Global
X Blockchain & Bitcoin Strategy ETF
NASDAQ:
BITS
Prospectus
March 1,
2023
The
Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading
Commission (“CFTC”) have not approved or disapproved these securities or passed
upon the adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
Shares
in the Fund (defined below) are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other agency of the U.S. Government, nor are shares
deposits or obligations of any bank. Such shares in the Fund involve investment
risks, including the loss of principal.
| As permitted by regulations adopted by the SEC, paper copies of the Fund's shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from your financial intermediary (such as a broker-dealer or bank). Instead, shareholder reports will be available on the Fund’s website (www.globalxetfs.com/explore), and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically anytime by contacting your financial intermediary. You may elect to receive all future Fund shareholder reports in paper free of charge. Please contact your financial intermediary to inform them that you wish to continue receiving paper copies of Fund shareholder reports and for details about whether your election to receive reports in paper will apply to all funds held with your financial intermediary. | ||
TABLE
OF CONTENTS
| FUND SUMMARY | |||||
| ADDITIONAL INFORMATION ABOUT THE FUND | |||||
| A FURTHER DISCUSSION OF PRINCIPAL RISKS | |||||
| A FURTHER DISCUSSION OF OTHER RISKS | |||||
| PORTFOLIO HOLDINGS INFORMATION | |||||
| FUND MANAGEMENT | |||||
| DISTRIBUTOR | |||||
| BUYING AND SELLING FUND SHARES | |||||
| FREQUENT TRADING | |||||
| DISTRIBUTION AND SERVICE PLAN | |||||
| DIVIDENDS AND DISTRIBUTIONS | |||||
| TAXES | |||||
| DETERMINATION OF NET ASSET VALUE | |||||
| PREMIUM/DISCOUNT AND SHARE INFORMATION | |||||
| TOTAL RETURN INFORMATION | |||||
| OTHER SERVICE PROVIDERS | |||||
| ADDITIONAL INFORMATION | |||||
| FINANCIAL HIGHLIGHTS | |||||
| OTHER INFORMATION | |||||
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Global
X Blockchain & Bitcoin Strategy ETF
Ticker:
BITS Exchange: NASDAQ
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The
Fund is an actively managed exchange traded fund (“ETF”) that seeks to achieve
its investment objective by investing directly or indirectly in equity
securities of U.S. and non-U.S. “Blockchain Companies”, as defined below, and in
long positions in U.S. listed bitcoin futures (“Bitcoin Futures”)
contracts.
As
of the date of this Prospectus, the Fund intends to gain exposure to Blockchain
Companies by investing indirectly in underlying ETFs holding Blockchain
Companies, including the passively-managed affiliated Global X Blockchain
ETF.
Such
investment in underlying ETFs holding Blockchain Companies may be used to
provide most, or even all, of the Fund’s exposure to Blockchain Companies, and
it is possible that the Fund may or may not invest directly in any Blockchain
Companies.
Such
Bitcoin Futures contracts will be standardized, cash-settled bitcoin futures
contracts traded on commodity exchanges registered with the Commodity Futures
Trading Commission (“CFTC”). Currently, the only such contracts are traded on,
or subject to the rules of, the Chicago Mercantile Exchange (“CME”). Under
normal circumstances, the Fund will invest at least 80% of its net assets, plus
the amount of any borrowings for investment purposes, in Blockchain Companies
and in long positions on U.S. listed Bitcoin Futures contracts. Under normal
circumstances, the Fund will invest at least 25% of its assets in Blockchain
Companies and will have notional exposure to Bitcoin Futures equal to at least
20% of the total assets of the Fund. The Fund's 80% investment policy is
non-fundamental and requires 60 days prior written notice to shareholders before
it can be changed.
The
Fund will invest substantially all of its assets in “long” positions in listed
Bitcoin Futures contracts and in Blockchain Companies, including indirectly by
investment in underlying ETFs holding Blockchain Companies, including the
passively-managed affiliated Global X Blockchain ETF. To be “long” means to hold
or be exposed to a security or instrument with the expectation that its value
will increase over time. The Fund will benefit if it has a long position in a
security or instrument that
increases
in value. The Fund seeks to gain exposure to Bitcoin Futures, in whole or in
part, through investments in a subsidiary organized in the Cayman Islands,
namely the Global X Bitcoin Strategy Subsidiary I (the “Global X Subsidiary”).
The Global X Subsidiary is wholly-owned and controlled by the Fund. The Fund’s
investment in the Global X Subsidiary may not exceed 25% of the Fund’s total
assets at each quarter-end of the Fund’s fiscal year. The Fund’s investment in
the Global X Subsidiary is intended to provide the Fund with exposure to Bitcoin
Futures while enabling the Fund to satisfy source-of-income requirements that
apply to regulated investment companies (“RICs”) under the Internal Revenue Code
of 1986, as amended (the “Code”). The Fund’s allocation determinations may be
informed by a variety of criteria, including, but not limited to, liquidity,
open interest/free float market capitalization, regulatory requirements,
anticipated cost of carry, correlation to the price movements of bitcoin, other
fundamental investment considerations and/or the then-current size of the Fund.
For example, the Fund may allocate proportionally greater exposure to Bitcoin
Futures during periods where the anticipated cost of carry for Bitcoin Futures
is lower, as measured by the time-weighted difference between the trading price
of Bitcoin Futures relative to the then-current price of bitcoin, and conversely
may allocate proportionally greater exposure to Blockchain Companies during
periods where valuation measures, including but not limited, to forward
price-to-earnings or price-to-sales ratios within the Blockchain Companies
universe present attractive relative value. Except as noted, references to the
investment strategies and risks of the Fund include the investment strategies
and risks of the Global X Subsidiary.
Bitcoin
is a digital asset the ownership and behavior of which are determined by
participants in an online, peer-to-peer network that connects computers that run
publicly accessible, or “open source,” software that follows an agreed upon set
of rules and procedures. This network is referred to as the "Bitcoin network,"
and the rules and procedures governing the Bitcoin network are commonly referred
to as the "Bitcoin protocol". The value of bitcoin, like the value of other
digital assets, is not backed by any government, corporation or other identified
body. Ownership and the ability to transfer or take other actions with respect
to bitcoin is protected through the Bitcoin protocol, which allows bitcoin to be
sent to a publicly available address that is generated from a private numerical
key, but which prevents anyone other than the holder of such private numerical
key from accessing the bitcoin associated with the publicly available address.
The supply of bitcoin is constrained or formulated by its protocol instead of
being explicitly delegated to an identified body (e.g., a central bank or
corporate treasury) to control. Bitcoin and certain other types of digital
assets are sometimes referred to as digital currencies or cryptocurrencies. No
single entity owns or operates the Bitcoin network, the infrastructure of which
is collectively maintained by (1) a decentralized group of participants who run
computer software that results in the recording and validation of transactions
(commonly referred to as “miners”), (2) developers who propose improvements to
the Bitcoin protocol and the software that enforces the protocol and (3) users
who choose what Bitcoin software to run. Bitcoin was released in 2009 and, as a
result, there is little data on its long-term investment potential. Bitcoin is
not backed by a government-issued legal tender. Bitcoin is “stored” or reflected
on a blockchain. A blockchain is a distributed, digital ledger that records and
stores transaction data of digital assets in units called “blocks”. The Fund
will not invest in bitcoin directly.
Blockchain
Companies include companies that derive or are expected to derive at least 50%
of their revenues, operating income, or assets from the following business
activities:
1.Digital
Asset Mining:
Companies involved in verifying and adding digital asset transactions to a
blockchain ledger (e.g. digital asset mining), or that produce technology used
in digital asset mining.
2.Blockchain
& Digital Asset Transactions:
Companies that operate trading platforms/exchanges, custodians, wallets, and/or
payment gateways for digital assets.
3.Blockchain
Applications:
Companies involved in the development and distribution of applications and
software services related to blockchain and digital asset technology, including
smart contracts.
4.Blockchain
& Digital Asset Hardware:
Companies that manufacture and distribute infrastructure and/or hardware used in
blockchain and digital asset activities.
5.Blockchain
& Digital Asset Integration:
Companies that provide engineering and consulting services specifically tied to
the adoption and utilization of blockchain and digital asset
technology.
Blockchain
Companies also include U.S.-listed operating companies that directly own a
material amount of digital assets.
The
Fund is classified as "non-diversified," which means it may invest a larger
percentage of its assets in a smaller number of issuers than a diversified
fund.
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Active
Management Risk:
The Fund is actively managed using proprietary investment strategies and
processes. There can be no guarantee that these strategies and processes will be
successful or that the Fund will achieve its investment objective.
Asset
Class Risk: Securities
and other assets held in the Fund's portfolio may underperform in comparison to
the general securities markets, a particular securities market or other asset
classes.
Bitcoin
Futures Risk: A
futures contract may generally be described as an agreement for the future sale
by one party and the purchase by another of a specified security or instrument
at a specified price and time. The risks of futures contracts include but are
not limited to: (1) the success of the Adviser’s ability to predict movements in
the prices of individual currencies or securities, fluctuations in markets and
movements in interest rates; (2) an imperfect or no correlation between the
changes in market value of the currencies or securities and the prices of
futures contracts; and (3) no guarantee that an active market will exist for the
contracts at any particular time. Trading in the cash bitcoin market remains
difficult as compared to more traditional cash markets, and in particular short
selling bitcoin remains challenging and costly. As a result of these features of
the bitcoin cash market, market makers and arbitrageurs may not be as willing to
participate in the Bitcoin Futures market as they are in other futures markets.
Each of these factors may increase the likelihood that the price of Bitcoin
Futures will be volatile and/or will deviate from the price of bitcoin. Bitcoin
Futures may experience significant price volatility. Exchange-specified
collateral for Bitcoin Futures is substantially higher than for most other
futures contracts, and collateral may be set as a percentage of the value of the
contract, which means that collateral requirements for long positions can
increase if the price of the contract rises. In addition, futures commission
merchants (FCMs) may require collateral beyond the exchange’s minimum
requirement. FCMs may also restrict trading activity in Bitcoin Futures by
imposing position limits, prohibiting selling short the future or prohibiting
trades where the executing broker places a trade on behalf of another broker
(so-called “give-up transactions”). Although the Fund will only take long
positions in Bitcoin Futures, restrictions on the ability of certain market
participants to take short Bitcoin Futures positions may ultimately constrain
the Fund’s ability to take long positions in Bitcoin Futures or may impact the
price at which the Fund is able to take such positions. Bitcoin Futures are
subject to daily limits that may impede a market participant’s ability to exit a
position during a period of high volatility. See “Derivatives
Risk.”
Exchanges
where bitcoin is traded (which are the source of the price(s) used to determine
the cash settlement amount for the Fund’s Bitcoin Futures) have experienced
technical and operational issues, making bitcoin prices unavailable at times.
During periods of high volatility for bitcoin prices, the prices at which
bitcoin traded on various exchanges have diverged, and some bitcoin exchanges
have experienced issues relating to account access and trade execution during
such periods. The cash market in bitcoin has been the target of fraud and
manipulation, which could affect the pricing, volatility and liquidity of the
futures contracts. In addition, if settlement prices for Bitcoin Futures are
unavailable (which may occur following a trading suspension imposed by the
exchange due to large price movements or following a fork of Bitcoin, or for
other reasons) or the Adviser's Valuation Committee determines such settlement
prices are unreliable, the fair value of the Fund’s Bitcoin Futures may be
determined by reference, in whole or in part, to the cash market in bitcoin. See
“Valuation Risk”. These circumstances may be more likely to occur with respect
to Bitcoin Futures than with respect to futures on more traditional
assets.
Additionally,
because the Fund does not intend to invest in bitcoin directly, it intends to
only invest in cash-settled Bitcoin Futures. This means that if the market for
Bitcoin Futures grows towards favoring physically-settled instruments (meaning
futures contracts that are settled by the actual delivery of bitcoin in exchange
for payment by the purchaser of the futures price agreed to at the outset of the
contract), the Fund will likely not benefit from this market
3
growth.
There is no way to predict whether additional new offerings of Bitcoin Futures
will be cash-settled or physically-settled.
The
price for Bitcoin Futures is based on a number of factors, including the supply
of and the demand for Bitcoin Futures. Market conditions and expectations,
position limits, collateral requirements, and other factors each can impact the
supply of and demand for Bitcoin Futures. In the past, increased demand paired
with supply constraints and other factors have caused Bitcoin Futures to trade
at a significant premium to the “spot” price of bitcoin. Additional demand,
including demand resulting from the purchase, or anticipated purchase, of
futures contracts by the Fund or other entities may increase that premium,
perhaps significantly. It is not possible to predict whether or how long such
conditions will continue. To the extent the Fund purchases Bitcoin Futures at a
premium and the premium declines, the value of an investment in the Fund also
should be expected to decline.
Futures
contracts with a longer term to expiration may be priced higher than futures
contracts with a shorter term to expiration, a relationship called “contango.”
Conversely, futures contracts with a longer term to expiration may be priced
lower than futures contracts with a shorter term to expiration, a relationship
called “backwardation.” When rolling futures contracts that are in contango, the
Fund may sell the expiring Bitcoin Futures at a lower price and buy a
longer-dated Bitcoin Futures at a higher price. The price difference between the
expiring contract and longer-dated contract associated with rolling Bitcoin
Futures is typically substantially higher than the price difference associated
with rolling other futures contracts. Bitcoin Futures have historically
experienced extended periods of contango. Contango in the Bitcoin Futures market
may have a significant adverse impact on the performance of the Fund and may
cause Bitcoin Futures to underperform spot bitcoin. Additionally, because of the
frequency with which the Fund may roll futures contracts, the impact of contango
or backwardation on Fund performance may be greater than it would have been if
the Fund rolled Bitcoin Futures less frequently.
China
A-Shares Risk:
A-Shares are issued by companies incorporated in mainland China and are traded
on Chinese exchanges. Foreign investors can access A-Shares by obtaining a
Qualified Foreign Institutional Investor ("QFII") or a Renminbi Qualified
Foreign Institutional Investor ("RQFII") license, as well as through the Stock
Connect Program, which is a securities trading and clearing program with an aim
to achieve mutual stock market access between the China and Hong Kong markets.
Stock Connect was developed by Hong Kong Exchanges and Clearing Limited, the
Shanghai Stock Exchange ("SSE") (in the case of Shanghai Connect) or the
Shenzhen Stock Exchange ("SZSE") (in the case of Shenzhen Connect), and the
China Securities Depository and Clearing Corporation Limited (“CSDCC”). The Fund
currently intends to gain exposure to A-Shares through the Stock Connect
Programs. Investments in A-Shares are subject to various regulations and limits,
and the recoupment or repatriation of assets invested in A-Shares is subject to
restrictions by the Chinese government. In addition, investors from outside
mainland China may face difficulties or prohibitions accessing certain A-Shares
that are part of a restricted list in countries such as the U.S. A-Shares may be
subject to frequent and widespread trading halts and may become illiquid.
Trading suspensions in certain stock could lead to greater market execution risk
and costs for the Fund, and the creation and redemption of Creation Units (as
defined below) may also be disrupted. These risks, among others, could adversely
affect the value of the Fund’s investments.
Depositary
Receipts Risk:
The Fund may invest in depositary receipts, such as ADRs and GDRs.
Depositary receipts may be subject to certain of the risks associated with
direct investments in the securities of foreign companies. For additional
details on these risks, please see Foreign
Securities Risk.
Moreover, depositary receipts may not track the price of the underlying foreign
securities on which they are based. A holder of depositary receipts may
also be subject to fees and the credit risk of the financial institution acting
as depositary.
Derivatives
Risk:
The Fund will gain exposure to bitcoin indirectly by investing in Bitcoin
Futures, a type of derivative instrument. Futures are standardized,
exchange-traded contracts that obligate a purchaser to take delivery, and a
seller to make delivery, of a specific amount of an asset at a specified future
date at a specified price. Derivatives can be more sensitive to changes in
interest rates or to sudden fluctuations in market prices than conventional
securities, which can result in greater losses for the Fund. In addition, the
prices of the derivative instruments and the price of bitcoin may not move
together as expected. A risk of the Fund’s use of derivatives is that the
fluctuations in their values may not correlate perfectly with the relevant
reference asset, bitcoin. Derivatives are usually traded on margin, which may
subject the Fund to margin calls. Margin calls may force the Fund to liquidate
assets.
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Equity
Securities Risk:
Equity securities are subject to changes in value, and their values may be more
volatile than other asset classes, as a result of such factors as a company’s
business performance, investor perceptions, stock market trends and general
economic conditions.
ETF
Investment Risk: The
Fund may hold ETFs to gain exposure to securities of Blockchain Companies. As a
result, the Fund may be subject to the same risks as the underlying ETFs. While
the risks of owning shares of an underlying ETF generally reflect the risks of
owning the underlying securities the ETF is designed to track, lack of liquidity
in an underlying ETF can result in its value being more volatile than the
underlying portfolio securities. Because the value of an underlying ETF's shares
depends on the demand in the market, the Adviser may not be able to liquidate
the Fund’s holdings in those shares at the most optimal time, thereby adversely
affecting the Fund’s performance. In addition, an underlying ETF's shares may
trade at a premium or discount to NAV.
Associated
Risks Related to Investing in Blockchain Companies: Blockchain
companies may be adversely impacted by government regulations, limited operating
histories, or economic conditions. Blockchain technology is new and its uses are
in many cases untested or unclear. These companies may also have significant
exposure to fluctuations in the spot prices of digital assets, particularly to
the extent that demand for a company’s hardware or services may increase as the
spot price of digital assets increase. Blockchain companies typically face
intense competition and potentially rapid product obsolescence. In addition,
many Blockchain companies store sensitive consumer information and could be the
target of cybersecurity attacks and other types of theft, which could have a
negative impact on these companies. Access to a given blockchain may require a
specific cryptographic key (in effect, a string of characters granting unique
access to initiate transactions related to specific digital assets) or set of
keys, the theft, loss, or destruction of which, either by accident or as a
result of the efforts of a third party, could irrevocably impair a claim to the
digital assets stored on that blockchain.
Many
Blockchain companies currently operate under less regulatory scrutiny than
traditional financial services companies and banks, but there is significant
risk that regulatory oversight could increase in the future. For example,
companies that operate trading platforms and/or exchanges may face heightened
regulatory risks associated with their operations. The SEC has made several
public statements indicating that some cryptocurrency exchanges may be operating
unregistered securities exchanges in violation of applicable regulations. In
August 2021, the SEC settled charges with Poloniex for selling digital asset
securities between 2017 and 2019 without registering as a national securities
exchange. Higher levels of regulation could increase costs and adversely impact
the current business models of some Blockchain companies and could even result
in the outright prohibition of certain business activities. For example, on
September 24, 2021, multiple Chinese regulators issued prohibitions on all
cryptocurrency transactions and mining. Any further restrictions imposed by
governments, including China or the United States of America, on crypto-currency
related activities may adversely impact Blockchain Companies and, in turn, the
Fund. These companies could be negatively impacted by disruptions in service
caused by hardware or software failure, or by interruptions or delays in service
by third-party data center hosting facilities and maintenance providers.
Blockchain companies involved in digital assets may face slow adoption rates and
be subject to higher levels of regulatory scrutiny in the future, which could
severely impact the viability of these companies. Blockchain companies,
especially smaller companies, tend to be more volatile than companies that do
not rely heavily on technology. The customers and/or suppliers of Blockchain
companies may be concentrated in a particular country, region or industry. Any
adverse event affecting one of these countries, regions or industries could have
a negative impact on Blockchain companies. Many Blockchain companies have
limited operating histories and may lack the necessary safeguards to ensure
their long-term viability. In July 6, 2022, Voyager Digital, a U.S. crypto
brokerage filed for Chapter 11 bankruptcy protection. Voyager Digital suffered
significant losses due to its lending practices in which they issued
under-collateralized loans to companies within the digital asset ecosystem.
Shares of Voyager Digital were subsequently delisted from the Toronto Stock
Exchange.
Bitcoin
Risk: Bitcoin
is a relatively new asset with a limited history. It is subject to unique and
substantial risks, and historically has been a highly speculative asset and has
experienced significant price volatility. While the Fund will not invest
directly in bitcoin, the value of the Fund’s investments in Bitcoin Futures and
bitcoin funds is subject to fluctuations in the value of the bitcoin, which may
be highly volatile.
The
value of bitcoin is determined by supply and demand in the global market, which
consists primarily of transactions of bitcoin on electronic exchanges (“Bitcoin
Exchanges”). Pricing on Bitcoin Exchanges and/or other venues could drop
precipitously for a variety of reasons, including, but not limited to,
regulatory changes, a crisis of confidence, a flaw or operational issue in the
bitcoin network, or users preferring competing digital assets and
cryptocurrencies. The further development of bitcoin as an asset and the growing
acceptance and use of bitcoin in the marketplace are subject to a variety of
factors that are difficult to evaluate. Currently, there is relatively limited
use of bitcoin in the retail and commercial marketplace, which contributes to
price volatility. A lack of expansion, or a contraction in the use of bitcoin,
may result in increased volatility in its value. Legal or regulatory changes may
negatively impact the operation of bitcoin’s network or protocols or restrict
the ability to use bitcoin. Additionally, bitcoin transactions are irrevocable
and stolen or incorrectly
5
transferred
bitcoin may be irretrievable. The realization of any of these risks could result
in a decline in the acceptance of bitcoin and consequently a reduction in the
value of bitcoin, Bitcoin Futures, and the Fund.
Bitcoin
also is subject to the risk of fraud, theft and manipulation, as well as
security failures and operational or other problems that impact bitcoin trading
venues. Unlike the exchanges utilized by traditional assets, such as equity and
bond securities, Bitcoin Exchanges are largely unregulated. As a result,
individuals or groups may engage in fraud and investors in bitcoin may be more
exposed to the risk of theft and market manipulation than when investing in more
traditional asset classes. Investors in bitcoin may have little or no recourse
should such theft, fraud or manipulation occur and could suffer significant
losses, which could ultimately impact bitcoin utilization, the price of bitcoin
and the value of Fund investments with indirect exposure to bitcoin.
Additionally, if one or a coordinated group of miners were to gain control of
51% of the Bitcoin Network, they would have the ability to manipulate
transactions, halt payments and fraudulently obtain bitcoin. A significant
portion of bitcoin is held by a small number of holders, who may have the
ability to manipulate the price of bitcoin. In addition, Bitcoin Exchanges are
subject to the risk of cybersecurity threats and in the past have been breached,
resulting in the theft and/or loss of digital assets, including bitcoin. A risk
also exists with respect to malicious actors or previously unknown
vulnerabilities in the network or its protocols, which may adversely affect the
value of bitcoin.
Shares
of some bitcoin funds may trade at a premium or discount to the net asset value
of the bitcoin fund itself. For more detailed information on the risks related
to bitcoin, see “A Further Discussion of Principal Risks – Bitcoin
Risk”.
Capitalization
Risk:
Investing in issuers within the same market capitalization category carries the
risk that the category may be out of favor due to current market conditions or
investor sentiment.
