate in the upside, with each individual fund having its own objective, process, portfolio construction, and investment criteria.

 

The stock market has once again seen dramatic differences in stock performance. For our fiscal year ended October 31, 2023, all three broad-based indexes were positive, although with a large dispersion of total returns, with the Dow Jones Industrial Average up 3.17%, the S&P 500^® Index up 10.14%, and the Nasdaq Composite Index up 17.99%. During our fiscal year, large caps significantly outperformed mid caps and small caps, and growth substantially outperformed value. Large-cap tech once again pushed the overall broader market higher, as evidenced by the Nasdaq-100 Index posting a return of 27.45%. From a sector point of view, besides Technology, the only other sector with outsized (greater than 10%) returns was Communication Services, while six of the 11 GICS sectors of the S&P 500^® Index were negative.

 

Similar to the overall market, our funds experienced mixed results. Many of our funds exhibit more value-oriented characteristics and, given that value underperformed growth this year by a significant amount, that negatively affected our relative performance. In addition, three of our funds are sector-specific funds that were invested in underperforming sectors, while six more are focused on small- and mid-cap stocks in a time period when large caps substantially outperformed. Ten of our 16 mutual funds and our exchange-traded-fund (ETF) posted positive returns for the fiscal year ended October 31, 2023.

 

Several factors caused this disparity of returns in the market: interest rates and inflation being two of the most important. With the Federal Reserve pausing interest rate hikes and inflation numbers subsiding, the market reacted positively once it became more apparent that we were not heading into a recession. Consumer demand also remained strong, and unemployment numbers remained historically low.

 

We believe that the outlook for U.S. stocks remains positive, primarily as we believe that the Federal Reserve may be done, or close to done, raising interest rates. Inflation has shown signs of easing, creating a better environment for consumers as well as businesses. The unemployment rate remains near record lows, there are elevated levels of cash on the

 

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balance sheets of U.S. companies and in the pockets of many consumers and investors, and there is the prospect of a more dovish Federal Reserve heading into 2024. However, we are cautiously watching certain parts of the economy for any hints of weakness, including consumer spending and credit issues. While volatility and uncertainty may impact the markets, we encourage investors to stay the course, maintain a diversified portfolio, and keep a long-term perspective.

 

We thank you for your continued interest in our Funds and are grateful that you have chosen to invest with us. If you have any questions or would like to speak with us directly, please call us at (800) 966-4354.

 

Best regards,

 

Past performance does not guarantee future results.

 

Mutual fund investing involves risk. Principal loss is possible.

 

Opinions expressed are those of Ryan C. Kelley and are subject to change, are not guaranteed, and should not be considered investment advice.

 

The Dow Jones Industrial Average and S&P 500^® Index are commonly used to measure the performance of U.S. stocks. The Nasdaq Composite Index comprises all common stocks listed on The Nasdaq Stock Market and is commonly used to measure the performance of technology-related stocks. The Nasdaq-100 Index includes 100 of the largest domestic and international non-financial companies listed on The NASDAQ Stock Market based on market capitalization. The indices are used herein for comparative purposes in accordance with SEC regulations. One cannot invest directly in an index. All returns are shown on a total return basis.

 

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Performance Overview (Unaudited)

 

CHANGE IN VALUE OF $10,000 INVESTMENT

This graph illustrates the performance of an initial investment of $10,000 made in the Fund on its inception date and assumes the reinvestment of dividends and capital gains.

 

AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED OCTOBER 31, 2023

 

Expense ratio:  Gross 0.95%, Net 0.85%⁽⁴⁾

 

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Shares are bought and sold at market price (closing price), not NAV, and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The performance table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.hennessyetfs.com. Performance for periods including or prior to December 22, 2022, is that of the Stance Equity ESG Large Cap Core ETF.

 

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The S&P 500^® Index is a capitalization-weighted index that is designed to represent the broad domestic economy through changes in the aggregate market value of 500 stocks across all major industries. One cannot invest directly in an index. This index is used for comparative purposes in accordance with Securities and Exchange Commission regulations.

 

Standard & Poor’s Financial Services is the source and owner of the S&P^® and S&P 500^® trademarks.

 

The expense ratio presented is from the most recent prospectus. The expense ratio for the current reporting period is available in the Financial Highlights section of this report.

 

PERFORMANCE NARRATIVE

 

Portfolio Managers Bill Davis and Kyle Balkissoon

Stance Capital, LLC (portfolio composition sub-advisor)

 

Performance:

 

For the two-month period ended October 31, 2023, the Hennessy Stance ESG ETF (ticker: STNC) returned -10.31%, underperforming the S&P 500^® Index (the Fund’s primary benchmark), which returned -6.77% for the same period.

 

During this two-month period, the Fund’s returns were more closely aligned with the S&P 500^® Equal Weight Index, which returned -9.0%, as the Fund tends to avoid over allocation to mega caps and has a targeted maximum position size in a single security of 3.5%. In terms of rate exposure risk, the Fund had insignificant exposure to interest rates as proxied by long term Treasuries, while the S&P 500^® Index had a significant risk due to the growth orientation of mega cap stocks.

 

For the month of September 2023, the Fund slightly underperformed the average security of the S&P 500^® Index. This was largely driven by our aversion to the riskiest, highly-correlated mega-cap names, leading to the optimizer allocating in a manner that detracted from performance.

 

For the month of October 2023, the Fund performed slightly worse than the average security of the S&P 500^® Index, as our quant and environmental, social, and governance (“ESG”) models detracted from performance, while our optimizer reduced risk in the portfolio and added significant value.

 

Portfolio Strategy:

 

The Fund seeks long-term growth of capital by combining ESG and machine learning/artificial intelligence (“ML/AI”) in an ETF structure. We seek exposure to companies that score well on ESG metrics and that we believe will outperform based on ML/AI models. The Fund leverages optimization in an attempt to reduce portfolio level tail risk and mitigate downside losses.

 

Investment Commentary:

 

We continue to believe strongly that the market will soon transition to greater breadth, and there is a historical context for this view. Using the performance of the S&P 500^® Equal Weight Index as a proxy, since its inception in 1989, Equal Weight has actually outperformed the cap-weighted S&P 500^® Index. Thus far in 2023, the cap-weighted S&P 500^® Index has dramatically outperformed S&P 500^® Equal Weight Index, although less so during September and October 2023. After similar rolling 6-month periods of outperformance by 9% or more by the S&P 500^® Index, the S&P 500^® Equal Weight Index posted significantly higher returns than the S&P 500^® Index over subsequent 6- and 12-month periods. Thus, we expect to see a reversion to broader participation by the full S&P 500^® Index, which certainly favors the Fund.

 

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Opinions expressed are those of the Portfolio Managers as of the date written and are subject to change, are not guaranteed, and should not be considered investment advice or an indication of trading intent.

 

References to specific securities should not be considered a recommendation to buy or sell any security. Fund holdings and sector allocations are subject to change. Please refer to the Schedule of Investments included in this report for additional portfolio information.

 

The S&P 500^® Index is a capitalization-weighted index that is designed to represent the broad domestic economy through changes in aggregate market value of 500 stocks across all major industries. The S&P 500^® Equal Weight Index is comprised of the same companies as the S&P 500^® Index, but each stock’s return is equally weighted on a daily basis. Index return does not include trading and management costs, which would lower performance. The indexes are used herein for comparative purposes in accordance with SEC regulations. One cannot invest directly in an index.

 

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Financial Statements

HENNESSY STANCE ESG ETF

(% of Net Assets)

                     

 

 

 

Note: For presentation purposes, the Fund has grouped some of the industry categories. For purposes of categorizing securities for compliance with Section 8(b)(1) of the Investment Company Act of 1940, as amended, the Fund uses more specific industry classifications.

 

The Global Industry Classification Standard (GICS^®) was developed by and is the exclusive property and a service mark of MSCI, Inc. and Standard & Poor’s Financial Services LLC. It has been licensed for use by the Hennessy Funds.

 

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The accompanying notes are an integral part of these financial statements.

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Percentages are stated as a percent of net assets.

PLC – Public Limited Company

The accompanying notes are an integral part of these financial statements.

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Summary of Fair Value Exposure as of October 31, 2023

 

The following is a summary of the inputs used to value the Fund’s net assets as of October 31, 2023 (see Note 3 in the accompanying Notes to the Financial Statements):

 

The accompanying notes are an integral part of these financial statements.

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Financial Statements

 

The accompanying notes are an integral part of these financial statements.

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Financial Statements

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

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Financial Statements

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

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Financial Statements

 

For a share outstanding throughout each period

PER SHARE DATA:

Net asset value, beginning of period

Income from investment operations:

Net investment income (loss)⁽²⁾

Net realized and unrealized gains (losses) on investments

Total from investment operations

Less distributions:

Dividends from net investment income

Dividends from net realized gains

Total distributions

Net asset value, end of period

Market value, end of period

SUPPLEMENTAL DATA AND RATIOS:

Net assets, end of period (millions)

Ratio of expenses to average net assets:

Before expense reimbursement

After expense reimbursement

Ratio of net investment income (loss) to average net assets:

Before expense reimbursement

After expense reimbursement

Portfolio turnover rate⁽⁸⁾

The accompanying notes are an integral part of these financial statements.