Large-Capitalization
Companies Risk: Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk: Mid-capitalization
companies may have greater price volatility, lower trading volume and less
liquidity than large-capitalization companies. In addition, mid-capitalization
companies may have smaller revenues, narrower product lines, less management
depth and experience, smaller shares of their product or service markets, fewer
financial resources and less competitive strength than large-capitalization
companies.
Small-Capitalization
Companies Risk:
Compared to mid- and large-capitalization companies, small-capitalization
companies may be less stable and more susceptible to adverse developments, and
their securities may be more volatile and less liquid.
Micro-Capitalization
Companies Risk:
Stock prices of micro-cap companies are significantly more volatile, and more
vulnerable to adverse business and economic developments, than those of larger
companies, and their earnings and revenues tend to be less predictable (and some
companies may experience significant losses). Microcap stocks may also be thinly
traded, making it difficult for the Fund to buy and sell them.
Cash
Transaction Risk:
Unlike most exchange-traded funds ("ETFs"), the Fund intends to effect a
significant portion of creations and redemptions for cash, rather than in-kind
securities. As a result, an investment in the Fund may be less tax-efficient
than an investment in a more conventional ETF. Moreover, cash transactions may
have to be carried out over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and taxes. These factors
may result in wider spreads between the bid and the offered prices of the Fund’s
Shares than for more conventional ETFs. Additionally, to the extent that
brokerage or other costs are costs or taxable gains or losses that the Fund
might not offset by transaction fees, such costs may be borne by the Fund and
result in a decrease in the value of the Fund.
Commodity
Pool Registration Risk: Under
amended regulations promulgated by the CFTC, the Fund and the Subsidiary are
considered commodity pools, and therefore each is subject to regulation under
the Commodity Exchange Act and CFTC rules. Global X has registered as a
commodity pool operator and manages the Fund and the Subsidiary in accordance
with CFTC rules, as well as the rules that apply to registered investment
companies. Commodity pools are subject to additional laws, regulations and
enforcement policies, all of which may potentially increase compliance costs and
may affect the operations and financial performance of the Fund and the
Subsidiary. Additionally, positions in futures and other contracts may have to
be liquidated at disadvantageous times or prices to prevent the Fund from
exceeding any applicable position limits established by the CFTC. Such actions
may subject the Fund to substantial losses.
Cryptocurrency
Risk:
Cryptocurrency (notably, bitcoin), often referred to as “virtual currency” or
“digital currency,” operates as a decentralized, peer-to-peer financial exchange
and value storage that is used like money. The Fund will have exposure to
6
bitcoin,
a cryptocurrency, indirectly through investment in Bitcoin Futures, and
individual Blockchain Companies held by the Fund may have exposure to
cryptocurrencies, including cryptocurrencies other than bitcoin.
Cryptocurrencies operate without central authority or banks and are not backed
by any government. Cryptocurrencies may experience very high volatility, and
related investment vehicles that invest in cryptocurrencies may be affected by
such volatility. Cryptocurrency is not legal tender. Federal, state or foreign
governments may restrict the use and exchange of cryptocurrency, and regulation
in the U.S. is still developing. Cryptocurrency exchanges have stopped operating
and have permanently shut down due to fraud, technical glitches, hackers or
malware. Cryptocurrency exchanges are new, largely unregulated, and may be more
exposed to fraud.
Cryptocurrency
Tax Risk: By
investing in Bitcoin Futures indirectly through the Subsidiary, the Fund will
obtain exposure to cryptocurrency within the federal tax requirements that apply
to the Fund. However, because the Subsidiary is a controlled foreign
corporation, any income received by the Fund from its investments in the
Subsidiary will be passed through to the Fund as ordinary income, which may be
taxed at less favorable rates than capital gains.
Currency
Risk:
The Fund may invest in securities denominated in foreign currencies. Because the
Fund's NAV is determined in U.S. dollars, the Fund's NAV could decline if the
foreign currencies depreciate against the U.S. dollar or if there are delays or
limits on repatriation of such currencies. Currency exchange rates can be very
volatile and can change quickly and unpredictably. As a result, the Fund's NAV
may change quickly and without warning, which could have a significant negative
impact on the Fund. Additionally, the Chinese government heavily regulates the
domestic exchange of foreign currencies and yuan exchange rates in China, which
may adversely affect the operations and financial results of the Fund’s
investments in China. Shares purchased through the Stock Connect Programs will
be purchased using offshore yuan, the value of which may differ from and
experience greater volatility than the value of onshore yuan. Offshore yuan
cannot be freely remitted into or transferred out of China, and there is no
assurance that there will always be sufficient amounts of offshore yuan
available for the Fund to invest.
Custody
Risk:
The Fund may hold foreign securities and cash with foreign banks, agents, and
securities depositories appointed by the Fund's custodian. Investments in
emerging markets may be subject to even greater custody risks than investments
in more developed markets. Less developed markets are more likely to experience
problems with the clearing and settling of trades and the holding of securities
by local banks, agents and depositories.
Focus
Risk: The
Fund may be susceptible to an increased risk of loss, including losses due to
events that adversely affect the Fund’s investments more than the market as a
whole, to the extent that the Fund's investments are focused in the securities
of a particular issuer or issuers within the same geographic region, market,
industry, group of industries, sector or asset class.
Foreign
Securities Risk:
The Fund may invest, within U.S. regulations, in foreign securities. The Fund's
investments in foreign securities can be riskier than U.S. securities
investments. Investments in the securities of foreign issuers (including
investments in ADRs and GDRs) are subject to the risks associated with investing
in those foreign markets, such as heightened risks of inflation or
nationalization. The prices of foreign securities and the prices of U.S.
securities have, at times, moved in opposite directions. In addition, securities
of foreign issuers may lose value due to political, economic and geographic
events affecting a foreign issuer or market. During periods of social, political
or economic instability in a country or region, the value of a foreign security
traded on U.S. exchanges could be affected by, among other things, increasing
price volatility, illiquidity, or the closure of the primary market on which the
security (or the security underlying the ADR or GDR) is traded. You may lose
money due to political, economic and geographic events affecting a foreign
issuer or market. Where all or a portion of the Fund's underlying securities
trade in a market that is closed when the market in which the Fund's shares are
listed and trading is open, there may be differences between the last quote from
the security’s closed foreign market and the value of the security during the
Fund’s domestic trading day. This in turn could lead to differences between the
market price of the Fund’s shares and the underlying value of those shares.
Fork
and Air Drop Risk: When
Bitcoin experiences a fork or an air drop, a holder of bitcoin typically will
receive an additional digital asset or will be entitled to claim an additional
digital asset. These additional digital assets may have significant value, and
the value of bitcoin may decline significantly following a fork or air drop.
Because the Fund does not hold bitcoin directly, it will not be entitled to
participate in any fork or air drop, but it will be adversely impacted by any
resulting decline in the price of bitcoin due to its holdings of Bitcoin
Futures. Some futures exchanges may in the future publish mechanisms intended to
compensate holders of Bitcoin Futures for the loss in value following certain
forks that meet specified criteria, there can be no assurance that these
mechanisms will adequately compensate the Fund for the full loss of value or
that any particular fork will meet the criteria for an adjustment. In
particular, there is substantial uncertainty as to how these adjustment
mechanisms will be implemented by the exchanges in practice, both in terms of
what forks and air drops will trigger an adjustment, and whether a holder of
Bitcoin Futures will receive a cash adjustment or an additional futures contract
linked to the new digital asset. Because of the uncertainty around these
adjustment mechanisms, it is also possible that a significant fork of Bitcoin
could lead to extended trading halts for the Bitcoin Futures held by the Fund,
which could lead to significant liquidity
7
and
valuation risks for the Fund. It is possible that a fork of Bitcoin could
substantially reduce the value of the Bitcoin Futures held by the
Fund.
Geographic
Risk: A
natural, biological or other disaster could occur in a geographic region in
which the Fund invests, which could affect the economy or particular business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in the affected region or in a region
economically tied to the affected region. The securities in which the Fund
invests and, consequently, the Fund are also subject to specific risks as a
result of their business operations, including, but not limited to:
Risk
of Investing in Canada:
The Canadian economy is highly dependent on the demand for and price of natural
resources. As a result, the Canadian market is relatively concentrated in
issuers involved in the production and distribution of natural resources and any
changes in these sectors could have an adverse impact on the Canadian economy.
The Canadian economy is heavily dependent on relationships with certain key
trading partners, including the United States and China. Developments in the
United States, including renegotiation of the North American Free Trade
Agreement (“NAFTA”) and ratification of the successor United
States-Mexico-Canada Agreement (“USMCA”), which went into effect on July 1,
2020, as well as the imposition of additional tariffs by the United States, may
have implications for the trade arrangements between the United States and
Canada, which could negatively affect the value of securities held by the
Fund.
Risk
of Investing in China:
Investment exposure to China subjects the Fund to risks specific to China.
Economic,
Political and Social Risk
China
may be subject to considerable degrees of economic, political and social
instability. Concerns about the rising government and household debt levels
could impact the stability of the Chinese economy. China is an emerging market
and demonstrates significantly higher volatility from time to time in comparison
to developed markets. Over the last few decades, the Chinese government has
undertaken reform of economic and market practices, including recent reforms to
liberalize its capital markets and expand the sphere for private ownership of
property in China. However, Chinese markets generally continue to experience
inefficiency, volatility and pricing anomalies resulting from governmental
influence, a lack of publicly available information and/or political and social
instability. Chinese companies are also subject to the risk that Chinese
authorities can intervene in their operations and structure. Internal social
unrest or confrontations with other neighboring countries, including military
conflicts in response to such events, may also disrupt economic development in
China and result in a greater risk of currency fluctuations, currency
convertibility, interest rate fluctuations and higher rates of inflation.
China
has experienced major health crises. These health crises include, but are not
limited to, the rapid and pandemic spread of novel viruses commonly known as
SARS, MERS, and COVID-19 (Coronavirus). Such health crises could exacerbate
political, social, and economic risks previously mentioned.
Export
growth continues to be a major driver of China’s rapid economic growth. Elevated
trade tensions between China and its trading partners, including the imposition
of U.S. tariffs on certain Chinese goods and increased international pressure
related to Chinese trade policy and forced technology transfers and intellectual
property protections, may have a substantial impact on the Chinese economy.
Reduction in spending on Chinese products and services, institution of
additional tariffs or other trade barriers (including as a result of heightened
trade tensions between China and the U.S. or in response to actual or alleged
Chinese cyber activity), or a downturn in any of the economies of China’s key
trading partners may have an adverse impact on the Chinese economy. The
continuation or worsening of the current political climate between China and the
U.S. could result in additional regulatory restrictions being contemplated or
imposed in the U.S. or in China that could impact the Fund’s ability to invest
in certain companies.
Security
Risk
China
has experienced security concerns, such as terrorism and strained international
relations. Additionally, China is alleged to have participated in
state-sponsored cyberattacks against foreign companies and foreign governments.
Actual and threatened responses to such activity, including purchasing
restrictions, sanctions, tariffs or cyberattacks on the Chinese government or
Chinese companies, may impact China’s economy and Chinese issuers of securities
in which the Fund invests. Incidents involving China’s or the region’s security,
including the contagion of infectious viruses or diseases, may cause uncertainty
in Chinese markets and may adversely affect the Chinese economy and the Fund’s
investments.
Heavy
Government Control and Regulation
Chinese
companies, including Chinese companies that are listed on U.S. exchanges, are
not subject to the same degree of regulatory requirements, accounting standards
or auditor oversight as companies in more developed countries, and
8
as
a result, information about the Chinese securities in which the Fund invests may
be less reliable or complete. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against Chinese
companies and shareholders may have limited legal remedies. Investments in China
may be subject to loss due to expropriation or nationalization of assets and
property or the imposition of restrictions on foreign investments and
repatriation of capital. Furthermore, government actions against leaders or
other key figures within companies, or speculation about such actions, may lead
to sudden and unpredictable falls in the value of securities within the
Fund.
Tax
Risk
China
has implemented a number of tax reforms in recent years and may amend or revise
its existing tax laws and/or procedures in the future, possibly with retroactive
effect. Changes in applicable Chinese tax law could reduce the after-tax profits
of the Fund, directly or indirectly, including by reducing the after-tax profits
of companies in China in which the Fund invests. Uncertainties in Chinese tax
rules could result in unexpected tax liabilities for the Fund. Should
legislation limit U.S. investors’ ability to invest in specific Chinese
companies through A-shares or other share class listings that are part of the
underlying holdings, these shares may be excluded from Fund
holdings.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the Chinese government restricts foreign
ownership to raise capital from foreign investors. While the shell company has
no equity ownership of the VIE, these contractual arrangements permit the shell
company to consolidate the VIE’s financial statements with its own for
accounting purposes and provide for economic exposure to the performance of the
underlying Chinese operating company.
Therefore,
an investor in the listed shell company, such as the Fund, will have exposure to
the Chinese-based operating company only through contractual arrangements and
has no ownership in the Chinese-based operating company. Furthermore, because
the shell company only has specific rights provided for in these service
agreements with the VIE, its abilities to control the activities at the
Chinese-based operating company are limited and the operating company may engage
in activities that negatively impact investment value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without the Chinese-based
issuer’s authorization to enter into contractual arrangements in China. Chops
and seals, which are carved stamps used to sign documents, represent a legally
binding commitment by the company. Moreover, any future regulatory action may
prohibit the ability of the shell company to receive the economic benefits of
the Chinese-based operating company, which may cause the value of the Fund’s
investment in the listed shell company to suffer a significant loss. For
example, in 2021, the Chinese government prohibited use of the VIE structure for
investment in after-school tutoring companies. There is no guarantee that the
Chinese government will not place similar restrictions on other
industries.
Chinese
equities that utilize the VIE structure to list in the U.S. as ADRs face the
risk of regulatory action from U.S. authorities, including the risk of
delisting. This will depend in part on whether U.S. regulatory authorities are
satisfied with their access to Mainland China and Hong Kong for the purpose of
conducting inspections on the quality of audits for these companies. Although
the U.S. and China reached an agreement in September 2022 to grant the U.S.
access for such inspections, there is no guarantee that the agreement will hold
up or that U.S. regulatory authorities will continue to feel satisfied with
their access.
Risk
of Investing in Developed Markets:
The Fund’s investment in a developed country issuer may subject the Fund to
regulatory, political, currency, security, economic and other risks associated
with developed countries. Developed countries tend to represent a significant
portion of the global economy and have generally experienced slower economic
growth than some less developed countries. Certain developed countries have
experienced security concerns, such as terrorism and strained international
relations. Incidents involving a country’s or region’s security may cause
uncertainty in its markets and may adversely affect its economy and the Fund’s
investments. In addition, developed countries may be impacted by changes to the
economic conditions of certain key trading partners, regulatory burdens, debt
burdens and the price or availability of certain
commodities.
9
Risk
of Investing in Emerging Markets: Investments
in emerging markets may be subject to a greater risk of loss than investments in
developed markets. Securities markets of emerging market countries are less
liquid, subject to greater price volatility, have smaller market
capitalizations, have less government regulation, and are not subject to as
extensive and frequent accounting, financial, and other reporting requirements
as the securities markets of more developed countries, and there may be greater
risk associated with the custody of securities in emerging markets. It may be
difficult or impossible for the Fund to pursue claims against an emerging market
issuer in the courts of an emerging market country. There may be significant
obstacles to obtaining information necessary for investigations into or
litigation against emerging market companies and shareholders may have limited
legal rights and remedies. Emerging markets may be more likely to experience
inflation, political turmoil and rapid changes in economic conditions than more
developed markets. Emerging market economies’ exposure to specific industries,
such as tourism, and lack of efficient or sufficient health care systems, could
make these economies especially vulnerable to global crises, including but not
limited to, pandemics such as the global COVID-19 pandemic. Certain emerging
market countries may have privatized, or have begun the process of privatizing,
certain entities and industries. Privatized entities may lose money or be
re-nationalized.
International
Closed Market Trading Risk: To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote from the closed foreign market).
These deviations could result in premiums or discounts to the Fund’s NAV that
may be greater than those experienced by other exchange-traded funds
("ETFs").
Investable
Universe of Companies Risk:
The investable universe of companies in which the Fund may invest may be
limited. The Fund may hold a large concentration of its net assets in a
single security or issuer. Holding a large concentration in a single security or
issues may expose the Fund to the market volatility of that specific security or
issuer if the security performs worse than the market as a whole, which could
adversely affect the Fund’s performance.
Issuer
Risk:
Fund performance depends on the performance of individual companies in which the
Fund invests. Changes to the financial condition of any of those companies may
cause the value of such company's securities to decline.
Market
Risk:
Turbulence in the financial markets and reduced liquidity may negatively affect
issuers, which could have an adverse effect on the Fund. If the securities held
by the Fund experience poor liquidity, the Fund may be unable to transact at
advantageous times or prices, which may decrease the Fund’s returns. In
addition, there is a risk that policy changes by central governments and
governmental agencies, including the U.S. Federal Reserve or the European
Central Bank, which could include increasing interest rates, could cause
increased volatility in financial markets and lead to higher levels of Fund
redemptions from Authorized Participants, which could have a negative impact on
the Fund. Furthermore, local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health issues,
recessions, or other events could have a significant impact on the Fund and its
investments and trading of its Shares. For example, at the start of 2023,
central banks had already increased interest rates at the fastest rate on
record, and it is unknown how long this trend will continue and when inflation
will return to target levels. This increases the risk that monetary policy may
provide less support should economic growth slow. Additionally, China’s shift
away from a zero-COVID policy creates both opportunities and risks, causing
uncertainty for global economic growth. Market risk factors may result in
increased volatility and/or decreased liquidity in the securities markets. The
Fund’s NAV could decline over short periods due to short-term market movements
and over longer periods during market downturns.
Operational
Risk: The
Fund is exposed to operational risk arising from a number of factors, including
but not limited to human error, processing and communication errors, errors of
the Fund's service providers, counterparties or other third-parties, failed or
inadequate processes and technology or systems failures. Additionally, cyber
security failures or breaches of the electronic systems of the Fund, the Adviser
and the Fund's other service providers, market makers, Authorized Participants
or the issuers of securities in which the Fund invests have the ability to cause
disruptions and negatively impact the Fund's business operations, potentially
resulting in financial losses to the Fund and its shareholders. The Fund and the
Adviser seek to reduce these operational risks through controls and procedures.
However, these measures do not address every possible risk and may be inadequate
for those risks that they are intended to
address.
10
Qualifying
Income Risk: The
Fund expects to obtain exposure to bitcoin by purchasing listed futures
contracts. The Fund intends to invest in such contracts, in whole or in part,
indirectly through the Global X Subsidiary. In order for the Fund to qualify as
a RIC, the Fund must, amongst other requirements detailed in the SAI, derive at
least 90% of its gross income each taxable year from qualifying income. Income
from listed Bitcoin Futures contracts in which the Fund invests directly may not
be considered qualifying income. The Fund will seek to limit such income so as
to qualify as a RIC. Failure to comply with the requirements for qualification
as a RIC would have significant negative tax consequences to Fund
shareholders.
Risks
Associated with Exchange-Traded Funds:
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 and engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. To the extent that those
Authorized Participants exit the business or are unable to process creation
and/or redemption orders, such as in times of market stress, Shares may be more
likely to trade at a premium or discount to NAV and/or at wider intraday bid-ask
spreads, and possibly face trading halts and/or delisting from an exchange.
Authorized Participants Concentration Risk may be heightened because the Fund
invests in non-U.S. securities.
Large
Shareholder Risk: Redemptions
by large shareholders could have a significant negative impact on the Fund. If a
large shareholder were to redeem all, or a large portion, of its Shares, there
is no guarantee that the Fund will be able to maintain sufficient assets to
continue operations in which case the Board of Trustees may determine to
liquidate the Fund. In addition, transactions by large shareholders may account
for a large percentage of the trading volume on a national securities exchange
and may, therefore, have a material upward or downward effect on the market
price of the Shares.
Listing
Standards Risk:
The Fund is required to comply with listing requirements adopted by the listing
exchange. Non-compliance with such requirements may result in the Fund's shares
being delisted by the listing exchange. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs and could result in
negative tax consequences for its shareholders.
Market
Trading Risks and Premium/Discount Risks:
Shares of the Fund are publicly traded on a national securities exchange, which
may subject shareholders to numerous market trading risks. In stressed market
conditions, the market for the Shares may become less liquid in response to the
deteriorating liquidity of the Fund’s portfolio. This adverse effect on the
liquidity of the Shares, as well as disruptions to creations and redemptions,
the existence of extreme market volatility or potential lack of assets in the
Fund or an active trading market for Shares may result in Shares trading at a
significant premium or discount to NAV. If a shareholder purchases Shares at a
time when the market price is at a premium to the NAV or sells Shares at a time
when the market price is at a discount to the NAV, the shareholder may sustain
losses. The NAV of the Fund is calculated at the end of each business day and
fluctuates with changes in the market value of the Fund’s holdings. The trading
price of the Fund’s shares fluctuates, in some cases materially, throughout
trading hours in response to changes in the Fund’s NAV.
Risk
of Investing in Bitcoin Futures Contracts Risk: A
futures contract may generally be described as an agreement for the future sale
by one party and the purchase by another of a specified security or instrument
at a specified price and time. The risks of futures contracts include but are
not limited to: (1) the success of the Adviser’s ability to predict movements in
the prices of individual currencies or securities, fluctuations in markets and
movements in interest rates; (2) an imperfect or no correlation between the
changes in market value of the currencies or securities and the prices of
futures contracts; and (3) no guarantee that an active market will exist for the
contracts at any particular time.
Risks
Related to Stock Connect Programs:
The Stock Connect Programs are subject to daily and aggregate quota limitations,
which could affect the Fund’s ability to enter into and exit Stock Connect
positions on a timely basis. The Shenzen and Shanghai markets may operate when
the Stock Connect Programs are not active, and consequently the prices of shares
held via Stock Connect Programs may fluctuate at times when the Fund is unable
to add to or exit its positions. The Stock Connect Programs are new, and the
effect of the introduction of large numbers of foreign investors on the market
for trading Chinese-listed securities is not well understood. Regulations, such
as limitations on redemptions or suspension of trading, may adversely impact the
value of the Fund’s investments. The Fund's investments in A-Shares though the
Stock Connect Program are held by its custodian in accounts in Central Clearing
and Settlement System ("CCASS") maintained by the Hong Kong Securities Clearing
Company Limited ("HKSCC"), which in turn holds the A-Shares, as the nominee
holder, through an omnibus securities account in its name registered with the
CSDCC. The precise nature and rights of the Fund as the beneficial owner of the
SSE Securities or SZSE Securities through HKSCC as nominee is not well defined
under Chinese law. There is no
11
guarantee
that the Shenzen, Shanghai, and Hong Kong Stock Exchanges will continue to
support the Stock Connect Programs in the future.
Subsidiary
Investment Risk: Changes
in the laws of the United States and/or the Cayman Islands, under which the Fund
and the Global X Subsidiary are organized, respectively, could result in the
inability of the Global X Subsidiary to operate as intended and could negatively
affect the Fund and its shareholders.