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The accompanying notes are an integral part of these financial statements.

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Financial Statements

1).  ORGANIZATION

 

The Hennessy Stance ESG ETF (the “Fund”) is a series of Hennessy Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on September 17, 1992. The Fund is an actively managed exchange-traded fund that operates pursuant to an exemptive order from the Securities and Exchange Commission (the “SEC”). The Fund is a successor to the Stance Equity ESG Large Cap Core ETF (the “Predecessor Fund”) pursuant to a reorganization that took place after the close of business on December 22, 2022. Prior to December 22, 2022, the Fund had no investment operations. The Fund is the accounting and performance information successor of the Predecessor Fund. The investment objective of the Fund is long-term capital appreciation. The Fund is a diversified fund and offers one class of shares. Effective October 8, 2023, the Fund changed its fiscal year end for financial reporting purposes from August 31 to October 31.

 

As an investment company, the Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (the “FASB”) Accounting Standard Codification Topic 946 “Financial Services—Investment Companies.”

 

2).  SIGNIFICANT ACCOUNTING POLICIES

 

The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements. These policies conform to U.S. generally accepted accounting principles (“GAAP”).

 

 

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3).  SECURITIES VALUATION

 

The Fund follows its valuation policies and procedures in determining its NAV and, in preparing these financial statements, the fair value accounting standards that establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:

 

The following is a description of the valuation techniques applied to the Fund’s major categories of assets and liabilities on a recurring basis:

 

 

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If market quotations are not readily available or if a significant event has occurred that indicates the closing price of a security no longer represents the true value of that security, any security or other asset will be valued at its fair value in accordance with Rule 2a-5 under the 1940 Act. The Board of Trustees of the Fund (the “Board”) has designated the Advisor as the Fund’s valuation designee to make all fair value determinations with respect to the Fund’s portfolio investments under the Fund’s fair value pricing procedures, subject to the Board’s oversight. There are numerous criteria considered in determining a fair value

 

 

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of a security, such as the trading volume of a security and markets, the values of other similar securities, and news events with direct bearing on a security or markets. Fair value pricing results in an estimated price for a security that reflects the amount the Fund might reasonably expect to receive in a current sale. Depending on the relative significance of the valuation inputs, these securities may be classified in either Level 2 or Level 3 of the fair value hierarchy. The Advisor will regularly evaluate whether the Fund’s fair value pricing procedures continue to be appropriate in light of the specific circumstances of the Fund and the quality of prices obtained through their application of such procedures.

 

The fair value of foreign securities may be determined with the assistance of a pricing service using correlations between the movement of prices of such securities and indices of domestic securities and other appropriate indicators, such as closing market prices of relevant American Depositary Receipts or futures contracts. Using fair value pricing means that the Fund’s NAV reflects the affected portfolio securities’ values as determined by the Advisor, the Board’s valuation designee, pursuant to the Fund’s fair value pricing procedures, instead of being determined by the market. Using a fair value pricing methodology to price a foreign security may result in a value that is different from such foreign security’s most recent closing price and from the value used by other investment companies to calculate their NAVs. Such securities are generally classified in Level 2 of the fair value hierarchy. Because the Fund may invest in foreign securities, the value of the Fund’s portfolio securities may change on days when a shareholder is unable to purchase or redeem Fund shares.

 

The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determinations. Various inputs are used to determine the value of the Fund’s investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Details related to the fair value hierarchy of the Fund’s securities as of October 31, 2023, are included in the Schedule of Investments.

 

4).  INVESTMENT TRANSACTIONS

 

Purchases and sales of investment securities (excluding government and short-term investments) for the Fund during the two-month period ended October 31, 2023, were $26,345,300 and $26,601,479, respectively. For the fiscal year ended August 31, 2023, the purchases and sales of investment securities (excluding government and short-term investments) for the Fund were $120,620,332 and $120,596,628, respectively.

 

There were no purchases or sales/maturities of long-term U.S. government securities for the Fund during the two-month period ended October 31, 2023, or the fiscal year ended August 31, 2023.

 

Purchases and sales of in-kind transactions for the Fund during the two-month period ended October 31, 2023 were $593,476 and $904,720, respectively. For the fiscal year ended August 31, 2023, purchases and sales of in-kind transactions for the Fund were $3,928,126 and $4,415,168, respectively.

 

5).  INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

 

Prior to the close of business on December 22, 2022, Red Gate Advisors, LLC acted as the investment advisor to the Predecessor Fund. Red Gate Advisors, LLC furnished all investment advice, office space, and facilities, as well as most of the personnel needed by the Fund. As compensation for its services, Red Gate Advisors, LLC was entitled to a unitary management fee from the Predecessor Fund. The fee was based upon the average daily net assets of the Predecessor Fund at an annual rate of 0.95%. From the unitary management fee, Red Gate Advisors, LLC paid most of the expenses of the Predecessor Fund, including

 

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the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit, and other services. The net investment advisory fees expensed by the Predecessor Fund during the period from September 1, 2022, to December 22, 2022, were $127,031.

 

Effective following the close of business on December 22, 2022, the Advisor provides the Fund with investment advisory services under an Investment Advisory Agreement (the “Investment Advisory Agreement”). The Advisor furnishes all investment advice, office space, and facilities and most of the personnel needed by the Fund. As compensation for its services, the Advisor is entitled to a unitary management fee from the Fund. The fee is based on the average daily net assets of the Fund at an annual rate of 0.95%. From the unitary management fee, the Advisor pays most of the expenses of the Fund, including the cost of sub-advisory, transfer agency, custody, fund administration, legal, audit, and other services. The net investment advisory fees expensed by the Fund during the two-month period ended October 31, 2023, are included in the Statement of Operations. The net investment advisory fees expensed by the Fund during the period from December 23, 2022, to August 31, 2023, were $291,269.

 

The Advisor has contractually agreed to waive a portion of its unitary management fee to the extent necessary to limit the Fund’s annual operating expenses (excluding all federal, state, and local taxes, interest, brokerage commissions, dividend and interest expenses on short sales, extraordinary items, and acquired fund fees and expenses and other costs incurred in connection with the purchase and sale of securities) to 0.85% of the Fund’s net assets through December 31, 2024.

 

For a period of three years after the year in which the Advisor waives or reimburses expenses, the Advisor may seek reimbursement from the Fund to the extent that total annual fund operating expenses are less than the expense limitation that was in effect at the time the Advisor waived or reimbursed expenses. As of October 31, 2023, expenses subject to potential recovery and the periods in which they expire were as follows:

 

During the period from September 1, 2022, to the close of business on December 22, 2022, Red Gate Advisors, LLC had contractually agreed to limit total annual operating expenses and to maintain the expense limitation for the Predecessor Fund on the same terms as described above. The net investment advisory fees waived by the Predecessor Fund during the period from September 1, 2022, to December 22, 2022, were $13,372.

 

Stance Capital, LLC (“Stance Capital”) and Vident Advisory, LLC (“Vident”) each serve as an investment sub-advisor to the Fund. The Advisor has delegated the day-to-day management of the portfolio composition of the Fund to Stance Capital. Following the close of business on December 22, 2022, the Advisor (not the Fund) paid a sub-advisory fee to Stance Capital at the average rate of 0.40% of the daily net assets of the Fund. Pursuant to the sub-advisory agreement, the Advisor pays Stance Capital sub-advisory fees at an annual rate of 0.40% of the average daily net assets up to $125 million, 0.37% of average daily net assets for assets over $125 million and up to $250 million, and 0.35% for average daily net assets over $250 million. Prior to July 14, 2023, the Advisor had delegated the responsibility for selecting broker-dealers to execute purchase and sale transactions for the Fund to Vident Investment Advisory, LLC (“VIA”), as instructed by Stance Capital and subject to the supervision of the Advisor and the Board. On July 14, 2023, VIA completed an acquisition transaction that resulted in a change of control of

 

 

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VIA and automatic termination of our sub-advisory agreement with VIA. On the same date, we entered into a new sub-advisory agreement with Vident with the same terms and conditions as the prior sub-advisory agreement with VIA. Following the close of business on December 22, 2022, the Advisor (not the Fund) paid a sub-advisory fee to VIA or Vident, as applicable, at the average rate of 0.05% of the daily net assets of the Fund. Pursuant to the prior sub-advisory agreement with VIA and the current sub-advisory agreement with Vident, the Advisor pays sub-advisory fees at an annual rate of 0.05% of the Fund’s average daily net assets up to $250 million, 0.045% of average daily net assets for assets over $250 million and up to $500 million, and 0.04% for average daily net assets in excess of $500 million, subject to a minimum sub-advisory fee to of $18,750 on an annual basis. Prior to the close of business on December 22, 2022, Red Gate Advisors, LLC paid the sub-advisory fees to Stance Capital and VIA from its own assets, and these fees were not an additional expense of the Fund.