Tax
Risk: The
Fund expects to obtain exposure to bitcoin by purchasing listed futures
contracts. The Fund intends to invest in such contracts, in whole or in part,
indirectly through the Global X Subsidiary. In order for the Fund to qualify as
a RIC, the Fund must, amongst other requirements detailed in the SAI, derive at
least 90% of its gross income each taxable year from qualifying income. Income
from listed Bitcoin Futures contracts in which the Fund invests directly may not
be considered qualifying income. The Fund will seek to limit such income so as
to qualify as a RIC. Failure to comply with the requirements for qualification
as a RIC would have significant negative tax consequences to Fund
shareholders.
Trading
Halt Risk:
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading losses.
Turnover
Risk: The
Fund may engage in frequent and active trading, which may significantly increase
the Fund’s portfolio turnover rate. At
times, the Fund may have a portfolio turnover rate substantially greater than
100%. For example, a portfolio turnover rate of 300%
is equivalent to the Fund buying and selling all of its securities three times
during the course of a year. A
high portfolio turnover rate would result in
high brokerage costs for the Fund, may result in higher taxes when shares are
held in a taxable account and lower Fund performance.
Valuation
Risk: The
sales price the Fund could receive for any particular portfolio investment may
differ from the Fund’s valuation of the investment, particularly for securities
or other investments, such as Bitcoin Futures, that trade in thin or volatile
markets or that are valued using a fair value methodology. Valuation may be more
difficult in times of market turmoil since many investors and market makers may
be reluctant to purchase complex instruments or quote prices for them. The
Fund’s ability to value its investments may be impacted by technological issues
and/or errors by pricing services or other third-party service providers.
Investments in bitcoin funds are intended to reflect the price of bitcoin
assets, less fees and expenses, and the shares may trade at a substantial
premium to the net asset value of such assets. As such, the price of bitcoin
funds may go down even if the price of the underlying asset, bitcoin, remains
unchanged. Additionally, shares that trade at a premium mean that an investor
who purchases $1 of a portfolio will actually own less than $1 in
assets.
12
| - | ||||||||
| One Year Ended December 31, 2022 |
Since
Inception ( | |||||||
| Global X Blockchain & Bitcoin Strategy ETF: | ||||||||
|
|
- |
% | - |
% | ||||
|
|
- |
% | - |
% | ||||
|
|
- |
% | - |
% | ||||
Coin
Metrics Bitcoin Coin Index (CMBIBTC)
|
- |
% | - |
% | ||||
1
After-tax returns are
calculated using the historical highest individual U.S. federal marginal income
tax rates and do not reflect the impact of state and local
taxes. Your actual after-tax returns
will depend on your specific tax situation and may differ from those shown
above. After-tax returns are not relevant to investors who hold Shares of the
Fund through tax-advantaged arrangements, such as 401(k) plans or individual
retirement accounts (IRAs).
FUND
MANAGEMENT
Investment
Adviser:
Global X Management Company LLC (the “Adviser”).
Portfolio
Managers:
The professionals primarily responsible for the day-to-day management of the
Fund are Rohan Reddy, CFA and Pedro Palandrani (“Portfolio Managers”). Mr.
Palandrani has been a Portfolio Manager of the Fund since the Fund's inception
and Mr. Reddy has been a Portfolio Manager of the Fund since March 2022.
PURCHASE
AND SALE OF FUND SHARES
13
Shares
of the Fund are or will be listed and traded at market prices on a national
securities exchange. Shares may only be purchased and sold on the exchange
through a broker-dealer. The price of Shares is based on market price, and
because ETF shares trade at market prices rather than at NAV, Shares may trade
at a price greater than NAV (a premium) or less than NAV (a discount). Only
“Authorized Participants” (as defined in the SAI) who have entered into
agreements with the Fund’s distributor, SEI Investments Distribution Co.
(“Distributor”), may engage in creation or redemption transactions directly with
the Fund. The Fund will only issue or redeem Shares that have been aggregated
into blocks called “Creation Units”. The Fund will issue or redeem Creation
Units in return for a basket of cash and/or securities that the Fund specifies
any day that the national securities exchanges are open for business (“Business
Day”). 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 of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”). To
access information regarding the Fund’s net asset value, market price, premiums
and discounts, and bid-ask spreads, please go to
https://www.globalxetfs.com.
TAX
INFORMATION
The
Fund intends to make distributions that may be taxable to you as ordinary income
or capital gains, unless you are investing through a tax-advantaged arrangement
such as a 401(k) plan or an individual retirement account (“IRA”), in which case
distributions from such tax-advantaged arrangement may be taxable to you.
PAYMENTS
TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
The
Adviser and its related companies may pay broker-dealers or other financial
intermediaries (such as a bank) for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer, salespersons or other intermediary or its employees or associated
persons to recommend the Fund over another investment. Ask your financial
adviser or visit your financial intermediary’s website for more information.
14
ADDITIONAL
INFORMATION ABOUT THE FUND
This
Prospectus contains information about investing in the Fund. Please read this
Prospectus carefully before you make any investment decisions. Shares of the
Fund are listed for trading on a national securities exchange. The market price
for a Share of the Fund may be different from the Fund’s most recent NAV.
Exchange-traded funds ("ETFs") are funds that trade like other publicly-traded
securities. Each Share of the Fund represents an ownership interest in an
underlying portfolio of 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 Fund may be purchased or redeemed directly from the Fund
at NAV solely by Authorized Participants and only in Creation Unit increments.
Also unlike shares of a mutual fund, Shares of the Fund are listed on a national
securities exchange and trade in the secondary market at market prices that
change throughout the day. The Fund is designed to be used as part of broader
asset allocation strategies. Accordingly, an investment in the Fund should not
constitute a complete investment program.
The
Fund’s investment objective is to seek long-term capital appreciation. The Fund
is an actively managed ETF that seeks to achieve its investment objective by
investing directly or indirectly in equity securities of U.S. and non-U.S.
“Blockchain Companies”, as defined below, and in long positions in U.S. listed
bitcoin futures (“Bitcoin Futures”) contracts. Such Bitcoin Futures contracts
will be standardized, cash-settled bitcoin futures contracts traded on commodity
exchanges registered with the Commodity Futures Trading Commission (“CFTC”).
Currently, the only such contracts are traded on, or subject to the rules of,
the Chicago Mercantile Exchange (“CME”). Under normal circumstances, the Fund
will invest at least 80% of its net assets, plus the amount of any borrowings
for investment purposes, in Blockchain Companies and in long positions on U.S.
listed Bitcoin Futures contracts. Under normal circumstances, the Fund will
invest at least 25% of its assets in Blockchain Companies and will have notional
exposure to Bitcoin Futures equal to at least 20% of the total assets of the
Fund. As of the date of this Prospectus, the Fund intends to gain exposure to
Blockchain Companies indirectly through investing in underlying ETFs holding
Blockchain Companies, including the passively-managed affiliated Global X
Blockchain ETF.
Such
investment in underlying ETFs holding Blockchain Companies may be used to
provide most, or even all, of the Fund’s exposure to Blockchain Companies, and
it is possible that the Fund may or may not invest directly in any Blockchain
Companies.
The
Fund's 80% investment policy is non-fundamental and requires 60 days prior
written notice to shareholders before it can be changed.
The
Fund will invest substantially all of its assets in “long” positions on listed
Bitcoin Futures contracts and in Blockchain Companies, including indirectly by
investment in underlying ETFs holding Blockchain Companies, including the
passively-managed affiliated Global X Blockchain ETF. To be “long” means to hold
or be exposed to a security or instrument with the expectation that its value
will increase over time. The Fund will benefit if it has a long position in a
security or instrument that increases in value. The Fund seeks to gain exposure
to Bitcoin Futures, in whole or in part, through investments in a subsidiary
organized in the Cayman Islands,
namely
the Global X Bitcoin Strategy Subsidiary I (the “Global X Subsidiary”). The
Global X Subsidiary is wholly-owned and controlled by the Fund. The Fund’s
investment in the Global X Subsidiary may not exceed 25% of the Fund’s total
assets at each quarter-end of the Fund’s fiscal year. The Fund’s investment in
the Global X Subsidiary is intended to provide the Fund with exposure to Bitcoin
Futures while enabling the Fund to satisfy source-of-income requirements that
apply to regulated investment companies (“RICs”) under the Internal Revenue Code
of 1986, as amended (the “Code”). The Fund’s allocation determinations may be
informed by a variety of criteria, including, but not limited to, liquidity,
open interest/free float market capitalization, regulatory requirements,
anticipated cost of carry, correlation to the price movements of bitcoin, other
fundamental investment considerations and/or the then-current size of the Fund.
For example, the Fund may allocate proportionally greater exposure to Bitcoin
Futures during periods where the anticipated cost of carry for Bitcoin Futures
is lower, as measured by the time-weighted difference between the trading price
of Bitcoin Futures relative to the then-current price of bitcoin, and conversely
may allocate proportionally greater exposure to Blockchain Companies during
periods where valuation measures, including but not limited, to forward
price-to-earnings or price-to-sales ratios within the Blockchain Companies
universe present attractive relative value. Except as noted, references to the
investment strategies and risks of the Fund include the investment strategies
and risks of the Global X Subsidiary.
Bitcoin
is a digital asset the ownership and behavior of which are determined by
participants in an online, peer-to-peer network that connects computers that run
publicly accessible, or “open source,” software that follows an agreed upon set
of rules and procedures. This network is referred to as the "Bitcoin network,"
and the rules and procedures governing the Bitcoin network are commonly referred
to as the "Bitcoin protocol". The value of bitcoin, like the value of other
digital assets, is not backed by any government, corporation or other identified
body. Ownership and the ability to transfer or take other actions with respect
to bitcoin is protected through the Bitcoin protocol, which allows bitcoin to be
sent to a publicly available address that is generated from a private numerical
key, but which prevents anyone other than the holder of such private numerical
key from accessing the bitcoin associated with the publicly available address.
The supply of bitcoin is constrained or formulated by its protocol instead of
being explicitly delegated to an identified body (e.g., a central bank or
corporate treasury) to control. Bitcoin and certain
15
other
types of digital assets are sometimes referred to as digital currencies or
cryptocurrencies. No single entity owns or operates the Bitcoin network, the
infrastructure of which is collectively maintained by (1) a decentralized group
of participants who run computer software that results in the recording and
validation of transactions (commonly referred to as “miners”), (2) developers
who propose improvements to the Bitcoin protocol and the software that enforces
the protocol and (3) users who choose what Bitcoin software to run. Bitcoin was
released in 2009 and, as a result, there is little data on its long-term
investment potential. Bitcoin is not backed by a government-issued legal tender.
Bitcoin is “stored” or reflected on a blockchain. A blockchain is a distributed,
digital ledger that records and stores transaction data of digital assets in
units called “blocks”. The Fund will not invest in bitcoin
directly.
Blockchain
Companies include companies that derive or are expected to derive at least 50%
of their revenues, operating income, or assets from the following business
activities:
1.Digital
Asset Mining:
Companies involved in verifying and adding digital asset transactions to a
blockchain ledger (e.g. digital asset mining), or that produce technology used
in digital asset mining.
2.Blockchain
& Digital Asset Transactions:
Companies that operate trading platforms/exchanges, custodians, wallets, and/or
payment gateways for digital assets.
3.Blockchain
Applications:
Companies involved in the development and distribution of applications and
software services related to blockchain and digital asset technology, including
smart contracts.
4.Blockchain
& Digital Asset Hardware:
Companies that manufacture and distribute infrastructure and/or hardware used in
blockchain and digital asset activities.
5.Blockchain
& Digital Asset Integration:
Companies that provide engineering and consulting services specifically tied to
the adoption and utilization of blockchain and digital asset
technology.
Blockchain
Companies also include U.S.-listed operating companies that directly own a
material amount of digital assets.
As
of the date of this Prospectus, the Fund intends to gain exposure to Blockchain
Companies indirectly through investing in underlying ETFs holding Blockchain
Companies, including the passively-managed affiliated Global X Blockchain
ETF.
The
Fund may concentrate (i.e., hold 25% or more of its total assets) in investments
that provide exposure to bitcoin and Bitcoin Futures. The Fund concentrates its
investments (i.e., holds 25% or more of its total assets) in securities of
Blockchain Companies, including through its investment in underlying ETFs
holding Blockchain Companies, which will include the passively-managed
affiliated Global X Blockchain ETF.
Bitcoin
is recorded or reflected on a digital transaction ledger commonly known as a
“blockchain.” A blockchain is a type of shared and continually reconciled
database, retained in a decentralized manner on the computers of certain users
of the digital asset. A blockchain is a record of every digital asset: the
blockchain records every “coin” or “token,” balances of digital assets, every
transaction and every address associated with a quantity of a particular digital
asset. Bitcoin utilizes the blockchain to record transactions into and out of
different addresses, facilitating a determination of how much bitcoin is in each
address.
Bitcoin
is created by “mining.” Mining involves miners using a sophisticated computer
program to repeatedly solve complex mathematical problems on specialized
computer hardware. The mathematical problem involves a computation involving all
or some bitcoin transactions that have been proposed by the Bitcoin network’s
participants. When this problem is solved, the computer creates a “block”
consisting of these transactions. As each newly solved block refers back to and
“connects” with the immediately prior solved block, the addition of a new block
adds to the blockchain in a manner similar to a new link being added to a chain.
A miner’s proposed block is added to the blockchain once a majority of the nodes
on the network confirm the miner’s work. A miner that is successful in adding a
block to the blockchain is automatically awarded a fixed amount of bitcoin for
its efforts plus any transaction fees paid by transferors whose transactions are
recorded in the block. This reward system is the means by which new bitcoin
enter circulation. This reward system, called proof of work, also ensures that
the local copies of the Bitcoin blockchain maintained by participants in the
Bitcoin network are kept in consensus with one another.
Bitcoin
Futures
Futures
contracts, by their terms, reflect the expected future value of a reference
asset upon which the contract is based. A futures contract is a standardized
contract traded on, or subject to the rules of, an exchange to buy or sell a
specified type and quantity of a particular underlying asset at a designated
price. Futures contracts are traded on a wide variety of underlying assets,
including bitcoin, bonds, interest rates, agricultural products, stock indexes,
currencies, digital assets, energy, metals, economic indicators and statistical
measures. The notional size and calendar term of futures contracts on a
particular underlying asset are identical and are not subject to any
negotiation, other than with respect to price and the number of contracts traded
between the buyer and seller. Futures contracts expire on a designated date,
referred to as the “expiration date.”
16
The
Fund generally deposits cash (also known as “margin”) with a futures commission
merchant (“FCM “) for its open positions in futures contracts. The margin
requirements or position limits may be based on the notional exposure of the
futures contracts or the number of futures contracts purchased. The FCM, in
turn, generally transfers such deposits to the clearing house to protect the
clearing house against non-payment by the Fund. “Variation Margin” is the amount
of cash that each party agrees to pay to or receive from the other to reflect
the daily fluctuation in the value of the futures contract. The clearing house
becomes substituted for each counterparty to a futures contract and, in effect,
guarantees performance. In addition, the FCM may require the Fund to deposit
additional margin collateral in excess of the clearing house’s requirements for
the FCM’s own protection. Margin requirements for CME Bitcoin Futures are
substantially higher than margin requirements for many other types of futures
contracts. Margin requirements are subject to change and may be raised in the
future by the exchanges and the FCMs. High margin requirements could constrain
the Fund’s ability to obtain exposure to Bitcoin Futures. Further, FCMs utilized
by the Funds may impose limits on the amount of exposure to futures contracts
the Fund can obtain through such FCMs, which may also constrain the Fund’s
ability to obtain exposure to Bitcoin Futures may be constrained. Position
limits may also constrain the Fund’s ability to obtain Bitcoin Futures
exposure.
CME
Bitcoin Futures commenced trading on the CME Globex electronic trading platform
on December 17, 2017 under the ticker symbol “BTC”. CME Micro Bitcoin Futures
commenced trading on the CME Globex electronic trading platform on May 3, 2021
under the ticker symbol “MBT“. CME Bitcoin Futures and CME Micro Bitcoin Futures
are cash-settled in U.S. dollars, based on the CME CF Bitcoin Reference Rate
(“BRR”). CME Bitcoin Futures provide exposure to five bitcoin per contract,
while CME Micro Bitcoin Futures provide exposure to 1/10th
of one bitcoin per contract. The BRR is a volume-weighted composite of U.S.
dollar-bitcoin trading activity on the Constituent Exchanges. The Constituent
Exchanges are selected by CF Benchmarks based on the Constituent Exchange
Criteria. The Constituent Exchange Criteria requires each Constituent Exchange
to implement policies and procedures to ensure fair and transparent market
conditions and to identify and impede illegal, unfair or manipulative trading
practices. Additionally, each Constituent Exchange must comply with, among other
things, capital market regulations, money transmission regulations, client money
custody regulations, know-you-client regulations and anti-money laundering
regulations. Each Constituent Exchange is reviewed annually by an oversight
committee established by CF Benchmarks to confirm that the Constituent Exchange
continues to meet all criteria. CF Benchmarks and the BRR are subject to United
Kingdom Financial Conduct Authority Regulation.
Rolling
of Bitcoin Futures
As
the expiration date for a futures contract draws closer, an investor wishing to
maintain its exposure to that asset will close out its position in the expiring
futures contract and open a new position in a futures contract with a later
expiration date. This process is referred to as “rolling.” CME Bitcoin Futures
contracts are cash-settled on their expiration date unless they are “rolled”
prior to expiration. The Fund intends to roll its Bitcoin Futures contracts
prior to expiration. If the price of a long-term futures contract is greater
than the near-term futures price, the market is considered to be in “contango.”
If the price of a long-term futures contract is less than the near-term futures
price, the market is considered to be in “backwardation.” In “contango” markets,
the price of futures contracts with expiration dates in the near term generally
is lower than the price of futures contracts with more distant expiration dates,
resulting in a cost to “roll” the futures contract by replacing the near-term
contract with the long-term contract (the “roll cost”). The opposite is true
when the market is in backwardation, resulting in a gain from rolling the
futures contract (the “roll yield”). Whether an investor realizes roll costs or
roll yields depends upon the price differences between near-term and long-term
contracts. Rather than roll the futures contracts on a predefined schedule, the
Global X Subsidiary will generally roll to another futures contract (which the
Adviser selects from a universe of futures contracts) that the Adviser believes
will generate the greatest roll yield while accounting for the contract’s
liquidity. However, there can be no guarantee that such a strategy will produce
the desired results.
A
FURTHER DISCUSSION OF PRINCIPAL RISKS
The
Fund is subject to various risks, including the principal risks noted below, any
of which may adversely affect the Fund’s NAV, trading price, yield, total return
and ability to meet its investment objective. You could lose all or part of your
investment in the Fund, and the Fund could underperform other investments.
The
Fund may not be suitable for all investors and investors should carefully
consider and fully understand the risks involved in the Fund’s investment
strategy. The Fund’s indirect exposure to bitcoin may make the Fund a more
volatile investment than other funds.
The value of an investment in the Fund could decline significantly and without
warning, including to zero. An investor should be in a position to bear the
potential loss of their entire investment in the Fund.
Active
Management Risk
17
The
Fund is actively managed using proprietary investment strategies and processes.
There can be no guarantee that these strategies and processes will be successful
or that the Fund will achieve its investment objective.
The
performance of the Fund will reflect, in part, the ability of the Adviser to
select investments and to make investment decisions that are suited to achieving
the Fund’s investment objective. The Adviser’s assessment of a particular
investment, company, sector or country and/or assessment of broader economic,
financial or other macro views, may prove incorrect, including because of
factors that were not adequately foreseen, and the selection of investments may
not perform as well as expected when those investments were purchased or as well
as the markets generally, resulting in Fund losses or underperformance. There
can be no guarantee that these strategies and processes will produce the
intended results and no guarantee that the Fund will achieve its investment
objective or outperform other investment strategies over the short- or long-term
market cycles. This risk is exacerbated when an investment or multiple
investments made as a result of such decisions are significant relative to the
Fund’s net assets.
Asset
Class Risk
The
returns from the types of securities and/or assets in which the Fund invests may
under-perform returns from the various general securities markets or different
asset classes. The assets may under-perform investments that track other
markets, segments, sectors or assets. Different types of assets tend to go
through cycles of out-performance and under-performance in comparison to the
general securities markets.
Bitcoin
Futures Risk
Trading
in the cash bitcoin market remains difficult as compared to more traditional
cash markets, and in particular short selling bitcoin remains challenging and
costly. As a result of these features of the bitcoin cash market, market makers
and arbitrageurs may not be as willing to participate in the Bitcoin Futures
market as they are in other futures markets. Each of these factors may increase
the likelihood that the price of Bitcoin Futures will be volatile and/or will
deviate from the price of bitcoin. Bitcoin Futures may experience significant
price volatility. Exchange-specified collateral for Bitcoin Futures is
substantially higher than for most other futures contracts, and collateral may
be set as a percentage of the value of the contract, which means that collateral
requirements for long positions can increase if the price of the contract rises.
In addition, futures commission merchants (FCMs) may require collateral beyond
the exchange’s minimum requirement. FCMs may also restrict trading activity in
Bitcoin Futures by imposing position limits, prohibiting selling short the
future or prohibiting trades where the executing broker places a trade on behalf
of another broker (so-called “give-up transactions”). Although the Fund will
only take long positions in Bitcoin Futures, restrictions on the ability of
certain market participants to take short Bitcoin Futures positions may
ultimately constrain the Fund’s ability to take long positions in Bitcoin
Futures or may impact the price at which the Fund is able to take such
positions. Bitcoin Futures are subject to daily limits that may impede a market
participant’s ability to exit a position during a period of high volatility. See
“Derivatives Risk.”
Exchanges
where bitcoin is traded (which are the source of the price(s) used to determine
the cash settlement amount for the Fund’s Bitcoin Futures) have experienced
technical and operational issues, making bitcoin prices unavailable at times.
During periods of high volatility for bitcoin prices, the prices at which
bitcoin traded on various exchanges have diverged, and some bitcoin exchanges
have experienced issues relating to account access and trade execution during
such periods. The cash market in bitcoin has been the target of fraud and
manipulation, which could affect the pricing, volatility and liquidity of the
futures contracts. In addition, if settlement prices for Bitcoin Futures are
unavailable (which may occur following a trading suspension imposed by the
exchange due to large price movements or following a fork of Bitcoin, or for
other reasons) or the Adviser Valuation Committee determines such settlement
prices are unreliable, the fair value of the Fund’s Bitcoin Futures may be
determined by reference, in whole or in part, to the cash market in bitcoin. See
“Valuation Risk”. These circumstances may be more likely to occur with respect
to Bitcoin Futures than with respect to futures on more traditional
assets.
Additionally,
because the Fund does not intend to invest in bitcoin directly, it intends to
only invest in cash-settled Bitcoin Futures. This means that if the market for
Bitcoin Futures grows towards favoring physically-settled instruments (meaning
futures contracts that are settled by the actual delivery of bitcoin in exchange
for payment by the purchaser of the futures price agreed to at the outset of the
contract), the Fund will likely not benefit from this market growth. There is no
way to predict whether additional new offerings of Bitcoin Futures will be
cash-settled or physically-settled.