 

U.S. Bancorp Fund Services, LLC, d/b/a U.S. Bank Global Fund Services (“Fund Services”) provides the Fund with administrative, accounting, and transfer agent services. As administrator, Fund Services is responsible for activities such as (i) preparing various federal and state regulatory filings, reports, and returns for the Fund, (ii) preparing reports and materials to be supplied to the Board, (iii) monitoring the activities of the Fund’s custodian, transfer agent, and accountants, and (iv) coordinating the preparation and payment of the Fund’s expenses and reviewing the Fund’s expense accruals. U.S. Bank N.A., an affiliate of Fund Services, serves as the Fund’s custodian. The servicing agreements between the Trust, Fund Services, and U.S. Bank N.A. contain a fee schedule that is inclusive of administrative, accounting, custody, and transfer agent fees. Under the terms of the Investment Advisory Agreement, the Advisor pays the Fund’s administrative, accounting, custody, and transfer agency fees.

 

Quasar Distributors, LLC, a wholly owned broker-dealer subsidiary of Foreside Financial Group, LLC, acts as the Fund’s principal underwriter in a continuous public offering of Fund shares.

 

During the period from September 1, 2022, to the close of business on December 22, 2022, the officers and Chief Compliance Officer of the Predecessor Fund were employees of Fund Services. Chief Compliance Officer fees paid by the Predecessor Fund to Fund services during the period from September 1, 2022, to December 22, 2022 were paid by Red Gate Advisors, LLC. Effective following the close of business on December 22, 2022, the officers of the Fund are affiliated with the Advisor. Under the terms of the Investment Advisory Agreement, the Advisor pays the Fund’s Chief Compliance Officer fees.

 

6).  GUARANTEES AND INDEMNIFICATIONS

 

Under the Hennessy Funds’ organizational documents, their officers and trustees are indemnified by the Hennessy Funds against certain liabilities arising out of the performance of their duties to the Hennessy Funds. Additionally, in the normal course of business, the Hennessy Funds enter into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund expects the risk of loss to be remote.

 

 

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7).  FEDERAL TAX INFORMATION

 

As of October 31, 2023, the components of accumulated earnings (losses) for income tax purposes were as follows:

 

As of October 31, 2023, the Fund had $4,188,055 in unlimited short-term capital loss carryforwards.

 

As of October 31, 2023, the Fund did not defer, on a tax basis, any late-year ordinary losses. Late-year ordinary losses are net ordinary losses incurred after December 31, 2022, but within the taxable year, that are deemed to arise on the first day of the Fund’s next taxable year.

 

During the two-month period ended October 31, 2023, and the fiscal years ended August 31, 2023 and 2022, the tax character of distributions paid by the Fund was as follows:

 

 

8).  SHARE TRANSACTIONS

 

Shares of the Fund are listed and traded on the NYSE Arca, Inc. (the “Exchange”). Market prices for the shares may be different from their NAV. The Fund issues and redeems shares on a continuous basis at NAV only in blocks of 5,000 shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified universe. Once created, shares generally trade in the secondary market at market prices that change throughout the day. Except when aggregated in Creation Units, shares are not redeemable securities of the Fund. Creation Units may only be purchased or redeemed by certain financial institutions (“Authorized Participants”). An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a Depository Trust Company participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors do not qualify as Authorized Participants and do not have the resources to buy and sell whole Creation Units. Therefore, they are unable to purchase or redeem shares directly from the Fund. Rather, most retail investors may purchase shares in the secondary market with the assistance of a broker and are subject to customary brokerage commissions or fees.

 

 

HENNESSY FUNDS

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The Fund currently offers one class of shares, which has no front-end sales load, no deferred sales charge, and no redemption fee. A fixed transaction fee is imposed for the transfer and other transaction costs associated with the purchase or sale of Creation Units. The standard fixed transaction fee for the Fund is $300, payable to the custodian. In addition, a variable fee may be charged on all cash transactions or substitutes for Creation Units of up to a maximum of 2% as a percentage of the value of the Creation Units subject to the transaction. Variable fees are imposed to compensate the Fund for the transaction costs associated with the cash transactions. Variable fees received by the Fund, if any, are displayed in the capital shares transactions section of the Statement of Changes in Net Assets. Shares of the Fund have equal rights and privileges.