The
price for Bitcoin Futures is based on a number of factors, including the supply
of and the demand for Bitcoin Futures. Market conditions and expectations,
position limits, collateral requirements, and other factors each can impact
18
the
supply of and demand for Bitcoin Futures. Recently, increased demand paired with
supply constraints and other factors have caused Bitcoin Futures to trade at a
significant premium to the “spot” price of bitcoin. Additional demand, including
demand resulting from the purchase, or anticipated purchase, of futures
contracts by the Fund or other entities may increase that premium, perhaps
significantly. It is not possible to predict whether or how long such conditions
will continue. To the extent the Fund purchases Bitcoin Futures at a premium and
the premium declines, the value of an investment in the Fund also should be
expected to decline.
Futures
contracts with a longer term to expiration may be priced higher than futures
contracts with a shorter term to expiration, a relationship called “contango.”
Conversely, futures contracts with a longer term to expiration may be priced
lower than futures contracts with a shorter term to expiration, a relationship
called “backwardation.” When rolling futures contracts that are in contango, the
Fund may sell the expiring Bitcoin Futures at a lower price and buy a
longer-dated Bitcoin Futures at a higher price. The price difference between the
expiring contract and longer-dated contract associated with rolling Bitcoin
Futures is typically substantially higher than the price difference associated
with rolling other futures contracts. Bitcoin Futures have historically
experienced extended periods of contango. Contango in the Bitcoin Futures market
may have a significant adverse impact on the performance of the Fund and may
cause Bitcoin Futures to underperform spot bitcoin. Additionally, because of the
frequency with which the Fund may roll futures contracts, the impact of contango
or backwardation on Fund performance may be greater than it would have been if
the Fund rolled Bitcoin Futures less frequently.
China
A-Shares Risk
A-Shares
are issued by companies incorporated in mainland China and are traded on Chinese
exchanges. Foreign investors can access A-Shares by obtaining a QFII or a RQFII
license, as well as through the Stock Connect Programs. The Fund currently
intends to gain exposure to A-Shares through the Stock Connect Programs. Trading
suspensions in certain stocks could lead to greater market execution risk,
valuation risks, liquidity risks and costs for the Fund, as well as for
Authorized Participants that create and redeem Creation Units of the Fund. The
SSE and SZSE currently apply a daily limit of the amount of fluctuation
permitted in the prices of A-shares during a single trading day. The daily limit
refers to price movements only and does not restrict trading within the relevant
limit. There can be no assurance that a liquid market on an exchange will exist
for any particular A-share or for any particular time. Additionally, during
instances where aggregate limits on foreign ownership are exceeded. the Fund may
be unable to purchase additional equity securities of a particular company. This
could increase the Fund’s tracking error and/or cause the Fund to trade in the
market at greater bid-ask spreads or greater premiums or discounts to the Fund’s
NAV. Given that the A-share market is considered volatile and unstable (with the
risk of widespread trading suspensions or government intervention), the creation
and redemption of Creation Units (as defined below) may also be disrupted. These
risks, among others, could adversely affect the value of the Fund’s
investments.
Depositary
Receipts Risk
The
Fund may invest in depositary receipts, such as ADRs and GDRs. ADRs are
certificates that evidence ownership of shares of a foreign issuer and are
alternatives to purchasing the underlying foreign securities directly in their
national markets and currencies. GDRs are certificates issued by an
international bank that generally are traded and denominated in the currencies
of countries other than the home country of the issuer of the underlying
shares. Depositary receipts may be subject to certain of the risks
associated with direct investments in the securities of foreign companies. For
additional details on these risks, please see Foreign Securities Risk.
Moreover, depositary receipts may not track the price of the underlying foreign
securities on which they are based. Certain countries may limit the ability
to convert depositary receipts into the underlying foreign securities and vice
versa, which may cause the securities of the foreign company to trade at a
discount or premium to the market price of the related depositary receipts. A
holder of depositary receipts may also be subject to fees and the credit risk of
the financial institution acting as depositary.
Derivatives
Risk
Derivatives
risk is the risk that loss may result from the Fund’s investments in futures,
specifically Bitcoin Futures, which may be leveraged and are a type of
derivative contract. Investments in leveraged instruments may result in losses
exceeding the amounts invested. Futures
are standardized, exchange-traded contracts that obligate a purchaser to take
delivery, and a seller to make delivery, of a specific amount of an asset at a
specified future date at a specified price. Compared
to conventional securities, derivatives can be more sensitive to changes in
interest rates or to sudden fluctuations in market prices and thus the Fund’s
losses may be greater if it invests in derivatives than if it invests only in
conventional securities.
19
Derivative
instruments may be leveraged, which may result in losses exceeding the amounts
invested. Risks of these instruments include:
•That
the price of the future and the underlying reference asset do not move together
as expected;
•The
possible absence of a liquid secondary market for the futures, as well as
possible exchange-imposed price fluctuation limits, either of which may make it
difficult or impossible to close out a position when desired;
•That
adverse price movements in an instrument can result in a loss substantially
greater than the Fund’s initial investment in that instrument (in some cases,
the potential loss is unlimited);
•The
fact that “speculative position limits” imposed by the CFTC and certain futures
exchanges on net long and short positions may require the Fund to limit or
unravel positions in certain types of instruments; and
The
high levels of volatility some of these instruments may exhibit, in some cases
due to the high levels of leverage an investor may achieve with
them.
Equity
Securities Risk
The
Fund may invest in equity securities, which are subject to changes in value that
may be attributable to market perception of a particular issuer, general stock
market fluctuations that affect all issuers, or as a result of such factors as a
company’s business performance, investor perceptions, stock market trends and
general economic conditions. Investments in equity securities may be more
volatile than investments in other asset classes.
ETF
Investment Risk
The
Fund may hold ETFs to gain exposure to securities of Blockchain Companies. As a
result, the Fund may be subject to the same risks as the underlying ETFs. While
the risks of owning shares of an underlying ETF generally reflect the risks of
owning the underlying securities the ETF is designed to track, lack of liquidity
in an underlying ETF can result in its value being more volatile than the
underlying portfolio securities. Because the value of an underlying ETF's shares
depends on the demand in the market, the Adviser may not be able to liquidate
the Fund’s holdings in those shares at the most optimal time, thereby adversely
affecting the Fund’s performance. In addition, an underlying ETF's shares may
trade at a premium or discount to NAV.
In
addition, investments in the securities of underlying ETFs may involve
duplication of advisory fees and certain other expenses. The Fund will pay
brokerage commissions in connection with the purchase and sale of shares of
underlying ETFs, which could result in greater expenses to the Fund. By
investing in an underlying ETF, the Fund becomes a shareholder thereof. As a
result, Fund shareholders indirectly bear the Fund’s proportionate share of the
fees and expenses indirectly paid by shareholders of the underlying ETF, in
addition to the fees and expenses Fund shareholders indirectly bear in
connection with the Fund’s own operations. In addition, certain of the
underlying ETFs may hold common portfolio positions, thereby reducing the
diversification benefits of an asset allocation style.
If
an underlying ETF fails to achieve its investment objective, the value of the
Fund’s investment may decline, adversely affecting the Fund’s performance.
Additionally, some ETFs are not registered under the 1940 Act and therefore, are
not subject to the regulatory scheme and investor protections of the 1940 Act.
A
complete list of each underlying ETF held by the Fund can be found daily on the
Trust’s website. Each investor should review the complete description of the
principal risks of each underlying ETF prior to investing in the
Fund.
Associated
Risks Related to Investing in Blockchain Companies
Blockchain
companies may be adversely impacted by government regulations, limited operating
histories, or economic conditions. Blockchain technology is new and its uses are
in many cases untested or unclear. These companies may also have significant
exposure to fluctuations in the spot prices of digital assets, particularly to
the extent that demand for a company’s hardware or services may increase as the
spot price of digital assets increase. Blockchain companies typically face
intense competition and potentially rapid product obsolescence. In addition,
many Blockchain companies store sensitive consumer information and could be the
target of cybersecurity attacks and other types of theft, which could have a
negative impact on these companies. Access to a given blockchain may require a
specific cryptographic key (in effect, a string of characters
20
granting
unique access to initiate transactions related to specific digital assets) or
set of keys, the theft, loss, or destruction of which, either by accident or as
a result of the efforts of a third party, could irrevocably impair a claim to
the digital assets stored on that blockchain.
Many Blockchain companies currently operate under less regulatory scrutiny than traditional financial services companies and banks, but there is significant risk that regulatory oversight could increase in the future. For example, companies that operate trading platforms and/or exchanges may face heightened regulatory risks associated with their operations. The SEC has made several public statements indicating that some cryptocurrency exchanges may be operating unregistered securities exchanges in violation of applicable regulations. In August 2021, the SEC settled charges with Poloniex for selling digital asset securities between 2017 and 2019 without registering as a national securities exchange. In November 2022, the collapse and subsequent Chapter 11 bankruptcy of major trading platforms FTX and BlockFi severely impacted investor confidence in cryptocurrencies and prompted calls for more regulatory action. Higher levels of regulation could increase costs and adversely impact the current business models of some Blockchain companies and could even result in the outright prohibition of certain business activities. For example, on September 24, 2021, multiple Chinese regulators issued prohibitions on all cryptocurrency transactions and mining. Any further restrictions imposed by governments, including China or the United States of America, on crypto-currency related activities may adversely impact Blockchain Companies and, in turn, the Fund. These companies could be negatively impacted by disruptions in service caused by hardware or software failure, or by interruptions or delays in service by third-party data center hosting facilities and maintenance providers. Blockchain companies involved in digital assets may face slow adoption rates and be subject to higher levels of regulatory scrutiny in the future, which could severely impact the viability of these companies. Blockchain companies, especially smaller companies, tend to be more volatile than companies that do not rely heavily on technology. The customers and/or suppliers of Blockchain companies may be concentrated in a particular country, region or industry. Any adverse event affecting one of these countries, regions or industries could have a negative impact on Blockchain companies. Many Blockchain companies have limited operating histories and may lack the necessary safeguards to ensure their long-term viability. In July 6, 2022, Voyager Digital, a U.S. crypto brokerage filed for Chapter 11 bankruptcy protection. Voyager Digital suffered significant losses due to its lending practices in which they issued under-collateralized loans to companies within the digital asset ecosystem. Shares of Voyager Digital were subsequently delisted from the Toronto Stock Exchange.
Many Blockchain companies currently operate under less regulatory scrutiny than traditional financial services companies and banks, but there is significant risk that regulatory oversight could increase in the future. For example, companies that operate trading platforms and/or exchanges may face heightened regulatory risks associated with their operations. The SEC has made several public statements indicating that some cryptocurrency exchanges may be operating unregistered securities exchanges in violation of applicable regulations. In August 2021, the SEC settled charges with Poloniex for selling digital asset securities between 2017 and 2019 without registering as a national securities exchange. In November 2022, the collapse and subsequent Chapter 11 bankruptcy of major trading platforms FTX and BlockFi severely impacted investor confidence in cryptocurrencies and prompted calls for more regulatory action. Higher levels of regulation could increase costs and adversely impact the current business models of some Blockchain companies and could even result in the outright prohibition of certain business activities. For example, on September 24, 2021, multiple Chinese regulators issued prohibitions on all cryptocurrency transactions and mining. Any further restrictions imposed by governments, including China or the United States of America, on crypto-currency related activities may adversely impact Blockchain Companies and, in turn, the Fund. These companies could be negatively impacted by disruptions in service caused by hardware or software failure, or by interruptions or delays in service by third-party data center hosting facilities and maintenance providers. Blockchain companies involved in digital assets may face slow adoption rates and be subject to higher levels of regulatory scrutiny in the future, which could severely impact the viability of these companies. Blockchain companies, especially smaller companies, tend to be more volatile than companies that do not rely heavily on technology. The customers and/or suppliers of Blockchain companies may be concentrated in a particular country, region or industry. Any adverse event affecting one of these countries, regions or industries could have a negative impact on Blockchain companies. Many Blockchain companies have limited operating histories and may lack the necessary safeguards to ensure their long-term viability. In July 6, 2022, Voyager Digital, a U.S. crypto brokerage filed for Chapter 11 bankruptcy protection. Voyager Digital suffered significant losses due to its lending practices in which they issued under-collateralized loans to companies within the digital asset ecosystem. Shares of Voyager Digital were subsequently delisted from the Toronto Stock Exchange.
Bitcoin
Risk
The
Fund may be subject to the following risks as a result of its indirect bitcoin
exposure through Bitcoin Futures:
Market
& Volatility Risk
Bitcoin
has historically exhibited high price volatility relative to more traditional
asset classes. There were steep increases in the value of bitcoin over the
course of 2017. These increases were followed by steep drawdowns throughout
2018. Following the drawdowns, bitcoin prices increased during 2019, decreased
significantly again in early 2020 amidst broader declines as a result of the
COVID-19 pandemic before increasing later in the year, and increased again in
early 2021 to reach all-time highs. These all-time highs were followed by a more
than 50% decline by mid-year, and another all-time high into the year end and an
approximate 65% drop in calendar year 2022. The
value of the Fund’s indirect bitcoin investments through futures could decline
rapidly, including
to zero.
Bitcoin
Adoption Risk
The
further development and acceptance of the Bitcoin network, which is part of a
new and rapidly changing industry, is subject to a variety of factors that are
difficult to evaluate. For example, the Bitcoin network faces significant
obstacles to increasing the usage of bitcoin without resulting in higher fees or
slower transaction settlement times, and attempts to increase the volume of
transactions may not be effective. The slowing, stopping or reversing of the
development or acceptance of the Bitcoin network may adversely affect the price
of bitcoin, and in turn, the Fund’s indirect bitcoin exposure.
The
use of bitcoin to, among other things, buy and sell goods and services is part
of a new and rapidly evolving industry that employs digital assets based upon
computer-generated mathematical and/or cryptographic protocols. Bitcoin is a
prominent, but not unique, part of this industry. The growth of this industry is
subject to a high degree of uncertainty. Some of the factors affecting the
further development of this industry, include, but are not limited
to:
•continued
worldwide growth or possible cessation or reversal in the adoption and use of
bitcoin and other digital assets;
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•government
and quasi-government regulation of bitcoin and other digital assets and their
use, including taxation of bitcoin transactions, or restrictions on or
regulation of access to and operation of the Bitcoin network and other digital
asset networks;
•changes
in consumer demographics and public tastes and preferences, including the
possibility that market participants may come to prefer other digital assets to
bitcoin for a variety of reasons, including that such other digital currencies
may have features (like different consensus mechanisms) or uses (like the
ability to facilitate smart contracts) that bitcoin lacks;
•the
maintenance and development of the open-source software protocol of the Bitcoin
network;
•the
availability and popularity of other forms or methods of buying and selling
goods and services, including new means of using government-issued
currencies;
•the
use of the networks supporting digital assets for developing smart contracts and
distributed applications;
•general
economic conditions and the regulatory environment relating to digital assets;
and
•negative
consumer or public perception of bitcoin specifically and other digital assets
generally.
Currently,
there is relatively limited use of bitcoin in the retail and commercial
marketplace in comparison to relatively extensive use as a store of value, thus
contributing to price volatility that could adversely affect the Fund’s indirect
bitcoin exposure. Bitcoin is not currently a form of legal tender in the United
States, and it has only recently become selectively accepted as a means of
payment for goods and services by some retail and commercial outlets, and the
use of bitcoin by consumers to pay such retail and commercial outlets remains
limited. Banks and other established financial institutions may refuse to
process funds for bitcoin transactions; process wire transfers to or from
bitcoin trading venues, bitcoin-related companies or service providers; or
maintain accounts for persons or entities transacting in bitcoin or providing
bitcoin-related services. In addition, some taxing jurisdictions, including the
U.S., treat the use of bitcoin as a medium of exchange for goods and services to
be a taxable sale of bitcoin, which could discourage the use of bitcoin as a
medium of exchange, especially for a holder of bitcoin that has appreciated in
value.
Conversely,
a significant portion of bitcoin’s demand is generated by investors seeking a
long-term store of value or speculators seeking to profit from the short- or
long-term holding of the asset. Price volatility undermines bitcoin’s role as a
medium of exchange, as retailers are much less likely to accept it as a form of
payment. Use of bitcoin as a medium of exchange and payment method may always be
low. A lack of expansion by bitcoin into retail and commercial markets, or a
contraction of such use, may result in damage to the public perception of
bitcoin and the utility of bitcoin as a payment system, as well as increased
volatility or a reduction in the value of bitcoin, all of which could adversely
impact the Fund’s indirect bitcoin exposure. There can be no assurance that such
acceptance will grow, or not decline, in the future.
While
bitcoin, the first widely used digital asset, and many other digital assets were
created and mainly serve as a form of money, digital assets can be used to do
more complicated things. Some digital assets were built specifically with more
complex use cases in mind. For example, the Ethereum network was designed
primarily to facilitate smart contracts, with the digital asset ether serving as
the transactional mechanism for many portions of such contracts. Smart contracts
are programs that automatically execute on a blockchain, allowing for a myriad
of interesting applications to be built. It is possible that market demand for
digital assets with use cases beyond serving as a form of money could over time
reduce the market demand for bitcoin, which would adversely impact the price of
bitcoin and, as a result, an investment in the Fund.
Additionally,
certain digital assets use non-blockchain technologies, such as referencing the
full historical transaction arc for payments made with the specific
cryptocurrency funds being utilized, to maintain consensus. To the extent market
participants come to prefer these other consensus mechanisms or digital assets
that use non-blockchain technology, the Fund may be adversely
impacted.
Bitcoin
Scaling Risk
Bitcoin
faces significant scaling obstacles that can lead to high fees or slow
transaction settlement times. As of July 2017, bitcoin could handle, on average,
five to seven transactions per second. For several years, participants in the
Bitcoin ecosystem debated potential approaches to increasing the average number
of transactions per second that the Bitcoin network could handle. As of August
2017, the Bitcoin network protocol was upgraded with a technical feature that
separated the information related to a bitcoin transaction from the signature
authorizing such transaction, with such protocol upgrade being known as
“segregated witness”. By reconfiguring how transaction data is included in the
blocks for the Bitcoin network blockchain, this protocol upgrade allowed more
transactions to be potentially included
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in
each individual block, potentially increasing the transactions per second that
can be handled on-chain. Additionally, the segregated witness protocol upgrade
also enables networks that are able to relay transaction information outside of
the normal operation of the Bitcoin network blockchain, such as the Lightning
Network or payment channels, that could potentially allow greater transaction
throughput. An increasing number of wallets and digital asset intermediaries,
such as exchanges, have begun supporting segregated witness and the Lightning
Network, or similar technology. However, the Lightning Network does not yet have
material adoption and there are open questions about Lightning Network services,
such as its cost and who will serve as intermediaries, among other
questions.
As
the use of digital asset networks increases without a corresponding increase in
throughput of the networks, average fees and settlement times can increase
significantly. Bitcoin’s network has been, at times, at capacity, which has led
to increased transaction fees. Increased fees and decreased settlement speeds
could preclude certain use cases for bitcoin (e.g., micropayments), and could
reduce demand for and the price of bitcoin, which could adversely impact the
Fund’s indirect bitcoin exposure. There is no guarantee that any of the
mechanisms in place or being explored for increasing the scale of settlement of
transactions in bitcoin will be effective, or how long these mechanisms will
take to become effective, which could adversely impact the Fund’s indirect
bitcoin exposure.
Environmental
risk
Bitcoin
mining currently requires computing hardware that consumes large amounts of
electricity. By way of electrical power generation, many bitcoin miners rely on
fossil fuels to power their operations. Public perception of the impact of
bitcoin mining on climate change may reduce demand for bitcoin and increase the
likelihood of regulation that limits bitcoin mining or restricts energy usage by
bitcoin miners. Such events could have a negative impact on the price of bitcoin
and the performance of the Fund.
Miner
Collusion Risk
Miners,
functioning in their transaction confirmation capacity, collect fees for each
transaction they confirm. Miners validate unconfirmed transactions by adding the
previously unconfirmed transactions to new blocks in the blockchain. Miners are
not forced to confirm any specific transaction, but they are economically
incentivized to confirm valid transactions as a means of collecting fees. Miners
have historically accepted relatively low transaction confirmation fees. If
miners collude in an anticompetitive manner to reject low transaction fees, then
bitcoin users could be forced to pay higher fees, thus reducing the
attractiveness of the Bitcoin network. Mining occurs globally, and it may be
difficult for authorities to apply antitrust regulations across multiple
jurisdictions. Any collusion among miners may adversely impact the
attractiveness of the Bitcoin network and may adversely impact the Fund’s
indirect bitcoin exposure.
Insufficient
Mining Rewards Risk
Miners
generate revenue from both newly created bitcoin, known as the “block reward”
and from fees taken upon verification of transactions. If the aggregate revenue
from transaction fees and the block reward is below a miner’s cost, the miner
may cease operations. If the award of new units of bitcoin for solving blocks
declines (i.e., “halving”) and/or the difficulty of solving blocks increases,
and transaction fees voluntarily paid by participants are not sufficiently high,
miners may not have an adequate incentive to continue mining and may cease their
mining operations. The current fixed reward for solving a new block on the
Bitcoin network is 6.25 bitcoin per block, which decreased from 12.5 bitcoin in
May 2020. It is estimated that it will halve again in about four years after the
previous halving. The next Bitcoin “halving” is anticipated to occur in the
first half of 2024 where the new block reward will be 3.125 bitcoin per block.
This reduction in incentives for bitcoin mining activity may cause miners to
reduce or cease operations, which may reduce the collective processing power on
the Bitcoin network and which would make the Bitcoin network more vulnerable to
a malicious actor or botnet obtaining sufficient control to alter the blockchain
and hinder transactions. Any reduction in confidence in the confirmation process
or processing power of the Bitcoin network may adversely affect the Fund’s
indirect bitcoin exposure.
Miner
Excluded Transaction Risk
To
the extent that any miners solve blocks that exclude some or all transactions
that have been transmitted to the Bitcoin network, such transactions will not be
recorded on the blockchain until another miner solves a block that incorporates
those transactions. Some in the bitcoin community have suspected that certain
technologies enhance speed and reduce electricity use of mining while reducing
the number of transactions that are included in mined blocks on the Bitcoin
network. To the extent that more blocks are mined without transactions,
transactions will settle more
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slowly
and fees will increase. This could result in a loss of confidence in the Bitcoin
network, which could adversely impact an investment in the Fund.
Competition
from Other Digital Assets Risk
Central
banks have introduced digital forms of legal tender (CBDCs). China’s CBDC
project, known as Digital Currency Electronic Payment, has reportedly been
tested in a live pilot program conducted in multiple cities in China. A recent
study published by the Bank for International Settlements estimated that at
least 36 central banks have published retail or wholesale CBDC work ranging from
research to pilot projects. Whether or not they incorporate blockchain or
similar technology, CBDCs, as a form of legal tender in the issuing
jurisdiction, could have an advantage in competing with, or replace, bitcoin and
other digital assets as a medium of exchange or store of value. Competing
digital assets may adversely affect the value of bitcoin and the Fund’s indirect
bitcoin exposure. Promoters of other digital assets claim that those digital
assets have solved certain of the purported drawbacks of the Bitcoin network,
for example, allowing faster settlement times, reducing mining fees, or reducing
electricity usage in connection with mining. If these digital assets are
successful, such success could reduce demand for bitcoin and adversely affect
the value of bitcoin and the Fund’s indirect bitcoin exposure.
Governance
& Open-Source Network Risk
The
Bitcoin network uses a cryptographic protocol to govern the interactions within
the network. A loose community of core developers has evolved to informally
manage the source code for the protocol. Membership in the community of core
developers evolves over time, and core developers can propose amendments to the
network’s source code that could alter the protocols and software of the bitcoin
network and the properties of bitcoin. Bitcoin’s decentralized corporate
governance may lead to ineffective decision-making that slows development or
prevents the Bitcoin network from quickly overcoming important obstacles in the
future. Alterations to bitcoin through software upgrades could potentially
include changes to the irreversibility of transactions and limitations on the
mining of new bitcoin. If a modification is accepted by only a percentage of
users and miners, a division (a “fork”) will occur such that one network will
run the pre-modification source code and the other network will run the modified
source code. Such “forks” and similar events could adversely affect the price
and liquidity of bitcoin (See “Blockchain Fork Risk”). Additionally, the
open-source nature of the Bitcoin protocol means that developers contributing to
the protocol are generally not directly compensated for their contributions.
Consequently, developers may lack a financial incentive to maintain or develop
the network, and the core developers may lack the resources to adequately
address emerging issues within the network. There can be no guarantee that
developer support will continue or be sufficient in the future.
Blockchain
Fork Risk
In
August 2017, bitcoin “forked” into bitcoin and a new digital asset, bitcoin
cash, as a result of a several-year dispute over how to increase the rate of
transactions that the Bitcoin network can process. Since then, bitcoin has been
forked numerous times to launch new digital assets, such as bitcoin gold,
bitcoin silver and bitcoin diamond. Additional hard forks of the Bitcoin
blockchain could impact demand for bitcoin or other digital assets and could
adversely impact the Fund’s indirect bitcoin exposure.
Furthermore,
a hard fork can introduce new security risks. For example, when Ethereum and
Ethereum Classic split in July 2016, replay attacks, in which transactions from
one network were rebroadcast to nefarious effect on the other network, plagued
trading venues through at least October 2016. An exchange announced in July 2016
that it had lost 40,000 ether from the Ethereum Classic network, which was worth
about $100,000 at that time, as a result of replay attacks. Another possible
result of a hard fork is an inherent decrease in the level of security. After a
hard fork, it may become easier for an individual miner or mining pool’s hashing
power to exceed 50% of the processing power of the Bitcoin network, thereby
making the network more susceptible to attack.
A
fork could also be introduced by an unintentional, unanticipated software flaw
in the multiple versions of otherwise compatible software users run. Such a fork
could adversely affect bitcoin’s viability. It is possible, however, that a
substantial number of users and miners could adopt an incompatible version of
bitcoin while resisting community-led efforts to merge the two chains. This
would result in a permanent fork, as in the case of Ethereum and Ethereum
Classic, as detailed above. A fork in the Bitcoin network could adversely affect
the market value of bitcoin, and in turn, the Fund’s indirect bitcoin
exposure.
Cybersecurity
Risk
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If
the source code or cryptography underlying bitcoin proves to be flawed or
ineffective, malicious actors may be able to steal bitcoin held by others, which
could negatively impact the demand for bitcoin and therefore adversely impact
the price of bitcoin. In the past, flaws in the source code for bitcoin have
been discovered, including those that resulted in the loss of users’ bitcoin.
Several errors and defects have been publicly found and corrected, including
those that disabled some functionality for users and exposed users’ personal
information. Discovery of flaws in or exploitations of the source code that
allow malicious actors to take or create money in contravention of known network
rules have occurred. In addition, the cryptography underlying bitcoin could
prove to be flawed or ineffective, or developments in mathematics and/or
technology, including advances in digital computing, algebraic geometry and
quantum computing, could result in such cryptography becoming ineffective. In
any of these circumstances, a malicious actor may be able to steal bitcoin held
by others, which could adversely affect the demand for bitcoin and therefore
adversely impact the price of bitcoin. Even if the affected digital asset is not
bitcoin, any reduction in confidence in the source code or cryptography
underlying digital assets generally could negatively impact the demand for
bitcoin and therefore adversely affect the Fund’s indirect bitcoin exposure.
Additionally,
if a malicious actor or botnet (i.e., a volunteer or hacked collection of
computers controlled by networked software coordinating the actions of the
computers) obtains control of more than 50% of the processing power of the
Bitcoin network, such actor or botnet could alter the blockchain and adversely
affect the value of bitcoin, which would adversely affect the Fund’s indirect
bitcoin exposure. The Bitcoin network is subject to control by entities that
capture a significant amount of the network’s processing power or a significant
number of developers or intermediaries important for the operation and
maintenance of the Bitcoin network. The Bitcoin network is secured by proof of
work and depends on the strength of processing power of participants to protect
the network. If a malicious actor or botnet obtains a majority of the processing
power dedicated to mining on the Bitcoin network, it may be able to alter the
blockchain on which the network and most transactions rely by constructing
fraudulent blocks or preventing certain transactions from being completed in a
timely manner, or at all. The malicious actor or botnet could control, exclude
or modify the ordering of transactions. However, it could not generate new
bitcoin units or transactions using such control. The malicious actor could
“double-spend” its own bitcoin units (i.e., spend the same units in more than
one transaction) and prevent the confirmation of other users’ transactions for
so long as it maintained control. To the extent that such malicious actor or
botnet did not yield its control of the processing power on the Bitcoin network,
or the network community did not reject the fraudulent blocks as malicious,
reversing any changes made to the blockchain may not be possible. Further, a
malicious actor or botnet could create a flood of transactions in order to slow
down confirmations of transactions on the Bitcoin network. If an exploitation or
attack on the Bitcoin network occurs, it could result in a loss of public
confidence in bitcoin and a decline in the value of bitcoin and, as a result,
adversely impact the Fund’s indirect bitcoin exposure.
Internet
Disruption Risk
Bitcoin
is dependent upon the internet. A significant disruption in internet
connectivity could disrupt the Bitcoin network’s operations until the disruption
is resolved and have an adverse effect on the price of bitcoin. In particular,
some variants of digital assets have been subjected to a number of malicious
events where large quantities of information are sent to a network as part of a
concerted effort to overwhelm a network’s processing capabilities. These
attacks, also referred to as “denial-of-service attacks”, have led to temporary
delays in block creation and in the transfer of the digital assets. While in
certain cases in response to an attack, an additional hard fork has been
introduced to increase the cost of certain network functions, the relevant
network has continued to be the subject of additional attacks. Moreover, it is
possible that if bitcoin increases in value, it may become a bigger target for
hackers and subject to more frequent hacking and denial-of-service attacks.
Bitcoin is also susceptible to border gateway protocol (“BGP”) hijacking. Such
an attack can be a very effective way for an attacker to intercept traffic en
route to a legitimate destination. BGP hijacking impacts the way different nodes
and miners are connected to one another to isolate portions of them from the
remainder of the network, which could lead to a risk of the network allowing
double-spending and other security issues. If BGP hijacking occurs on the
Bitcoin network, participants may lose faith in the security of bitcoin, which
could adversely affect bitcoin’s value and consequently the Fund’s indirect
bitcoin exposure. Any future attacks that impact the ability to transfer bitcoin
could have a material adverse effect on the price of bitcoin and on the Fund’s
investments.
Bitcoin
Regulatory Risk
The
regulation of digital assets and related products and services is new and
continues to evolve in both U.S. and foreign jurisdictions. As bitcoin and
digital assets have grown in both popularity and market size, the U.S. Congress
and a number of U.S. federal and state agencies have been examining the
operations of digital asset networks, digital asset users and the digital asset
exchange market. Many of these state and federal agencies have brought
enforcement
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actions
and issued advisories and rules relating to digital asset markets. Ongoing and
future regulatory actions with respect to digital assets generally or any single
digital asset in particular may alter, perhaps to a materially adverse extent,
the nature of an investment in the bitcoin and therefore the Fund’s indirect
bitcoin exposure.
Future
Regulatory Action Risk
Current
and future legislation, SEC and CFTC rulemaking, and other regulatory
developments may impact the manner in which bitcoin is treated for
classification and clearing purposes. In particular, certain transactions in
bitcoin may be deemed to be commodity interests under the U.S. Commodity
Exchange Act (the “CEA”) or bitcoin may be classified by the SEC as a “security”
under U.S. federal securities laws. Public statements by senior officials at the
SEC, including a June 2018 speech by the director of the SEC’s Division of
Corporation Finance, indicate that such officials do not believe that bitcoin is
a security. Such statements are not official policy statements by the SEC and
reflect only the speaker’s views, which are not binding on the SEC or any other
agency or court. If bitcoin is determined to be a “security” under federal or
state securities laws by the SEC or any other agency, or in a proceeding in a
court of law or otherwise, it may have material adverse consequences for bitcoin
as a digital asset.
Bitcoin
Tax Risk
Current
U.S. Internal Revenue Service (“IRS”) guidance indicates that convertible
virtual currency, defined as a digital representation of value that functions as
a medium of exchange, a unit of account, and/or a store of value that has an
equivalent value in real currency, or that acts as a substitute for real
currency, should be treated and taxed as property, and that transactions
involving the payment of convertible virtual currency for goods and services
should be treated as barter transactions. While this treatment allows for the
possibility of capital gains treatment, it creates a potential tax reporting
requirement in any circumstance where the ownership of convertible virtual
currency passes from one person to another, usually by means of convertible
virtual currency transactions (including off-blockchain transactions), which
could discourage the use of bitcoin as a medium of exchange, especially for a
holder of bitcoin that has appreciated in value.
A
number of states have issued their own guidance regarding the tax treatment of
certain digital assets for state income or sales tax purposes. The New York
State Department of Taxation and Finance (“NYSDTF”), for example, has issued
guidance regarding the application of state tax law to virtual currency. The
agency determined that New York State would follow IRS guidance with respect to
the treatment of virtual currency for state income tax purposes. Furthermore,
the NYSDTF concluded that virtual currency is a form of “intangible property,”
meaning that transactions using virtual currency to purchase goods or services
may be subject to state sales tax under barter transaction treatment. Where a
state adopts a different treatment, such treatment may have negative
consequences for investors in digital assets, including the potential imposition
of a greater tax burden on investors in digital assets or the potential
imposition of greater costs on the acquisition and disposition of digital
assets. In either case, such different tax treatment may potentially have a
negative effect on the price of bitcoin and on the Fund’s indirect bitcoin
exposure.
Crypto
Asset Exchange Risk
Fraudulent
trading practices, such as the intentional dissemination of false or misleading
information, can lead to a disruption of the orderly functioning of markets,
significant market volatility, and cause the value of Bitcoin Futures to
fluctuate quickly and without warning. Crypto Asset Exchanges are largely
unregulated and, therefore, are more exposed to fraud and failure than
established, regulated exchanges for securities, derivatives and other
currencies. As a result, individuals or groups may engage in insider trading,
fraud or market manipulation with respect to crypto assets thus impacting the
value of bitcoin and bitcoin futures. Such manipulation could cause investors in
bitcoin to lose money. Crypto Asset Exchanges have in the past, and may in the
future, cease operating temporarily or even permanently, resulting in the
potential loss of users’ holdings or other market disruptions. Crypto Asset
Exchanges are more exposed to the risk of market manipulation than exchanges for
traditional assets. Furthermore, many Bitcoin Exchanges lack certain safeguards
established by traditional exchanges to enhance the stability of trading on the
exchange, such as measures designed to prevent sudden drops in value of items
traded on the exchange (i.e., “flash crashes”). As a result, the price of
bitcoin may be subject to larger and more frequent sudden declines than assets
traded on traditional exchanges. In November 2022, FTX, a Bahamas-based crypto
asset exchange, collapsed due to a liquidity crisis of the company’s token, FTT,
thus leading FTX to file for bankruptcy. An investigation into the collapse
uncovered unauthorized movements and use of client assets to a sister company of
FTX, Alameda Research, a crypto asset hedge fund. The collapse of FTX resulted
in a ripple effect across the crypto asset industry, with the price of bitcoin
falling to the lowest levels in calendar year 2022.
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Intellectual
Property Risk
Third
parties may assert intellectual property claims relating to the holding and
transfer of bitcoin and its source code. Regardless of the merit of any
intellectual property or other legal action, any threatened action that reduces
confidence in long-term viability or the ability of end-users to hold and
transfer bitcoin may adversely affect the Fund’s indirect bitcoin exposure.
Additionally, a meritorious intellectual property claim could prevent end-users
from accessing, holding, or transferring bitcoin. As a result, an intellectual
property claim against large bitcoin participants could adversely affect the
Fund’s investments.
Political
or Economic Crisis Risk
As
an alternative to fiat currencies that are backed by central governments,
bitcoin is subject to supply and demand forces based upon the desirability of an
alternative, decentralized means of buying and selling goods and services, and
it is unclear how such supply and demand will be impacted by geopolitical
events. Nevertheless, political or economic crises may motivate large-scale
acquisitions or sales of bitcoin, either globally or locally. Large-scale sales
of bitcoin would result in a reduction in its price and adversely affect the
Fund’s indirect bitcoin exposure.
Large
Scale Bitcoin Sale Risk
There
is no registry showing which individuals or entities own bitcoin or the quantity
of bitcoin that is owned by any particular person or entity. It is possible, and
in fact, reasonably likely, that a small group of early bitcoin adopters hold a
significant proportion of the bitcoin that has been created to date. There are
no regulations in place that would prevent a large holder of bitcoin from
selling the bitcoin it holds. To the extent such large holders of bitcoin engage
in large-scale sales or distributions, either on nonmarket terms or in the
ordinary course, it could result in a reduction in the price of bitcoin and
adversely affect an investment in the Fund.
Capitalization
Risk
Investing
in issuers within the same market capitalization category carries the risk that
the category may be out of favor due to current market conditions or investor
sentiment.
Large-Capitalization
Companies Risk
Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Small-Capitalization
Companies Risk
The
Fund may invest a significant percentage of its assets in small-capitalization
companies. If it does so, it may be subject to certain risks associated with
small-capitalization companies. These companies often have greater price
volatility, lower trading volume and less liquidity than larger, more
established companies. In addition, these companies are often subject to less
analyst coverage and may be in early and less predictable periods of their
corporate existences. These companies tend to have smaller revenues, narrower
product lines, less management depth and experience, smaller shares of their
product or service markets, fewer financial resources and less competitive
strength than larger companies.
Micro-Capitalization
Companies Risk
The
Fund may invest in micro-capitalization companies. These companies are subject
to substantially greater risks of loss and price fluctuations because their
earnings and revenues tend to be less predictable (and some companies may
experience significant losses), and their share prices tend to be more volatile
and their markets less liquid than companies with larger market capitalizations.
Micro-capitalization companies may be newly formed or in the early stages of
development, with limited product lines, markets or financial resources and may
lack management depth. In addition, there may be less public information
available about these companies. The shares of micro-capitalization companies
tend to trade less frequently than those of larger, more established companies,
which can adversely affect the pricing of these securities and the future
ability to sell these securities. Also, it may take a long time before the Fund
realizes a gain, if any, on an investment in a micro-capitalization
company.
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Commodity
Pool Registration Risk
Under
amended regulations promulgated by the CFTC, the Fund and the Subsidiary are
considered commodity pools, and therefore each is subject to regulation under
the Commodity Exchange Act and CFTC rules. Global X has registered as a
commodity pool operator and manages the Fund and the Subsidiary in accordance
with CFTC rules, as well as the rules that apply to registered investment
companies. Commodity pools are subject to additional laws, regulations and
enforcement policies, all of which may potentially increase compliance costs and
may affect the operations and financial performance of the Fund and the
Subsidiary. Additionally, positions in futures and other contracts may have to
be liquidated at disadvantageous times or prices to prevent the Fund from
exceeding any applicable position limits established by the CFTC. Such actions
may subject the Fund to substantial losses.
Cryptocurrency
Risk
Cryptocurrency
(notably, bitcoin), often referred to as “virtual currency” or “digital
currency,” operates as a decentralized, peer-to-peer financial exchange and
value storage that is used like money. The Fund will have exposure to bitcoin, a
cryptocurrency, indirectly through investment in Bitcoin Futures, and individual
Blockchain Companies held by the Fund may have exposure to cryptocurrencies,
including cryptocurrencies other than bitcoin. Cryptocurrencies operate without
central authority or banks and are not backed by any government.
Cryptocurrencies may experience very high volatility, and related investment
vehicles that invest in cryptocurrencies may be affected by such volatility.
Cryptocurrency is not legal tender. Federal, state or foreign governments may
restrict the use and exchange of cryptocurrency, and regulation in the U.S. is
still developing. Cryptocurrency exchanges have stopped operating and have
permanently shut down due to fraud, technical glitches, hackers or malware.
Cryptocurrency exchanges are new, largely unregulated, and may be more exposed
to fraud.
Cryptocurrency
Tax Risk
By
investing in Bitcoin Futures indirectly through the Subsidiary, the Fund will
obtain exposure to cryptocurrency within the federal tax requirements that apply
to the Fund. However, because the Subsidiary is a controlled foreign
corporation, any income received by the Fund from its investments in the
Subsidiary will be passed through to the Fund as ordinary income, which may be
taxed at less favorable rates than capital gains.
Currency
Risk
Foreign
currencies are subject to risks, which include changes in the debt level and
trade deficit of the country issuing the foreign currency; inflation rates of
the United States and the country issuing the foreign currency; investors’
expectations concerning inflation rates; interest rates of the United States and
the country issuing the foreign currency; investors’ expectations concerning
interest rates; investment and trading activities of mutual funds, hedge funds
and currency funds; and global or regional political, economic or financial
events and situations.
In
addition, a foreign currency in which the Fund invests may not maintain its
long-term value in terms of purchasing power in the future. When the price of a
foreign currency in which the Fund invests declines, it may have an adverse
impact on the Fund.
Foreign
exchange rates are influenced by the factors identified above and may also be
influenced by: changing supply and demand for a particular currency; monetary
policies of governments (including exchange control programs, restrictions on
local exchanges or markets and limitations on foreign investment in a country or
on investment by residents of a country in other countries); changes in balances
of payments and trade; trade restrictions; and currency devaluations and
revaluations. Also, governments from time to time intervene in the currency
markets, directly and by regulation, in order to influence prices directly.
These events and actions are unpredictable. The resulting volatility in the
USD/foreign currency exchange rate could materially and adversely affect the
performance of the Fund.
Custody
Risk
Custody
risk refers to risks in the process of clearing and settling trades and in the
holding of securities by local banks, agents and depositories. Low trading
volumes and volatile prices in less developed markets make trades harder to
complete and settle. Local agents are held only to the standard of care of the
local markets. Governments or trade groups may compel local agents to hold
securities in designated depositories that are subject to independent
evaluation. Generally, the less developed a country’s securities market, the
greater the likelihood of custody problems occurring.
Focus
Risk
28
The
Fund may be susceptible to an increased risk of loss, including losses due to
events that adversely affect the Fund’s investments more than the market as a
whole, to the extent that the Fund's investments are focused in the securities
of a particular issuer or issuers within the same geographic region, market,
industry, group of industries, sector or asset class.
Foreign
Securities Risk
The
Fund’s assets may be invested within the equity markets of countries outside of
the United States. These markets are subject to special risks associated with
foreign investment, including, but not limited to: lower levels of liquidity and
market efficiency; greater securities price volatility; exchange rate
fluctuations and exchange controls; less availability of public information
about issuers; limitations on foreign ownership of securities; imposition of
withholding or other taxes; imposition of restrictions on the expatriation of
the assets of the Fund; restrictions placed on U.S. investors by U.S.
regulations governing foreign investments; higher transaction and custody costs
and delays in settlement procedures; difficulties in enforcing contractual
obligations; lower levels of regulation of the securities market; weaker
accounting, disclosure and reporting requirements; and legal principles relating
to corporate governance and directors’ fiduciary duties and liabilities.
Shareholder rights under the laws of some foreign countries may not be as
favorable as U.S. laws. Thus, a shareholder may have more difficulty in
asserting its rights or enforcing a judgment against a foreign company than a
shareholder of a comparable U.S. company. Investment of more than 25% of the
Fund’s total assets in securities located in one country or region will subject
the Fund to increased country or region risk with respect to that country or
region. Where all or a portion of the Fund's underlying securities trade in a
market that is closed when the market in which the Fund's shares are listed and
trading is open, there may be differences between the last quote from the
security’s closed foreign market and the value of the security during the Fund’s
domestic trading day. This in turn could lead to differences between the market
price of the Fund’s shares and the underlying value of those
shares.
Fork
and Air Drop Risk
When
Bitcoin experiences a fork or an air drop, a holder of bitcoin typically will
receive an additional digital asset or will be entitled to claim an additional
digital asset. These additional digital assets may have significant value, and
the value of bitcoin may decline significantly following a fork or air drop.
Because the Fund does not hold bitcoin directly, it will not be entitled to
participate in any fork or air drop, but it will be adversely impacted by any
resulting decline in the price of bitcoin due to its holdings of Bitcoin
Futures. Some futures exchanges may in the future publish mechanisms intended to
compensate holders of Bitcoin Futures for the loss in value following certain
forks that meet specified criteria, there can be no assurance that these
mechanisms will adequately compensate the Fund for the full loss of value or
that any particular fork will meet the criteria for an adjustment. In
particular, there is substantial uncertainty as to how these adjustment
mechanisms will be implemented by the exchanges in practice, both in terms of
what forks and air drops will trigger an adjustment, and whether a holder of
Bitcoin Futures will receive a cash adjustment or an additional futures contract
linked to the new digital asset. Because of the uncertainty around these
adjustment mechanisms, it is also possible that a significant fork of Bitcoin
could lead to extended trading halts for the Bitcoin Futures held by the Fund,
which could lead to significant liquidity and valuation risks for the Fund. It
is possible that a fork of Bitcoin could substantially reduce the value of the
Bitcoin Futures held by the Fund.
Geographic
Risk
Geographic
risk is the risk that the Fund’s assets may be focused in countries located in
the same geographic region. This investment focus will subject the Fund to risks
associated with that particular region, or a region economically tied to that
particular region, such as a natural, biological or other disaster. Outbreaks of
contagious viruses and diseases may reduce business activity or disrupt market
activity, and have the potential to exacerbate market risks in the countries and
regions in which they occur. The securities in which the Fund invests and,
consequently, the Fund are also subject to specific risks as a result of their
business operations, including, but not limited to:
Risk
of Investing in Canada
The
United States is Canada’s largest trading and investment partner, and the
Canadian economy is significantly affected by developments in the U.S. economy
and by changes in U.S. trade policy. Since the implementation of NAFTA in 1994
among Canada, the United States and Mexico, total two-way merchandise trade
between the United States and Canada has more than doubled. To further this
relationship, the three NAFTA countries entered into the Security and Prosperity
Partnership of North America in March 2005, which has further affected Canada’s
dependency on the U.S. economy. Any downturn in U.S. or Mexican economic
activity is likely to have an adverse impact on the Canadian economy. The
Canadian economy is also dependent upon external trade with other key trading
partners, including China and the European Union. Any trade policy changes by
the United States, China or the European Union which reduced Canada's ability to
trade with such regions could therefore have significant impact on the
29
Canadian
economy. Developments in the United States, including renegotiation of NAFTA,
ratification of the successor USMCA, which received legislative approval and
went into effect in 2020, and imposition of tariffs by the United States, may
have implications for the trade arrangements among the United States and Canada,
which could negatively affect the value of securities held by the Funds. In
addition, Canada is a large supplier of natural resources (e.g., oil, natural
gas and agricultural products). As a result, the Canadian economy is sensitive
to fluctuations in certain commodity prices.