 

From time to time, settlement of securities related to in-kind redemptions may be delayed. In such cases, securities related to in-kind transactions are reflected as a receivable or a payable in the Statements of Assets and Liabilities.

 

9).  GLOBAL EVENTS

 

A rise in protectionist trade policies, the possibility of a national or global recession, risks associated with pandemic and epidemic diseases, trade tensions, the possibility of changes to some international trade agreements, political events, and continuing political tension and armed conflicts may adversely impact financial markets and the broader economy. For example, ongoing armed conflicts between Ukraine and Russia in Europe and among Israel, Hamas, and other militant groups in the Middle East have caused and could continue to cause significant market disruptions and volatility with the markets in Europe and the Middle East, and have had negative impacts on markets in the United States. These events could also have negative effects on the Fund’s investments that cannot be foreseen at the present time. As global systems, economies and financial markets are increasingly interconnected, events that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions, or markets. These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat. Your investment would be negatively impacted if the value of your portfolio holdings decreases as a result of such events, if these events adversely impact the operations and effectiveness of the Advisor or other key service providers or if these events disrupt systems and processes necessary or beneficial to the management of accounts. These events may negatively impact broad segments of businesses and populations and could have a significant and rapid negative impact on the performance of the Fund’s investments, increase the Fund’s volatility, or exacerbate pre-existing risks to the Fund.

 

 

 

 

WWW.HENNESSYFUNDS.COM

 

10).  AGREEMENT AND PLAN OF REORGANIZATION

 

On December 6, 2022, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization between the Trust, on behalf of the Fund, and The RBB Fund, Inc., a Maryland corporation, on behalf of the Predecessor Fund. The Agreement and Plan of Reorganization provided for the transfer of all of the assets of the Predecessor Fund to the Fund and the assumption of the liabilities (other than any excluded liabilities) of the Predecessor Fund by the Fund. The Fund was created to carry out the reorganization and has a substantially similar investment objective and substantially similar principal investment strategies as the Predecessor Fund. The following table illustrates the specifics of the reorganization of the Predecessor Fund into the Fund as of December 22, 2022:

 

 

11).  EVENTS SUBSEQUENT TO PERIOD END

 

Management has evaluated the Fund’s related events and transactions that occurred subsequent to October 31, 2023, through the date of issuance of the Fund’s financial statements. Other than as disclosed below, management has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.

 

On October 24, 2023, shareholders of the CCM Small/Mid Cap Impact Value Fund approved an Agreement and Plan of Reorganization between the Trust, on behalf of the Fund, and the Quaker Investment Trust, a Delaware statutory trust, on behalf of the CCM Small/Mid Cap Impact Value Fund. The Agreement and Plan of Reorganization provided for the transfer of all of the assets of the CCM Small/Mid Cap Impact Value Fund to the Fund and the assumption of all liabilities of the CCM Small/ Mid Cap Impact Value Fund by the Fund. The CCM Small/Mid Cap Impact Value Fund and the Fund have substantially similar investment objectives. The reorganization was completed following the close of business on November 10, 2023.

 

The meeting of shareholders of the CCM Core Impact Equity Fund was postponed to January 31, 2024.

 

In addition, the Fund paid a distribution to shareholders as follow:

 

HENNESSY FUNDS

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Report of Independent Registered Public

Accounting Firm

To the Board of Trustees of Hennessy Funds Trust

and the shareholders of the Hennessy Stance ESG ETF

Novato, CA

 

Opinion on the Financial Statements

 

We have audited the accompanying statement of assets and liabilities of the Hennessy Stance ESG ETF (the “Fund”), a series of Hennessy Funds Trust, including the schedule of investments, as of October 31, 2023, the related statements of operations, the statements of changes in net assets, and financial highlights for the two-month period ended October 31, 2023, and for the year ended August 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2023, the results of its operations, the changes in its net assets and the financial highlights for the two-month period ended October 31, 2023 and for the year ended August 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

 

The statements of changes in net assets for the year ended August 31, 2022, and the financial highlights for the year ended August 31, 2022, and for the period March 15, 2021 (commencement of operations) through August 31, 2021, were audited by other auditors, whose report dated October 28, 2022, expressed an unqualified opinion on those financial statements and financial highlights.

 

Basis for Opinion

 

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the auditor of one or more of the funds in the Trust since 2002.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of October 31, 2023, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.