Risk
of Investing in China
The
Chinese economy is subject to a considerable degree of economic, political and
social instability.
Political
and Social Risk
The
Chinese government is authoritarian and has periodically used force to suppress
civil dissent. Disparities of wealth and the pace of economic liberalization may
lead to social turmoil, violence and labor unrest. In addition, China continues
to experience disagreements related to integration with Hong Kong and religious
and nationalist disputes in Tibet and Xinjiang. There is also a greater risk in
China than in many other countries of currency fluctuations, currency
nonconvertibility, interest rate fluctuations and higher rates of inflation as a
result of internal social unrest or conflicts with other countries.
Unanticipated political or social developments may result in sudden and
significant investment losses. China’s growing income inequality, rapidly aging
population and significant environmental issues also are factors that may affect
the Chinese economy. Concerns about the rising government and household debt
levels could impact the stability of the Chinese economy.
Heavy
Government Control and Regulation
The
Chinese government has implemented significant economic reforms in order to
liberalize trade policy, promote foreign investment in the economy, reduce
government control of the economy and develop market mechanisms. There can be no
assurance these reforms will continue or that they will be effective. Despite
recent reform and privatizations, government control over certain sectors or
enterprises and significant regulation of investment and industry is still
pervasive, including restrictions on investment in companies or industries
deemed to be sensitive to particular national interests, and the Chinese
government may restrict foreign ownership of Chinese corporations and/or the
repatriation of assets by foreign investors. Limitations or restrictions on
foreign ownership of securities may have adverse effects on the liquidity and
performance of the Fund and could lead to higher tracking error. Chinese
government intervention in the market may have a negative impact on market
sentiment, which may in turn affect the performance of the Chinese economy and
the Fund’s investments. Chinese markets generally continue to experience
inefficiency, volatility and pricing anomalies that may be connected to
governmental influence, lack of publicly-available information, and political
and social instability.
Economic
Risk
The
Chinese economy has grown rapidly in the recent past and there is no assurance
that this growth rate will be maintained. In fact, the Chinese economy may
experience a significant slowdown as a result of, among other things, a
deterioration in global demand for Chinese exports, as well as contraction in
spending on domestic goods by Chinese consumers. In addition, China may
experience substantial rates of inflation or economic recessions, which would
have a negative effect on its economy and securities market. Delays in
enterprise restructuring, slow development of well-functioning financial markets
and widespread corruption have also hindered performance of the Chinese economy.
China continues to receive substantial pressure from trading partners to
liberalize official currency exchange rates.
Elevated
geopolitical tensions between China and its trading partners, including the
imposition of U.S. tariffs on certain Chinese goods, the imposition of trade and
non-trade related barriers for certain Chinese companies, and increased
international pressure related to Chinese trade policy, forced technology
transfers and intellectual property protections, may have a substantial impact
on the Chinese economy. The continuation or worsening of the current political
climate between China and the U.S. could result in additional regulatory
restrictions being contemplated or imposed on the U.S. or in China that could
impact the Fund’s ability to invest in certain companies. Reduction in spending
on Chinese products and services, institution of additional tariffs or other
trade barriers (including as a result of heightened trade tensions between China
and the U.S. or in response to actual or alleged Chinese cyber activity), or a
downturn in any of the economies of China’s key trading partners may have an
adverse impact on the Chinese economy and the Chinese issuers of securities in
which the Fund invests. For example, the U.S. has added certain foreign
technology companies to the U.S. Department of Commerce’s Bureau of Industry and
Security’s “Entity List,” which is a list of companies believed to pose a
national security risk to the U.S. U.S. investors may also be barred by
30
U.S.
authorities from investing in certain companies, including those with ties to
the military, intelligence, and security services in China. Actions like these
may have unanticipated and disruptive effects on the Chinese economy. Any such
response that targets Chinese financial markets or securities exchanges could
interfere with orderly trading, delay settlement or cause market disruptions.
Public health crises or major health-related developments may have a substantial
impact on the Chinese economy or holdings in the Fund. Outbreaks of contagious
viruses and diseases, including the novel viruses commonly known as SARS, MERS,
and Covid-19 (Coronavirus), may reduce business activity or disrupt market
activity, and have the potential to exacerbate market risks such as volatility
in exchange rates or the trading of Chinese securities listed domestically or
abroad. Likewise, factories, ports, and critical infrastructure in China may
close to limit contagion risk. In response to the Covid-19 crisis, China is
implementing strict lockdowns to keep cases extremely low and there is no
assurance that China will relax this approach or not revert back to it after an
attempt at relaxation. Foreign investors’ access to domestic markets may also be
limited during such health crises, especially if domestic exchanges are closed
for an extended period. Market closures could interfere with the orderly trading
or settlement mechanisms of Chinese securities listed domestically or abroad.
The Chinese economy or holdings in the Fund may also be adversely impacted
should health crises create political uncertainty or social unrest. The
implications of such health crises are difficult to ascertain but may put strain
on China’s supply chains, trading relationships, and international
relations.
Expropriation
Risk
The
Chinese government maintains a major role in economic policy making and
investing in China involves risk of loss due to expropriation, nationalization,
confiscation of assets and property or the imposition of restrictions on foreign
investments and on repatriation of capital invested.
Security
Risk
China
has strained international relations with Taiwan, India, Russia and other
neighbors due to territorial disputes, historical animosities, defense concerns
and other security concerns. Relations between China’s Han ethnic majority and
other ethnic groups in China, including Tibetans and Uighurs, are also strained
and have been marked by protests and violence. Additionally, China is alleged to
have participated in state-sponsored cyberattacks against foreign companies and
foreign governments. Actual and threatened responses to such activity, including
purchasing restrictions, sanctions, tariffs or cyberattacks on the Chinese
government or Chinese companies, may impact China’s economy and Chinese issuers
of securities in which the Fund invests. These situations may cause uncertainty
in the Chinese market and may adversely affect the Chinese economy. In addition,
conflict on the Korean Peninsula could adversely affect the Chinese economy.
Tax
Risk
China
has implemented a number of tax reforms in recent years and may amend or revise
its existing tax laws and/or procedures in the future, possibly with retroactive
effect. Changes in applicable Chinese tax law could reduce the after-tax profits
of the Fund, directly or indirectly, including by reducing the after-tax profits
of companies in China in which the Fund invests. Uncertainties in Chinese tax
rules could result in unexpected tax liabilities for the Fund.
Hong
Kong Political Risk
Hong
Kong reverted to Chinese sovereignty on July 1, 1997 as a Special Administrative
Region (SAR) of the People’s Republic of China under the principle of “one
country, two systems.” Although China is obligated to maintain the current
capitalist economic and social system of Hong Kong through June 30, 2047, the
continuation of economic and social freedoms enjoyed in Hong Kong is dependent
on the government of China. Since 1997, there have been tensions between the
Chinese government and many people in Hong Kong who perceive China as tightening
of control over Hong Kong’s semi-autonomous liberal political, economic, legal,
and social framework. Recent protests and unrest have increased tensions even
further. Due to the interconnected nature of the Hong Kong and Chinese
economies, this instability in Hong Kong may cause uncertainty in the Hong Kong
and Chinese markets. In addition, the Hong Kong dollar trades at a fixed
exchange rate in relation to (or, is “pegged” to) the U.S. dollar, which has
contributed to the growth and stability of the Hong Kong economy. However, it is
uncertain how long the currency peg will continue or what effect the
establishment of an alternative exchange rate system would have on the Hong Kong
economy. Because the Fund’s NAV is denominated in U.S. dollars, the
establishment of an alternative exchange rate system could result in a decline
in the Fund’s NAV.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
31
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the government restricts foreign ownership to
raise capital from foreign investors. While the shell company has no equity
ownership of the VIE, these contractual arrangements permit the shell company to
consolidate the VIE’s financial statements with its own for accounting purposes
and provide for economic exposure to the performance of the underlying Chinese
operating company. Therefore, an investor in the listed shell company, such as
the Fund, will have exposure to the Chinese-based operating company only through
contractual arrangements and has no ownership in the Chinese-based operating
company. Furthermore, because the shell company only has specific rights
provided for in these service agreements with the VIE, its abilities to control
the activities at the Chinese-based operating company are limited and the
operating company may engage in activities that negatively impact investment
value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without the Chinese-based
issuer’s authorization to enter into contractual arrangements in China. Chops
and seals, which are carved stamps used to sign documents, represent a legally
binding commitment by the company. Moreover, any future regulatory action may
prohibit the ability of the shell company to receive the economic benefits of
the Chinese-based operating company, which may cause the value of the Fund’s
investment in the listed shell company to suffer a significant loss. For
example, in 2021, the Chinese government prohibited use of the VIE structure for
investment in after-school tutoring companies. There is no guarantee that the
government will not place similar restrictions on other
industries.
Chinese equities that utilize the VIE structure to list in the U.S. as ADRs face the risk of regulatory action from U.S. authorities, including the risk of delisting. This will depend in part on whether U.S. regulatory authorities are satisfied with their access to Mainland China and Hong Kong for the purpose of conducting inspections on the quality of audits for these companies. Although the U.S. and China reached an agreement in September 2022 to grant the U.S. access for such inspections, there is no guarantee that the agreement will hold up or that U.S. regulatory authorities will continue to feel satisfied with their access.
Chinese equities that utilize the VIE structure to list in the U.S. as ADRs face the risk of regulatory action from U.S. authorities, including the risk of delisting. This will depend in part on whether U.S. regulatory authorities are satisfied with their access to Mainland China and Hong Kong for the purpose of conducting inspections on the quality of audits for these companies. Although the U.S. and China reached an agreement in September 2022 to grant the U.S. access for such inspections, there is no guarantee that the agreement will hold up or that U.S. regulatory authorities will continue to feel satisfied with their access.
Risk
of Investing in Developed Markets
Investment
in developed country issuers may subject the Fund to regulatory, political,
currency, security, and economic risk specific to developed countries. Developed
countries generally tend to rely on services sectors (e.g., the financial
services sector) as the primary means of economic growth. A prolonged slowdown
in, among others, services sectors is likely to have a negative impact on
economies of certain developed countries, although economies of individual
developed countries can be impacted by slowdowns in other sectors. In the past,
certain developed countries have been targets of terrorism, and some geographic
areas in which the Fund invests have experienced strained international
relations due to territorial disputes, historical animosities, defense concerns
and other security concerns. These situations may cause uncertainty in the
financial markets in these countries or geographic areas and may adversely
affect the performance of the issuers to which the Fund has exposure. Heavy
regulation of certain markets, including labor and product markets, may have an
adverse effect on certain issuers. Such regulations may negatively affect
economic growth or cause prolonged periods of recession. Many developed
countries are heavily indebted and face rising healthcare and retirement
expenses and may be underprepared for global health crises. For example, the
rapid and global spread of a highly contagious novel coronavirus respiratory
disease, designated COVID-19, resulted in extreme volatility in the financial
markets and severe losses; reduced liquidity of many instruments; restrictions
on international and, in some cases, local travel; significant disruptions to
business operations (including business closures); strained healthcare systems;
disruptions to supply chains, consumer demand and employee availability; and
widespread uncertainty regarding the duration and long-term effects of this
pandemic. In addition, price fluctuations of
32
certain
commodities and regulations impacting the import of commodities may negatively
affect developed country economies.
Risk
of Investing in Emerging Markets
The
securities markets of emerging market countries may be less liquid, subject to
greater price volatility, have smaller market capitalizations, have less
government regulation and not be subject to as extensive and frequent
accounting, financial and other reporting requirements as the securities markets
of more developed countries, as has historically been the case. Issuers and
securities markets in emerging markets are generally not subject to as extensive
and frequent accounting, financial and other reporting requirements or as
comprehensive government regulations as are issuers and securities markets in
the developed markets. In particular, the assets and profits appearing on the
financial statements of emerging market issuers may not reflect their financial
position or results of operations in the same manner as financial statements for
developed market issuers. Substantially less information may be publicly
available about emerging market issuers than is available about issuers in
developed markets.
Emerging
markets are generally located in the Asia and Pacific regions, the Middle East,
Eastern Europe, Latin America, and Africa. Emerging markets typically are
classified as such by lacking one or more of the following characteristics:
sustainability of economic development, large and liquid securities markets,
openness to foreign ownership, ease of capital inflows and outflows, efficiency
of the market’s operational framework, and/or stability of the institutional
framework. The Fund’s purchase and sale of portfolio securities in certain
emerging market countries may be constrained by limitations relating to daily
changes in the prices of listed securities, periodic trading or settlement
volume and/or limitations on aggregate holdings of foreign investors. Such
limitations may be computed based on the aggregate trading volume by or holdings
of the Fund, the Adviser, its affiliates and their respective clients and other
service providers. The Fund may not be able to sell securities in circumstances
where price, trading or settlement volume limitations have been reached.
Foreign
investment in the securities markets of certain emerging market countries is
restricted or controlled to varying degrees, which may limit investment in such
countries or increase the administrative costs of such investments. For example,
certain Asian countries require government approval prior to investments by
foreign persons or limit investment by foreign persons to only a specified
percentage of an issuer's outstanding securities or a specific class of
securities which may have less advantageous terms (including price) than
securities of the issuer available for purchase by nationals. In addition,
certain countries may restrict or prohibit investment opportunities in issuers
or industries deemed important to national interests. Such restrictions may
affect the market price, liquidity and rights of securities that may be
purchased by the Fund. The repatriation of both investment income and capital
from certain emerging market countries is subject to restrictions, such as the
need for governmental consents. In situations where a country restricts direct
investment in securities (which may occur in certain Asian, Latin American and
other countries), the Fund may invest in such countries through other investment
funds in such countries. Certain emerging market countries may have privatized,
or have begun the process of privatizing, certain entities and industries.
Privatized entities may lose money or be re-nationalized.
Many
emerging market countries have experienced currency devaluations, substantial
(and, in some cases, extremely high) rates of inflation, and economic
recessions. These circumstances have had a negative effect on the economies and
securities markets of those emerging market countries. Economies in emerging
market countries generally are dependent upon commodity prices and international
trade and, accordingly, have been, and may continue to be, affected adversely by
the economies of their trading partners, trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist measures
imposed or negotiated by the countries with which they trade. As a result,
emerging market countries are particularly vulnerable to downturns of the world
economy. The 2008-2009 global financial crisis tightened international credit
supplies and weakened the global demand for their exports. As a result, certain
of these economies faced significant economic difficulties, which caused some
emerging market economies to fall into recession. Recovery from such conditions
may be gradual and/or halting as weak economic conditions in developed markets
may continue to suppress demand for exports from emerging market countries.
Many
emerging market countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging market countries
are authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging market countries have
periodically used force to suppress civil dissent. Disparities of wealth, the
pace and success of democratization, and ethnic, religious and racial
disaffection, among other factors, have also led to social unrest, violence
and/or labor unrest in some emerging market countries. Many emerging market
countries have experienced strained international relations
33
due
to border disputes, historical animosities or other defense concerns. These
situations may cause uncertainty in the markets and may adversely affect the
performance of these economies. Unanticipated political or social developments
may result in sudden and significant investment losses. Investing in emerging
market countries involves greater risk of loss due to expropriation,
nationalization, confiscation of assets and property or the imposition of
restrictions on foreign investments and on repatriation of capital invested. As
an example, in the past some Eastern European governments have expropriated
substantial amounts of private property, and many claims of the property owners
have never been fully settled. There is no assurance that similar expropriations
will not occur in other emerging market countries, including China.
As
a result of heightened geopolitical tensions, various countries have imposed
economic sanctions, imposed non-trade barriers and renewed existing economic
sanctions on specific emerging markets and on issuers within those markets.
These non-trade barriers consist of prohibiting certain securities trades,
prohibiting certain private transactions in certain sectors and with respect to
certain companies, asset freezes, and prohibition of all business, against
certain individuals and companies. The United States and other nations or
international organizations may impose additional, broader economic sanctions or
take other actions that may adversely affect certain emerging markets in the
future. These actions, any future sanctions or other actions, or even the threat
of further sanctions or other actions, may negatively affect the value and
liquidity of the Fund’s investments. For example, the Fund may be prohibited
from investing in securities issued by companies subject to such sanctions. In
addition, sanctions may require the Fund to freeze its existing investments,
prohibiting the Fund from buying, selling or otherwise transacting in these
investments. Actions barring some or all transactions with a specific company
will likely have a substantial, negative impact on the value of such company’s
securities. The Fund’s investment in emerging market countries may also be
subject to withholding or other taxes, which may be significant and may reduce
the return to the Fund from an investment in such countries.
Settlement
and clearance procedures in emerging market countries are frequently less
developed and reliable than those in the United States and may involve the
Fund’s delivery of securities before receipt of payment for their sale. In
addition, significant delays may occur in certain markets in registering the
transfer of securities. Settlement, clearance or registration problems may make
it more difficult for the Fund to value its portfolio securities and could cause
the Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to pay
for securities the Fund has delivered or the Fund’s inability to complete its
contractual obligations because of theft or other reasons. In addition, local
agents and depositories are subject to local standards of care that may not be
as rigorous as developed countries. Governments and other groups may also
require local agents to hold securities in depositories that are not subject to
independent verification. The less developed a country’s securities market, the
greater the risk to the Fund.
The
creditworthiness of the local securities firms used by the Fund in emerging
market countries may not be as sound as the creditworthiness of firms used in
more developed countries. As a result, the Fund may be subject to a greater risk
of loss if a securities firm defaults in the performance of its
responsibilities.
The
Fund’s use of foreign currency management techniques in emerging market
countries may be limited. Due to the limited market for these instruments in
emerging market countries, all or a significant portion of the Fund's currency
exposure in emerging market countries may not be covered by such instruments.
Rising
interest rates, combined with widening credit spreads, could negatively impact
the value of emerging market debt and increase funding costs for foreign
issuers. In such a scenario, foreign issuers might not be able to service their
debt obligations, the market for emerging market debt could suffer from reduced
liquidity, and the Fund could lose money.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer's securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level, for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before and, in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent the Fund from buying
or selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the block cannot be removed. As a result of the
ramifications of voting ballots in markets that allow share blocking, the
Adviser, on behalf of the Fund, reserves the right to abstain from voting
proxies in those markets.
34
International
Closed Market Trading Risk
To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote from the closed foreign market).
These deviations could result in premiums or discounts to the Fund’s NAV that
may be greater than those experienced by other ETFs.
Investable
Universe of Companies Risk
The
investable universe of companies in which the Fund may invest may be
limited. The Fund may hold a large concentration of its net assets in a
single security or issuer. Holding a large concentration in a single security or
issues may expose the Fund to the market volatility of that specific security or
issuer if the security performs worse than the market as a whole, which could
adversely affect the Fund’s performance.
Issuer
Risk
Issuer
risk is the risk that any of the individual companies that the Fund invests in
may perform badly, causing the value of its securities to decline. Poor
performance may be caused by poor management decisions, competitive pressures,
changes in technology, disruptions in supply, labor problems or shortages,
corporate restructurings, fraudulent disclosures or other factors. Issuers may,
in times of distress or on their own discretion, decide to reduce or eliminate
dividends, which would also cause their stock prices to decline.
Market
Risk
Market
risk is the risk that the value of the securities in which the Fund invests may
go up or down in response to the prospects of individual issuers and/or general
economic conditions. Turbulence in the financial markets and reduced liquidity
may negatively affect issuers, which could have an adverse effect on the Fund.
If the securities held by the Fund experience poor liquidity, the Fund may be
unable to transact at advantageous times or prices, which may decrease the
Fund’s returns. In addition, there is a risk that policy changes by central
governments and governmental agencies, including the Federal Reserve or the
European Central Bank, which could include increasing interest rates, could
cause increased volatility in financial markets and lead to higher levels of
Fund redemptions from Authorized Participants, which could have a negative
impact on the Fund. Furthermore, local, regional or global events such as war,
acts of terrorism, the spread of infectious illness or other public health
issues, recessions, or other events could have a significant impact on the Fund
and its investments and trading of its Shares. For example, at the start of
2023, central banks had already increased interest rates at the fastest rate on
record, the unknown is the length of time they remain restrictive and when
inflation returns to target levels. This increases the risk that monetary policy
may provide less support should economic growth slow. Additionally, China’s
shift away from their zero-COVID policy creates both opportunities and risks,
establishing China as the wildcard for global economic growth. Market risk
factors may result in increased volatility and/or decreased liquidity in the
securities markets. The Fund’s NAV could decline over short periods due to
short-term market movements and over longer periods during market downturns.
Non-Diversification
Risk
The
Fund is classified as a “non-diversified” investment company under the 1940 Act.
This means that the Fund may invest most of its assets in securities issued by
or representing a small number of companies. As a result, the Fund may be more
susceptible to the risks associated with these particular companies, or to a
single economic, political or regulatory occurrence affecting these companies.
Operational
Risk
The
Fund is exposed to operational risk arising from a number of factors, including
but not limited to human error, processing and communication errors, errors of
the Fund's service providers, counterparties or other third-parties, failed or
inadequate processes and technology or systems failures.
With
the increased use of technologies such as the internet to conduct business, the
Fund, Authorized Participants, service providers and the relevant listing
exchange are susceptible to operational, information security and related
“cyber” risks both directly and through their service providers. Similar types
of cyber security risks are also present for issuers of securities in which the
Fund invests, which could result in material adverse consequences for such
issuers and may cause the Fund’s
35
investment
in such portfolio companies to lose value. Unlike many other types of risks
faced by the Fund, these risks typically are not covered by insurance. In
general, cyber incidents can result from deliberate attacks or unintentional
events. Cyber incidents include, but are not limited to, gaining unauthorized
access to digital systems (e.g., through “hacking” or malicious software coding)
for purposes of misappropriating assets or sensitive information, corrupting
data, or causing operational disruption. Cyber-attacks may also be carried out
in a manner that does not require gaining unauthorized access, such as causing
denial-of-service attacks on websites (i.e., efforts to make network services
unavailable to intended users). Recently, geopolitical tensions may have
increased the scale and sophistication of deliberate attacks, particularly those
from nation-states or from entities with nation-state backing. Cyber security
failures by or breaches of the systems of the Adviser and the Fund’s distributor
and other service providers (including, but not limited to, fund accountants,
custodians, transfer agents and administrators), market makers, Authorized
Participants, or the issuers of securities in which the Fund invests, have the
ability to cause disruptions and impact business operations, potentially
resulting in: financial losses, interference with the Fund’s ability to
calculate its NAV, disclosure of confidential trading information, impediments
to trading, submission of erroneous trades or erroneous creation or redemption
orders, the inability of the Fund or its service providers to transact business,
violations of applicable privacy and other laws, regulatory fines, penalties,
reputational damage, reimbursement or other compensation costs, or additional
compliance costs. In addition, cyber-attacks may render records of Fund assets
and transactions, shareholder ownership of Fund Shares, and other data integral
to the functioning of the Fund inaccessible or inaccurate or incomplete.