 

Philadelphia, Pennsylvania

December 22, 2023

WWW.HENNESSYFUNDS.COM

Trustees and Officers of the Fund (Unaudited)

The business and affairs of the Funds are managed under the direction of the Board of Trustees of the Trust, and the Board of Trustees elects the officers of the Trust (“Officers”). From time to time, the Board of Trustees also has appointed advisers to the Board of Trustees (“Advisers”) with the intention of having qualified individuals serve in an advisory capacity to garner experience in the mutual fund and asset management industry and be considered as potential Trustees in the future. There are currently two Advisers, Brian Alexander and A.J. Hennessy. As Advisers, Mr. Alexander and Mr. A.J. Hennessy attend meetings of the Board of Trustees and act as non-voting participants. Information pertaining to the Trustees, Advisers, and the Officers of the Trust is set forth below. The Trustees and Officers serve until their successors are duly elected and qualified or until their earlier death, resignation, or removal. Each Trustee oversees all 17 Hennessy Funds. Unless otherwise indicated, the address of all persons listed below is 7250 Redwood Boulevard, Suite 200, Novato, CA 94945. The Fund’s Statement of Additional Information includes more information about the persons listed below and is available without charge by calling 800-966-4354 or by visiting www.hennessyetfs.com.

 

 

 

 

HENNESSY FUNDS

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HENNESSY FUNDS

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_______________

 

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Expense Example (Unaudited)

October 31, 2023

As a shareholder of the Fund, you incur ongoing costs, including management fees, service fees, and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other investment funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from May 1, 2023, through October 31, 2023.

 

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. You may pay brokerage commissions on your purchases and sales of Fund shares, which are not reflected in the example.

 

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.

 

HENNESSY FUNDS

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How to Obtain a Copy of the Fund’s Proxy

Voting Policy and Proxy Voting Records

 

A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge (1) by calling 800-966-4354, (2) on the Fund’s website at www.hennessyetfs.com/proxy-voting/voting-policy, or (3) on the U.S. Securities and Exchange Commission’s (the “SEC”) website at www.sec.gov. The Fund’s proxy voting record is available without charge on both the Fund’s website at www.hennessyetfs.com/proxy-voting/voting-record and the SEC’s website at www.sec.gov no later than August 31 for the prior 12 months ending June 30.

 

 

Availability of Quarterly Portfolio Schedule

 

The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov or on request by calling 800-966-4354.

 

 

Federal Tax Distribution Information (Unaudited)

 

For tax year 2023, certain dividends paid by the Fund may be subject to a maximum tax rate of 23.8%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The percentage of dividends declared from ordinary income designated as qualified dividend income was 100.00%.

 

For corporate shareholders, the percent of ordinary income distributions that qualified for the corporate dividends received deduction for tax year 2023 was 100.00%.

 

The percentage of taxable ordinary income distributions that were designated as short-term capital gain distributions under Section 871(k)(2)(C) of the Internal Revenue Code of 1986, as amended, for the Fund was 0.00%.

 

 

Frequency Distributions of Premiums

and Discounts

 

Information regarding how often the shares of the Fund trade on an exchange at a price above (i.e., at a premium) or below (i.e., at a discount) the net asset value of the Fund is available, without charge, on the Fund’s website at www.hennessyetfs.com.

 

 

 

WWW.HENNESSYFUNDS.COM

 

Important Notice Regarding Delivery

of Shareholder Documents

 

All of our shareholders other than banks, broker-dealers and other financial intermediaries acting as authorized participants of the Fund are beneficial owners, as shown on the records of The Depository Trust Company (“DTC”) or its participants. The DTC participants are the banks, broker-dealers and other financial intermediaries acting as authorized participants of the Fund, and these financial intermediaries are responsible to pass along communications to you, including notices, account statements, prospectuses, tax forms, and shareholder reports. Please contact your financial intermediary for information regarding electronic delivery of the Fund’s shareholder reports.

 

Householding is a method of delivery, based on the preference of the individual beneficial owner, in which a single copy of certain shareholder documents can be delivered to beneficial owners who share the same address, even if their accounts are registered under different names. Householding for the Fund may be available through the banks, broker-dealers and other financial intermediaries acting as authorized participants of the Fund. If you are interested in enrolling in householding and receiving a single copy of the prospectus and other shareholder documents, please contact your financial intermediary. If you currently are enrolled in householding and wish to change your householding status, please contact your financial intermediary.