Substantial costs may be incurred by the Fund in order to resolve or prevent
cyber incidents in the future. While the Fund has established business
continuity plans in the event of, and risk management systems to prevent, such
cyber-attacks, there are inherent limitations in such plans and systems,
including the possibility that certain risks have not been identified and that
prevention and remediation efforts will not be successful. Furthermore, the Fund
cannot control the cyber security plans and systems put in place by service
providers to the Fund, issuers in which the Fund invests, market makers or
Authorized Participants. The Fund and its shareholders could be negatively
impacted as a result.
The Fund and the Adviser seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate for those risks that they are intended to address.
The Fund and the Adviser seek to reduce these operational risks through controls and procedures. However, these measures do not address every possible risk and may be inadequate for those risks that they are intended to address.
Qualifying
Income Risk
The
Fund expects to obtain exposure to bitcoin by purchasing listed futures
contracts. The Fund intends to invest in such contracts, in whole or in part,
indirectly through the Global X Subsidiary. In order for the Fund to qualify as
a RIC, the Fund must, amongst other requirements detailed in the SAI, derive at
least 90% of its gross income each taxable year from qualifying income. Income
from listed Bitcoin Futures contracts in which the Fund invests directly may not
be considered qualifying income. The Fund will seek to limit such income so as
to qualify as a RIC. Failure to comply with the requirements for qualification
as a RIC would have significant negative tax consequences to Fund
shareholders.
Risks
Associated with Exchange-Traded Funds
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. Only Authorized Participants who have entered into agreements with
the Fund's distributor may engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. To the extent that those
Authorized Participants exit the business or are unable to process creation
and/or redemption orders, such as in times of market stress, and no other
Authorized Participant is able to step forward to create and redeem in either of
those cases, Shares may trade like closed-end fund shares at a discount to NAV
and/or at wider intraday bid-ask spreads, and may possibly face trading halts
and/or delisting from the Exchange.
Large
Shareholder Risk
Certain
shareholders, including an Authorized Participant, the Adviser or an affiliate
of the Adviser, may own a substantial amount of the Fund’s Shares. Additionally,
from time to time an Authorized Participant, a third-party investor, the
Adviser, or an affiliate of the Adviser may invest in the Fund and hold its
investment for a specific period of time in order to facilitate commencement of
the Fund’s operations or to allow the Fund to achieve size or scale.
Redemptions by large shareholders could have a significant negative impact on
the Fund. If a large shareholder were to redeem all, or a large portion, of its
Shares, there is no guarantee that the Fund will be able to maintain sufficient
assets to continue operations in which case the Board of Trustees may determine
to liquidate the Fund. In addition,
36
transactions
by large shareholders may account for a large percentage of the trading volume
on the Exchange and may, therefore, have a material upward or downward effect on
the market price of the Shares.
Market
Trading Risks and Premium/Discount Risks
Absence
of Active Market
Although
Shares of the Fund are or will be listed for trading on a U.S. exchange and may
be listed on certain foreign exchanges, there can be no assurance that an active
trading market for the Shares will develop or be maintained.
Risks
of Secondary Listings
The
Fund's Shares may be listed or traded on U.S. and non-U.S. exchanges other than
the U.S. exchange where the Fund’s primary listing is maintained. There can be
no assurance that the Fund’s Shares will continue to trade on any such exchange
or in any market or that the Fund's Shares will continue to meet the
requirements for listing or trading on any exchange or in any market. The Fund's
Shares may be less actively traded in certain markets than others, and investors
are subject to the execution and settlement risks and market standards of the
market where they or their brokers direct their trades for execution. Certain
information available to investors who trade Shares on a U.S. exchange during
regular U.S. market hours may not be available to investors who trade in other
markets, which may result in secondary market prices in such markets being less
efficient.
Secondary
Market Trading Risk
Only
Authorized Participants who have entered into agreements with the Fund’s
distributor may engage in creation or redemption transactions directly with the
Fund. Shares of the Fund may trade in the secondary market on days when the Fund
does not accept orders to purchase or redeem Shares from Authorized
Participants. On such days, Shares may trade in the secondary market with more
significant premiums or discounts than might be experienced on days when the
Fund accepts purchase and redemption orders.
Secondary
market trading in Fund Shares may be halted by a stock exchange because of
market conditions or other reasons. In addition, trading in Fund Shares on a
stock exchange or in any market may be subject to trading halts caused by
extraordinary market volatility pursuant to "circuit breaker" rules on the stock
exchange or market. There can be no assurance that the requirements necessary to
maintain the listing or trading of Fund Shares will continue to be met or will
remain unchanged.
Shares
of the Fund May Trade at Prices Other Than NAV
Shares
of the Fund may trade at, above or below NAV. The per share NAV of the Fund will
fluctuate with changes in the market value of the Fund’s holdings. The trading
prices of Shares will fluctuate in accordance with changes in the Fund's NAV as
well as market supply and demand. The trading prices of the Fund's Shares may
deviate significantly from NAV during periods of market volatility or when the
Fund has relatively few assets or experiences a lower trading volume. In
stressed market conditions, the market for the Shares may become less liquid in
response to the deteriorating liquidity of the Fund’s portfolio. Any of these
factors may lead to the Fund's Shares trading at a premium or discount to NAV.
While the creation/redemption feature is designed to make it likely that Shares
normally will trade close to the Fund’s NAV, market prices are not expected to
correlate exactly with the Fund's NAV due to timing reasons as well as market
supply and demand factors. In addition, disruptions to creations and redemptions
or the existence of extreme market volatility may result in trading prices that
differ significantly from NAV. If a shareholder purchases at a time when the
market price is at a premium to the NAV or sells at a time when the market price
is at a discount to the NAV, the shareholder may sustain losses.
Since
foreign exchanges may be open on days when the Fund does not price Shares, the
value of the securities in the Fund’s portfolio may change on days when
shareholders will not be able to purchase or sell Shares.
Costs
of Buying or Selling Fund Shares
Buying
or selling Fund Shares involves two types of costs that apply to all securities
transactions. When buying or selling Shares of the Fund through a broker, you
will likely incur a brokerage commission or other charges imposed by brokers as
determined by that broker. In addition, you may incur the cost of the "spread" -
that is, the difference between what professional investors are willing to pay
for Fund Shares (the "bid" price) and the market price at which
37
they
are willing to sell Fund Shares (the "ask" price). Because of the costs inherent
in buying or selling Fund Shares, frequent trading may detract significantly
from investment results and an investment in Fund Shares may not be advisable
for investors who anticipate regularly making small investments.
Risk
of Investing in Bitcoin Futures Contracts Risk
A
futures contract may generally be described as an agreement for the future sale
by one party and the purchase by another of a specified security or instrument
at a specified price and time. The risks of futures contracts include but are
not limited to: (1) the success of the adviser’s ability to predict movements in
the prices of individual currencies or securities, fluctuations in markets and
movements in interest rates; (2) an imperfect or no correlation between the
changes in market value of the currencies or securities and the prices of
futures contracts; and (3) no guarantee that an active market will exist for the
contracts at any particular time.
Risks
Related to Stock Connect Programs
Investing
in securities through Stock Connect Programs is subject to trading, clearance,
settlement and other procedures, which could pose risks to the Fund. The Stock
Connect Programs are subject to daily and aggregate quota limitations, which
limit the maximum daily net purchases on any particular day by Hong Kong
investors (and foreign investors trading through Hong Kong) trading mainland
Chinese listed securities and mainland Chinese investors trading Hong Kong
listed securities trading through the relevant Stock Connect Program. The daily
quota is not specific to the Fund and is utilized on a first-come-first-serve
basis. As such, buy orders via the Stock Connect Programs could be rejected once
the daily quota is exceeded. The daily quota may thereby restrict the Fund’s
ability to invest through Stock Connect Programs on a timely basis, which could
affect the Fund’s ability to effectively pursue its investment strategy. The
daily quota is also subject to change. It is possible for securities eligible to
be purchased via the Stock Connect Programs to lose such designation, which
could impact the Fund's ability to pursue its investment strategy.
In
order to comply with applicable local market rules and to facilitate orderly
operations of the Fund, including the timely settlement of Stock Connect Program
trades placed by or on behalf of the Fund, the Fund utilizes an operating model
that may reduce the risks of trade failures; however, it will also allow Stock
Connect Program trades to be settled without the prior verification by the Fund.
Accordingly, this operating model may subject the Fund to additional risks,
including an increased risk of inadvertently exceeding certain trade or other
restrictions or limits placed on the Fund and/or its affiliates, and a
heightened risk of erroneous trades, which may negatively impact the Fund.
Additionally, the Shenzen and Shanghai markets may operate when the Stock
Connect Programs are not active, and consequently the prices of shares held via
Stock Connect Programs may fluctuate at times when the Fund is unable to add to
or exit its positions.
The
Stock Connect Programs are new, and the effect of the introduction of large
numbers of foreign investors on the market for trading Chinese-listed securities
is not well understood. Regulations, such as limitations on redemptions or
suspension of trading, may adversely impact the value of the Fund’s investments.
The Fund's investments in A-Shares though the Stock Connect Program are held by
its custodian in accounts in Central Clearing and Settlement System ("CCASS")
maintained by the Hong Kong Securities Clearing Company Limited ("HKSCC"), which
in turn holds the A-Shares, as the nominee holder, through an omnibus securities
account in its name registered with the CSDCC. The precise nature and rights of
the Fund as the beneficial owner of the SSE Securities or SZSE Securities
through HKSCC as nominee is not well defined under Chinese law. There is no
guarantee that the Shenzen, Shanghai, and Hong Kong Stock Exchanges will
continue to support the Stock Connect Programs in the future. The securities
regimes and legal systems of China and Hong Kong differ significantly, and
issues may arise based on these differences. Different fees, costs and taxes are
imposed on foreign investors acquiring securities through Stock Connect
Programs, and these fees, costs and taxes may be higher than comparable fees,
costs and taxes imposed on owners of other Chinese securities providing similar
investment exposure.
Subsidiary
Investment Risk
Changes
in the laws of the United States and/or the Cayman Islands, under which the Fund
and the Global X Subsidiary are organized, respectively, could result in the
inability of the Global X Subsidiary to operate as intended and could negatively
affect the Fund and its shareholders.
Tax
Risk
The
Fund expects to obtain exposure to bitcoin indirectly because the Global X
Subsidiary will purchase listed futures contracts and other bit-coin related
instruments through the Global X Subsidiary. The Fund intends to invest in such
futures contracts or other instruments, in whole or in part, indirectly through
the Global X Subsidiary. In order for the Fund to qualify as a RIC, the
38
Fund
must, amongst other requirements detailed in the SAI, derive at least 90% of its
gross income each taxable year from qualifying income. Income from listed
Bitcoin Futures contracts other bitcoin related instrument in which the Fund
might otherwise invest directly might not be considered qualifying income. The
Fund will seek to limit such income through the Global X Subsidiary so as to
qualify as a RIC. Failure to comply with the requirements for qualification as a
RIC would have significant negative tax consequences to Fund
shareholders.
Trading
Halt Risk
An
exchange or market may close or issue trading halts on specific securities, or
the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading losses.
Turnover
Risk
The
Fund may engage in frequent and active trading, which may significantly increase
the Fund’s portfolio turnover rate. At times, the Fund may have a portfolio
turnover rate substantially greater than 100%. For example, a portfolio turnover
rate of 300% is equivalent to the Fund buying and selling all of its securities
three times during the course of a year. A high portfolio turnover rate would
result in high brokerage costs for the Fund, may result in higher taxes when
shares are held in a taxable account and lower Fund performance.
Valuation
Risk
The
sales price the Fund could receive for any particular portfolio investment may
differ from the Fund’s valuation of the investment, particularly for securities
or other investments, such as Bitcoin Futures, that trade in thin or volatile
markets or that are valued using a fair value methodology. Valuation may be more
difficult in times of market turmoil since many investors and market makers may
be reluctant to purchase complex instruments or quote prices for them. The
Fund’s ability to value its investments may be impacted by technological issues
and/or errors by pricing services or other third-party service providers.
Investments in bitcoin funds are intended to reflect the price of bitcoin
assets, less fees and expenses, and the shares may trade at a substantial
premium to the net asset value of such assets. As such, the price of bitcoin
funds may go down even if the price of the underlying asset, bitcoin, remains
unchanged. Additionally, shares that trade at a premium mean that an investor
who purchases $1 of a portfolio will actually own less than $1 in assets.
A
FURTHER DISCUSSION OF OTHER RISKS
The
Fund may also be subject to certain other risks associated with its investments
and investment strategies.
Leverage
Risk
Under
the 1940 Act, the Fund is permitted to borrow from a bank up to 33 1/3% of its
net assets for short term or emergency purposes. The Fund may borrow money at
fiscal quarter end to maintain the required level of diversification to qualify
as a regulated investment company ("RIC") for purposes of the Internal Revenue
Code of 1986, as amended (the "Code"). As a result, the Fund may be exposed to
the risks of leverage, which may be considered a speculative investment
technique. Leverage magnifies the potential for gain and loss on amounts
invested and therefore increases the risks associated with investing in the
Fund. If the value of the Fund's assets increases, then leveraging would cause
the Fund's NAV to increase more sharply than it would have had the Fund not
leveraged. Conversely, if the value of the Fund's assets decreases, leveraging
would cause the Fund's NAV to decline more sharply than it otherwise would have
had the Fund not leveraged. The Fund may incur additional expenses in connection
with borrowings.
Qualification
as a Regulated Investment Company Risk
The
Fund must meet a number of diversification requirements to qualify as a RIC
under Section 851 of the Code and, if qualified, to continue to qualify. If the
Fund experiences difficulty in meeting those requirements for any fiscal
quarter, it might enter into borrowings in order to increase the portion of the
Fund’s total assets represented by cash, cash items, and U.S. government
securities shortly thereafter and, as of the close of the following fiscal
quarter, to attempt to meet the requirements. However, the Fund may incur
additional expenses in connection with any such borrowings, and increased
investments by the Fund in cash, cash items, and U.S. government securities
(whether the Fund makes such investments from borrowings) are likely to reduce
the Fund’s return to investors.
39
Tax
Treaty Reclaims Uncertainty
When
the Fund receives dividend and interest income (if any) from issuers in certain
countries, such distributions may be subject to partial withholding by local tax
authorities in order to satisfy potential local tax obligations. The Fund may
file claims to recover such withholding tax in jurisdictions where withholding
tax reclaim is possible, which may be the case as a result of bilateral treaties
between the United States and local governments. Whether or when the Fund will
receive a withholding tax refund in the future is within the control of the tax
authorities in such countries. Where the Fund expects to recover withholding tax
based on a continuous assessment of probability of recovery, the NAV of the Fund
generally includes accruals for such tax refunds. The Fund continues to evaluate
tax developments for potential impact to the probability of recovery. If the
likelihood of receiving refunds materially decreases, for example due to a
change in tax regulation or approach, accruals in the Fund’s NAV for such
refunds may need to be written down partially or in full, which will adversely
affect that Fund’s NAV. Investors in the Fund at the time an accrual is written
down will bear the impact of any resulting reduction in NAV regardless of
whether they were investors during the accrual period. Conversely, if a Fund
receives a tax refund that has not been previously accrued, investors in the
Fund at the time the claim is successful will benefit from any resulting
increase in the Fund’s NAV. Investors who sold their shares prior to such time
will not benefit from such NAV increase.
PORTFOLIO
HOLDINGS INFORMATION
A
description of the policies and procedures of Global X Funds®
(the “Trust”) with respect to the disclosure of the Fund's portfolio securities
is available in the Fund's Statement of Additional Information (“SAI”). The top
holdings of the Fund and Fund Fact Sheets providing information regarding the
Fund’s top holdings can be found at www.globalxetfs.com/explore/ (click on the
name of your Fund) and may be requested by calling 1-888-493-8631.
FUND
MANAGEMENT
Investment
Adviser
Global
X Management Company LLC (the “Adviser”) serves as the investment adviser and
the administrator for the Fund. Subject to the supervision of the Trust’s Board
of Trustees, the Adviser is responsible for managing the investment activities
of the Fund and the Fund's business affairs and other administrative matters.
The Adviser has been a registered investment adviser since 2008. The Adviser is
a Delaware limited liability company with its principal offices located at 605
Third Avenue, 43rd Floor, New York, New York 10158. As of February 1, 2023,
the Adviser provided investment advisory services for assets of approximately
$40 billion.
Pursuant
to a Supervision and Administration Agreement and subject to the general
supervision of the Board of Trustees, the Adviser provides, or causes to be
furnished, all supervisory, administrative and other services reasonably
necessary for the operation of the Fund and also bears the costs of various
third-party services required by the Fund, including audit, certain custody,
portfolio accounting, legal, transfer agency and printing costs. The Supervision
and Administration Agreement also requires the Adviser to provide investment
advisory services to the Fund pursuant to an Investment Advisory
Agreement.
The
Supervision and Administration Agreement for the Fund provides that the Adviser
also bears the costs for acquired fund fees and expenses generated by
investments by the Fund in affiliated investment companies.
The
Fund pays the Adviser a fee (“Management Fee”) in return for providing
investment advisory, supervisory and administrative services under an all-in fee
structure. For the fiscal year ended October 31, 2022, the Fund paid a monthly
Management Fee to the Adviser at the following annual rate (stated as a
percentage of the average daily net assets of the Fund taken
separately):
| Fund | Management Fee | ||||
| Global X Blockchain & Bitcoin Strategy ETF | 0.65% | ||||
In
addition, the Fund bears other fees and expenses that are not covered by the
Supervision and Administration Agreement, which may vary and will affect the
total expense ratio of the Fund, such as taxes, brokerage fees, commissions and
other transaction expenses, interest and extraordinary expenses (such as
litigation and indemnification expenses). The Adviser may earn a profit on the
Management Fee paid by the Fund. Also, the Adviser, and not the shareholders of
the Fund, would benefit from any price decreases in third-party services,
including decreases resulting from an increase in net assets.
40
The
Adviser or its affiliates may pay compensation out of profits derived from the
Adviser's Management Fee or other resources and not as an additional charge to
the Fund, to certain financial institutions (which may include banks, securities
dealers and other industry professionals) for the sale and/or distribution of
Fund Shares or the retention and/or servicing of Fund investors and Fund Shares
("revenue sharing"). These payments are in addition to any other fees described
in the fee table or elsewhere in the Prospectus or SAI. Examples of "revenue
sharing" payments include, but are not limited to, payments to financial
institutions for "shelf space" or access to a third party platform or fund
offering list or other marketing programs, including, but not limited to,
inclusion of the Fund on preferred or recommended sales lists, mutual fund
"supermarket" platforms and other formal sales programs; granting the Adviser
access to the financial institution's sales force; granting the Adviser access
to the financial institution's conferences and meetings; assistance in training
and educating the financial institution's personnel; and obtaining other forms
of marketing support. The level of revenue sharing payments made to financial
institutions may be a fixed fee or based upon one or more of the following
factors: gross sales, current assets and/or number of accounts of the Fund
attributable to the financial institution, or other factors as agreed to by the
Adviser and the financial institution or any combination thereof. The amount of
these revenue sharing payments is determined at the discretion of the Adviser,
from time to time, may be substantial, and may be different for different
financial institutions depending upon the services provided by the financial
institution. Such payments may provide an incentive for the financial
institution to make Shares of the Fund available to its customers and may allow
the Fund greater access to the financial institution's customers.
Approval
of Advisory Agreement
Discussion
regarding the basis for the Board of Trustees' approval of the Supervision and
Administration Agreement and the related Investment Advisory Agreement for the
Fund is available in the Fund's Semi-Annual Report to shareholders for the
period ended April 30.
Portfolio
Management
The
Portfolio Managers who are currently responsible for the day-to-day management
of the Fund's portfolio are Rohan Reddy, CFA and Pedro Palandrani.
Rohan
Reddy:
Rohan Reddy, CFA, Vice President and Director of Research, joined the Adviser in
2015. Mr. Reddy received his BA from New York University (NYU) in 2015.
Pedro
Palandrani:
Pedro Palandrani, Vice President and Director of Research, joined the Adviser in
2019. Prior to joining the Adviser, Mr. Palandrani held the role of Equity
Research Analyst at Cabot Wealth from 2017 to 2019. Mr. Palandrani received his
MBA from the Bertolon School of Business at Salem State University in 2018 and
his BA from Universidad Católica Andrés Bello (UCAB) in Venezuela in
2013.
The
SAI provides additional information about the Portfolio Managers' compensation
structure, other accounts managed by the Portfolio Managers, and the Portfolio
Managers' ownership of Shares of the Fund.
DISTRIBUTOR
SEI
Investments Distribution Co. (“Distributor”) distributes Creation Units for the
Fund on an agency basis. The Distributor does not maintain a secondary market in
Shares. The Distributor has no role in determining the policies of the Fund or
the securities that are purchased or sold by the Fund. The Distributor’s
principal address is One Freedom Valley Drive, Oaks, PA 19456. The Distributor
is not affiliated with the Adviser.
BUYING
AND SELLING FUND SHARES
Shares
of the Fund trade on a national securities exchange and in the secondary market
during the trading day. Shares can be bought and sold throughout the trading day
like other shares of publicly-traded securities. There is no minimum investment
for purchases made on a national securities exchange. When buying or selling
Shares through a broker, you will incur customary brokerage commissions and
charges. In addition, you will also incur the cost of the “spread,” which is the
difference between what professional investors are willing to pay for Shares
(the “bid” price) and the price at which they are willing to sell Shares (the
“ask” price). The commission is frequently a fixed amount and may be a
significant proportional cost for investors seeking to buy or sell small amounts
of Shares. The spread with respect to Shares varies over time based on the
Fund‘s trading volume and market liquidity, and is generally lower if the Fund
has significant trading volume and market liquidity and higher if the Fund has
little trading volume and market liquidity. Because of the costs of buying and
selling Shares, frequent trading may reduce investment return.
41
Shares
of the Fund may be acquired or redeemed directly from the Fund only by
Authorized Participants (as defined in the SAI) and only in Creation Units or
multiples thereof, as discussed in the “Creations and Redemptions” section in
the SAI.
Shares
generally trade in the secondary market in amounts less than a Creation Unit.
Shares of the Fund trade under the trading symbol listed for the Fund in the
Fund Summary section of this Prospectus.
The
Fund is listed on a national securities exchange, which is open for trading
Monday through Friday and is closed on weekends and the following holidays, as
observed: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good
Friday, Memorial Day, Juneteenth National Independence Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
Book
Entry
Shares
of the Fund 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 and is recognized as the owner of all Shares for
all purposes. Investors owning Shares are beneficial owners as shown on the
records of DTC or its participants. DTC serves as the securities depository for
all Shares. Participants include DTC, 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 rights 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 securities that you hold in
book entry or “street name” form.