 

As permitted by SEC regulations, the Fund’s shareholder reports are made available to banks, broker-dealers and other financial intermediaries on a website, and unless the intermediaries sign for eDelivery or elect to receive paper copies, the financial intermediaries will be notified by mail each time a report is posted and provided with a website link to access the report.

 

Shareholder reports transmitted after July 24, 2024, will comply with the new tailored shareholder reporting requirements, which require streamlined annual and semi-annual reports to shareholders that highlight key information. These reports will be transmitted in paper unless banks, broker-dealers, and other financial intermediaries elect to receive reports electronically via eDelivery.

 

 

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HENNESSY FUNDS

1-800-966-4354

Privacy Policy

 

We collect the following personal information about you:

 

We collect this information directly from you, indirectly in the course of providing services to you, directly and indirectly from your activity on our website, from broker dealers, marketing agencies, and other third parties that interact with us in connection with the services we perform and products we offer, and from anonymized and aggregated consumer information.

 

We use this information to fulfill the reason you provided the information to us, to provide you with other relevant products that you request from us, to provide you with information about products that may interest you, to improve our website or present our website’s contents to you, and as otherwise described to you when collecting your personal information.

 

We do not disclose any personal information to unaffiliated third parties, except as permitted by law. We may disclose your personal information to our affiliates, vendors, and service providers for a business purpose. For example, we are permitted by law to disclose all of the information we collect, as described above, to our transfer agent to process your transactions. When disclosing your personal information to third parties, we enter into a contract with each third party describing the purpose of such disclosure and requiring that such personal information be kept confidential and not used for any purpose except to perform the services contracted or respond to regulatory or law enforcement requests.

 

 

 

WWW.HENNESSYFUNDS.COM

 

Furthermore, we restrict access to your personal information to those persons who require such information to provide products or services to you. As a result, we do not provide a means for opting out of our limited sharing of your information. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your personal information.

 

If you hold shares of the Funds through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary governs how your personal information is shared with unaffiliated third parties.

 

If you live in a state such as California where the laws provide further privacy rights, we will not share information unless the law allows, and we will comply with the other state-specific requirements.

 

 

Supplemental Privacy Notice for Residents of California

 

The California Consumer Privacy Act of 2018 (the “CCPA”) provides you, as a California resident, with certain additional rights relating to your personal information.

 

Under the CCPA, you have the right to request that we disclose to you the categories of personal information we have collected about you over the past 12 months, the categories of sources of such information, our business purpose for collecting the information, the categories of third parties, if any, with whom we shared the information, and the specific information we have collected about you. You also have the right to request that we delete any of your personal information, and, unless an exception applies, we will delete such information upon receiving and confirming your request. To make a request, call us at 1-800-966-4354, email us at [email protected], or go to www.hennessyfunds.com/contact. We will not discriminate against you for exercising your rights under the CCPA. Further, we will not collect additional categories of your personal information or use the personal information we collected for materially different, unrelated, or incompatible purposes without providing you notice.

 

HENNESSY FUNDS

1-800-966-4354

For information, questions, or assistance, please call

The Hennessy Funds

800-966-4354 or 415-899-1555

INVESTMENT ADVISOR

Hennessy Advisors, Inc.

7250 Redwood Boulevard, Suite 200

Novato, California 94945

ADMINISTRATOR,

TRANSFER AGENT,

DIVIDEND PAYING AGENT, &

SHAREHOLDER SERVICING AGENT

U.S. Bancorp Fund Services, LLC

d/b/a U.S. Bank Global Fund Services

P.O. Box 701

Milwaukee, Wisconsin 53201-0701

CUSTODIAN

U.S. Bank N.A.

Custody Operations

1555 North River Center Drive, Suite 302

Milwaukee, Wisconsin 53212

TRUSTEES

Neil J. Hennessy

Robert T. Doyle

J. Dennis DeSousa

Doug Franklin

Claire Garvie

Gerald P. Richardson

COUNSEL

Foley & Lardner LLP

777 East Wisconsin Avenue

Milwaukee, Wisconsin 53202-5306

INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

Tait, Weller & Baker LLP

Two Liberty Place

50 South 16th Street, Suite 2900

Philadelphia, Pennsylvania 19102-2529

DISTRIBUTOR

Quasar Distributors, LLC

111 East Kilbourn Avenue, Suite 1250

Milwaukee, Wisconsin 53202

www.hennessyetfs.com  |  800-966-4354

This report has been prepared for shareholders and may be distributed to

others only if preceded or accompanied by a current prospectus.

(b)