FREQUENT
TRADING
Unlike
frequent trading of shares of a traditional open-end mutual fund (i.e., not
exchange-traded shares), frequent trading of Shares on the secondary market does
not disrupt portfolio management, increase the Fund‘s trading costs, lead to
realization of capital gains, or otherwise harm Fund shareholders because these
trades do not involve the Fund directly. A few institutional investors are
authorized to purchase and redeem the Fund's Shares directly with the Fund. When
these trades are effected in-kind (i.e., for securities, and not for cash), they
do not cause any of the harmful effects (noted above) that may result from
frequent cash trades. Moreover, the Fund imposes transaction fees on in-kind
purchases and redemptions of the Fund intended to cover the custodial and other
costs incurred by the Fund in effecting in-kind trades. These fees increase if
an investor substitutes cash in part or in whole for securities, reflecting the
fact that the Fund’s trading costs increase in those circumstances, although
transaction fees are subject to certain limits and therefore may not cover all
related costs incurred by the Fund. For these reasons, the Board of Trustees has
determined that it is not necessary to adopt policies and procedures to detect
and deter frequent trading and market-timing in Shares of the Fund.
DISTRIBUTION
AND SERVICE PLAN
The
Board of Trustees of the Trust has adopted a Distribution and Services Plan
(“Plan”) pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Fund is
authorized to pay distribution fees in connection with the sale and distribution
of its Shares and pay service fees in connection with the provision of ongoing
services to shareholders of each class and the maintenance of shareholder
accounts in an amount up to 0.25% of its average daily net assets each
year.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no current plans
to impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because these fees are paid out of the Fund‘s assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing Shares subject to distribution fees and service fees, you may pay
more over time than you would by purchasing Shares with other types of sales
charge arrangements. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the rules of
FINRA. The net income attributable to Shares will be reduced by the amount of
distribution fees and service fees and other expenses of the Fund.
DIVIDENDS
AND DISTRIBUTIONS
Dividends
from net investment income, including any net foreign currency gains, generally
are declared and paid at least annually and any net realized capital gains are
distributed at least annually. In order to comply with the distribution
requirements of the Internal Revenue Code of 1986, as amended (the “Code”),
dividends may be declared and paid more frequently than annually for the
Fund.
42
Dividends
and other distributions on Shares are distributed on a pro rata basis to
beneficial owners of such Shares. Dividend payments are made through DTC
participants to beneficial owners then of record with proceeds received from the
Fund. Dividends and security gain distributions are distributed in U.S. dollars
and cannot be automatically reinvested in additional Shares.
No
dividend reinvestment service is provided by the Trust. Broker-dealers may make
available the DTC book-entry Dividend Reinvestment Service for use by beneficial
owners of the Fund for reinvestment of their dividend distributions. Beneficial
owners should contact their broker to determine the availability and costs of
the service and the details of participation therein. Brokers may require
beneficial owners to adhere to specific procedures and timetables. If this
service is available and used, dividend distributions of both income and
realized gains will be automatically reinvested in additional whole Shares
purchased in the secondary market.
TAXES
The
following is a summary of certain tax considerations that may be relevant to an
investor in the Fund. Except where otherwise indicated, the discussion relates
to investors who are individual United States citizens or residents and is based
on current tax law. You should consult your tax advisor for further information
regarding federal, state, local and/or foreign tax consequences relevant to your
specific situation.
Distributions.
The Fund receives income and gains on its investments. The income, less expenses
incurred in the operation of the Fund, constitutes the Fund’s net investment
income from which dividends may be paid to you. The Fund intends to qualify as a
RIC under the Code for federal tax purposes and to distribute to shareholders
substantially all of its net investment income and net capital gain each year.
Except as otherwise noted below, you will generally be subject to federal income
tax on the Fund‘s distributions to you. For federal income tax purposes, Fund
distributions attributable to short-term capital gains and net investment income
are taxable to you as ordinary income. Distributions attributable to net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) of the Fund generally are taxable to you as long-term capital gains.
This is true no matter how long you own your Shares or whether you take
distributions in cash or additional Shares. The maximum long-term capital gain
rate applicable to individuals is 20%.
Distributions
of “qualifying dividends” will also generally be taxable to you at long-term
capital gain rates as long as certain requirements are met. In general, if 95%
or more of the gross income of the Fund (other than net capital gain) consists
of dividends received from domestic corporations or “qualified” foreign
corporations (“qualifying dividends”), then all distributions received by
individual shareholders of the Fund will be treated as qualifying dividends. But
if less than 95% of the gross income of the Fund (other than net capital gain)
consists of qualifying dividends, then distributions received by individual
shareholders of the Fund will be qualifying dividends only to the extent they
are derived from qualifying dividends earned by the Fund. For the lower rates to
apply, you must have owned your Shares for at least 61 days during the 121-day
period beginning on the date that is 60 days before the Fund’s ex-dividend date
(and the Fund will need to have met a similar holding period requirement with
respect to the Shares of the corporation paying the qualifying dividend). The
amount of the Fund‘s distributions that qualify for this favorable treatment may
be reduced as a result of the Fund‘s securities lending activities (if any), a
high portfolio turnover rate or investments in debt securities or
“non-qualified” foreign corporations. In addition, whether distributions
received from foreign corporations are qualifying dividends will depend on
several factors including the country of residence of the corporation making the
distribution. Accordingly, distributions from many of the Fund's holdings may
not be qualifying dividends.
A
portion of distributions paid to shareholders that are corporations may also
qualify for the dividends-received deduction for corporations, subject to
certain holding period requirements and debt financing limitations. The amount
of the dividends qualifying for this deduction may, however, be reduced as a
result of the Fund‘s securities lending activities, by a high portfolio turnover
rate or by investments in debt securities or foreign corporations.
Distributions
from the Fund will generally be taxable to you in the year in which they are
paid, with one exception. Dividends and distributions declared by the Fund in
October, November or December and paid in January of the following year are
taxed as though they were paid on December 31.
You
should note that if you buy Shares of the Fund shortly before it makes a
distribution, the distribution will be fully taxable to you even though, as an
economic matter, it simply represents a return of a portion of your investment.
This adverse tax result is known as “buying into a dividend.”
You
will be informed of the amount of your ordinary income dividends, qualifying
dividend income, and capital gain distributions at the time they are paid, and
you will be advised of the tax status for federal income tax purposes shortly
after the
43
close
of each calendar year. If you have not held Shares for a full year, the Fund may
designate and distribute to you, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the Fund.
Tax
Structure of ETFs.
In a conventional mutual fund and exchange-traded funds that do not effect
transactions principally in-kind, like the Fund, redemptions can have an adverse
tax impact on taxable shareholders because the fund may need to sell portfolio
securities to obtain cash to meet such redemptions. These sales may generate
taxable gains that must be distributed to the shareholders of the mutual fund,
whereas an in-kind redemption mechanism may reduce the effect of a tax event for
the Fund (to the extent it uses in-kind redemptions) or its shareholders.
However, the tax advantages of investing in Shares may be less pronounced than
passive ETFs because the Funds are actively managed and, therefore, may have
greater turnover in their portfolio securities, which could result in less tax
efficiency than an investment in a fund that is not actively
managed.
Excise
Tax Distribution Requirements.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
RIC’s “required distribution” for the calendar year ending within the RIC’s
taxable year over the “distributed amount” for such calendar year. The term
“required distribution” means the sum of (a) 98% of ordinary income (generally
net investment income) for the calendar year, (b) 98.2% of capital gain (both
long-term and short-term) for the one-year period ending on October 31 (or
December 31, if the Fund so elects), and (c) the sum of any untaxed,
undistributed net investment income and net capital gains of the RIC for prior
periods. The term “distributed amount” generally means the sum of (a) amounts
actually distributed by the Fund from its current year’s ordinary income and
capital gain net income and (b) any amount on which the Fund pays income tax for
the taxable year ending in the calendar year. Although the Fund intends to
distribute its net investment income and net capital gains so as to avoid excise
tax liability, the Fund may determine that it is in the interest of shareholders
to distribute a lesser amount. The Fund intends to declare and pay these amounts
in December (or in January, which must be treated by you as received in
December) to avoid these excise taxes, but can give no assurances that its
distributions will be sufficient to eliminate all such taxes.
Foreign
Currencies.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency, and the
time the Fund actually collects such receivables or pays such liabilities, are
treated as ordinary income or ordinary loss. Similarly, gains or losses from the
disposition of foreign currencies, from the disposition of debt securities
denominated in a foreign currency, or from the disposition of a forward foreign
currency contract which are attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the asset and the date of
disposition also are treated as ordinary income or loss. These gains or losses,
referred to under the Code as “section 988” gains or losses, increase or
decrease the amount of the Fund‘s investment company taxable income available to
be distributed to its shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund‘s net capital gain.
Foreign
Taxes.
The Fund will be subject to foreign withholding taxes with respect to certain
payments received from sources in foreign countries. If at the close of the
taxable year more than 50% in value of the Fund’s assets consists of stock in
foreign corporations, the Fund will be eligible to make an election to treat a
proportionate amount of those taxes as constituting a distribution to each
shareholder, which would allow you either (subject to certain limitations) (1)
to credit that proportionate amount of taxes against your U.S. Federal income
tax liability as a foreign tax credit or (2) to take that amount as an itemized
deduction. If the Fund is not eligible or chooses not to make this election, it
will be entitled to deduct such taxes in computing the amounts it is required to
distribute.
Sales
and Exchanges.
The sale of Shares is a taxable event on which a gain or loss is recognized. The
amount of gain or loss is based on the difference between your tax basis in
Shares and the amount you receive for them upon disposition. Generally, you will
recognize long-term capital gain or loss if you have held your Shares for over
one year at the time you sell or exchange them. Gains and losses on Shares held
for one year or less will generally constitute short-term capital gains, except
that a loss on Shares held six months or less will be re-characterized as a
long-term capital loss to the extent of any long-term capital gain distributions
that you have received on the Shares. A loss realized on a sale or exchange of
Shares may be disallowed under the so-called “wash sale” rules to the extent the
Shares disposed of are replaced with other Shares of that same Fund within a
period of 61 days beginning 30 days before and ending 30 days after the Shares
are disposed of, such as pursuant to a dividend reinvestment in Shares of the
Fund. If disallowed, the loss will be reflected in an adjustment to the basis of
the Shares acquired.
Taxes
on Purchase and Redemption of Creation Units.
An Authorized Participant who exchanges equity securities for Creation Units
generally will recognize a gain or a loss. The gain or loss will be equal to the
difference between the market value of the Creation Units at the time of
purchase (plus any cash received by the Authorized Participant as part of the
issue) and the Authorized Participant’s aggregate basis in the securities
surrendered (plus any cash paid by the Authorized Participant as part of the
issue). An Authorized Participant who exchanges Creation Units for equity
securities generally will recognize a gain or loss equal to the difference
between the Authorized Participant’s basis in the Creation Units (plus any cash
paid by the
44
Authorized
Participant as part of the redemption) and the aggregate market value of the
securities received (plus any cash received by the Authorized Participant as
part of the redemption). The Internal Revenue Service (the “IRS”), however, may
assert that a loss realized upon an exchange of securities for Creation Units
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
exchanging securities should consult their own tax advisor with respect to
whether the wash sale rules apply and when a loss might be
deductible.
IRAs
and Other Tax-Qualified Plans.
The one major exception to the preceding tax principles is that distributions
on, and sales, exchanges and redemptions of, Shares held in an IRA or other
tax-qualified plan are not currently taxable but may be taxable when funds are
withdrawn from the tax qualified plan unless the Shares were purchased with
borrowed funds.
Medicare
Tax. An
additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from the
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.
This Medicare tax, if applicable, is reported by you on, and paid with, your
federal income tax return.
Backup
Withholding.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury backup withholding at the applicable rate on dividends and gross sales
proceeds paid to any shareholder (i) who has either provided an incorrect tax
identification number or no number at all, (ii) who is subject to backup
withholding by the IRS, or (iii) who has failed to certify to the Fund, when
required to do so, that he or she is not subject to backup withholding or is an
“exempt recipient.”
Cost
Basis Reporting. Federal
law requires that shareholders’ cost basis, gain/loss, and holding period be
reported to the IRS and to shareholders on the Consolidated Form 1099s when
“covered” securities are sold. Covered securities are any RIC and/or dividend
reinvestment plan shares acquired on or after January 1, 2012.
For
those securities defined as “covered” under current IRS cost basis tax reporting
regulations, accurate cost basis and tax lot information must be maintained for
tax reporting purposes. This information is not required for Shares that are not
“covered.” The Fund and its service providers do not provide tax advice. You
should consult independent sources, which may include a tax professional, with
respect to any decisions you may make with respect to choosing a tax lot
identification method. Shareholders should contact their financial
intermediaries with respect to reporting of cost basis and available elections
for their accounts.
State
and Local Taxes.
You may also be subject to state and local taxes on income and gain attributable
to your ownership of Shares. You should consult your tax advisor regarding the
tax status of distributions in your state and locality.
U.S.
Tax Treatment of Foreign Shareholders.
A non-U.S. shareholder generally will not be subject to U.S. withholding tax on
gain from the redemption of Shares or on capital gain dividends (i.e., dividends
attributable to long-term capital gains of the Fund) unless, in the case of a
shareholder who is a non-resident alien individual, the shareholder is present
in the United States for 183 days or more during the taxable year and certain
other conditions are met. Non-U.S. shareholders generally will be subject to
U.S. withholding tax at a rate of 30% (or a lower treaty rate, if applicable) on
distributions by the Fund of net investment income, other ordinary income, and
the excess, if any, of net short-term capital gain over net long-term capital
loss for the year, unless the distributions are effectively connected with a
U.S. trade or business of the shareholder. Exemptions from U.S. withholding tax
are provided for certain capital gain dividends paid by the Fund from net
long-term capital gains, if any, interest-related dividends paid by the Fund
from its qualified net interest income from U.S. sources and short-term capital
gain dividends if such amounts are reported by the Fund. Non-U.S. shareholders
are subject to special U.S. tax certification requirements to avoid backup
withholding and claim any treaty benefits. Non-U.S. shareholders should consult
their tax advisors regarding the U.S. and foreign tax consequences of investing
in the Fund.
Other
Reporting and Withholding Requirements. Under
the Foreign Account Tax Compliance Act (“FATCA”), a 30% withholding tax is
imposed on income dividends paid by the Fund to certain foreign entities,
referred to as foreign financial institutions or nonfinancial foreign entities,
that fail to comply (or be deemed compliant) with extensive reporting and
withholding requirements designed to inform the U.S. Department of the Treasury
of U.S.-owned foreign investment accounts. After December 31, 2018, FATCA
withholding also would have applied to certain capital gain distributions,
return of capital distributions and the proceeds arising from the sale of Fund
Shares, however based on proposed regulations issued by the IRS, which may be
relied upon currently, such withholding is no longer required unless final
regulations provide otherwise (which is not expected). Information about a
shareholder in the Fund may be disclosed to the IRS, non-U.S. taxing authorities
or other parties as necessary to comply with FATCA. Withholding also may be
required if a foreign entity that is a shareholder of the Fund fails to provide
the appropriate certifications or other documentation concerning its status
under FATCA.
45
Consult
Your Tax Professional.
Your investment in the Fund could have additional tax consequences. You should
consult your tax professional for information regarding all tax consequences
applicable to your investments in the Fund. More tax information relating to the
Fund is also provided in the SAI. This short summary is not intended as a
substitute for careful tax planning.
DETERMINATION
OF NET ASSET VALUE
The
Fund calculates its NAV as of the regularly scheduled close of business of the
Exchange (normally 4:00 p.m. Eastern time) on each day that the Exchange is open
for business, based on prices at the time of closing, provided that any assets
or liabilities denominated in currencies other than the U.S. dollar shall be
translated into U.S. dollars at the prevailing market rates on the date of
valuation as quoted by one or more major banks or dealers that make a two-way
market in such currencies (or a data service provider based on quotations
received from such banks or dealers). The NAV of the Fund is calculated by
dividing the value of the net assets of the Fund (i.e., the value of its total
assets less total liabilities) by the total number of outstanding Shares,
generally rounded to the nearest cent. 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).
In
calculating the Fund’s NAV, the Fund’s investments are generally valued using
market valuations. A market valuation generally means a valuation (i) obtained
from an exchange or a major market maker (or dealer), (ii) based on a price
quotation or other equivalent indication of value supplied by an exchange, a
pricing service, or a major market maker (or dealer), or (iii) based on
amortized cost, provided the amortized cost is approximately the value on
current sale of the security. In the case of shares of funds that are not traded
on an exchange, a market valuation means such fund’s published NAV per share.
The Fund may use various pricing services or discontinue the use of any pricing
service.
In
the event that current market valuations are not readily available or such
valuations do not reflect current market values (including, in the case of
Bitcoin Futures, as a result of volatility-based trading halts), the affected
investments will be valued using fair value pricing pursuant to the pricing
policy and procedures approved by the Board of Trustees. A price obtained from a
pricing service based on such pricing service’s valuation matrix may be used to
fair value a security. The frequency with which the Fund’s investments are
valued using fair value pricing is primarily a function of the types of
securities and other assets in which the Fund invests pursuant to its investment
objective, strategies and limitations.
Investments
that may be valued using fair value pricing include, but are not limited to: (i)
an unlisted security related to corporate actions; (ii) a restricted security
(i.e., one that may not be publicly sold without registration under the
Securities Act of 1933, as amended (the “Securities Act”)); (iii) a security
whose trading has been suspended or which has been de-listed from its primary
trading exchange; (iv) a security that is thinly traded; (v) a security in
default or bankruptcy proceedings for which there is no current market
quotation; (vi) a security affected by currency controls or restrictions; and
(vii) a security affected by a significant event (i.e., an event that occurs
after the close of the markets on which the security is traded but before the
time as of which the Fund’s NAV is computed and that may materially affect the
value of the Fund’s investments). Examples of events that may be “significant
events” are government actions, natural disasters, armed conflict, acts of
terrorism, and significant market fluctuations.
Valuing
the Fund‘s investments using fair value pricing will result in using prices for
those investments that may differ from current market valuations.
Because
foreign markets may be open on different days than the days during which a
shareholder may purchase Shares, the value of the Fund’s investments may change
on days when shareholders are not able to purchase Shares. Additionally, due to
varying holiday schedules, redemption requests made on certain dates may result
in a settlement period exceeding seven calendar days.
The
value of assets denominated in foreign currencies is converted into U.S. dollars
using exchange rates deemed appropriate by the Adviser.
The
right of redemption may be suspended or the date of payment postponed with
respect to the Fund (1) for any period during which the NASDAQ or listing
exchange is closed (other than customary weekend and holiday closings), (2) for
any period during which trading on the NASDAQ or listing exchange is suspended
or restricted, (3) for any period during which an emergency exists as a result
of which disposal of the Fund’s portfolio securities or determination of its NAV
is not reasonably practicable, or (4) in such other circumstances as the SEC
permits.
Subject
to oversight by the Board of Trustees, the Adviser, as “valuation designee”
pursuant to Rule 2a-5 under the 1940 Act, performs fair value determinations of
Fund investments. In addition, the Adviser, as the valuation designee, is
responsible for
46
periodically
assessing any material risks associated with the determination of the fair value
of the Fund's investments; establishing and applying fair value methodologies;
testing the appropriateness of fair value methodologies; and overseeing and
evaluating third-party pricing services. The Adviser has established a fair
value committee to assist with its designated responsibilities as valuation
designee.
PREMIUM/DISCOUNT
AND SHARE INFORMATION
Once
available, information regarding how often the Shares of the Fund traded on a
national securities exchange at a price above (i.e., at a premium to) or below
(i.e., at a discount to) the NAV of the Fund, the Fund’s per share NAV, and the
median bid-ask spread of Shares can be found at
www.globalxetfs.com.
TOTAL
RETURN INFORMATION
The
Fund had commenced operations as of the most recent fiscal year
end.
The
tables that follow present information about the total returns of the Fund. The
information presented for the Fund is as of its fiscal year ended
October 31, 2022.
“Annualized
Total Returns” or "Cumulative Total Returns" represent the total change in value
of an investment over the periods indicated.
The
Fund’s per share NAV is the value of one share of the Fund as calculated in
accordance with the standard formula for valuing mutual fund Shares. The NAV
return is based on the NAV of the Fund and the market return is based on the
market prices of the Fund. The price used to calculate market prices is
determined by using the midpoint between the bid and the ask on the primary
stock exchange on which Shares of the Fund are listed for trading, as of the
time that the Fund’s NAV is calculated. Market and NAV returns assume that
dividends and capital gain distributions have been reinvested in the Fund at
market prices and NAV, respectively.
Market
returns do not include brokerage commissions that may be payable on secondary
market transactions. If brokerage commissions were included, market returns
would be lower. The returns shown in the tables below do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or the
redemption or sale of Fund Shares. The investment return and principal value of
Shares of the Fund will vary with changes in market conditions. Shares of the
Fund may be worth more or less than their original cost when they are redeemed
or sold in the market. The Fund’s past performance is no guarantee of future
results.
Annualized
Total Returns
Inception
to 10/31/22
| NAV | MARKET | |||||||
|
Global
X Blockchain & Bitcoin Strategy ETF 1 |
N/A | N/A | ||||||
1 For
the period since inception on 11/15/21 to 10/31/22
Cumulative
Total Returns
Inception
to 10/31/22
| NAV | MARKET | |||||||
|
Global
X Blockchain & Bitcoin Strategy ETF 1 |
-76.40% | -76.47% | ||||||
1 For
the period since inception on 11/15/21 to 10/31/22
OTHER
SERVICE PROVIDERS
SEI
Investments Global Funds Services is the sub-administrator for the
Fund.
Brown
Brothers Harriman & Co. is the custodian and transfer agent for the
Fund.
47
Stradley
Ronon Stevens & Young, LLP serves as counsel for the Trust and the Trust’s
Independent Trustees.
PricewaterhouseCoopers
LLP serves as the Fund’s independent registered public accounting firm and
audited the financial statements for the Fund for the fiscal year ended October
31, 2022.
ADDITIONAL
INFORMATION
The
Trust enters into contractual arrangements with various parties, including among
others, the Fund's Adviser, custodian, and transfer agent who provide services
to the Fund. Shareholders are not parties to any such contractual arrangements
and are not intended beneficiaries of those contractual arrangements, and those
contractual arrangements are not intended to create in any shareholder any right
to enforce them against the service providers or to seek any remedy under them
against the service providers, either directly or on behalf of the
Trust.
This
Prospectus provides information concerning the Fund that investors should
consider in determining whether to purchase Fund Shares. Neither this Prospectus
nor the SAI is intended, or should be read, to be or give rise to an agreement
or contract between the Trust or the Fund and any investor, or to give rise to
any rights in any shareholder or other person other than any rights under
federal or state law that may not be waived.
48
FINANCIAL
HIGHLIGHTS
The
Fund had commenced operations and has financial highlights for the fiscal year
ended October 31, 2022. The financial highlights tables are intended to
help investors understand a Fund's financial performance since the Fund's
inception. Certain information reflects financial results for a single Share of
a Fund. The total returns in the tables represent the rate that an investor
would have earned (or lost) on an investment in a Fund, assuming reinvestment of
all dividends and distributions.
PricewaterhouseCoopers
LLP serves as the Fund's independent registered public accounting firm and has
audited the financial statements of the Fund for the fiscal year ended October
31, 2022. The Fund's financial statements are available without charge upon
request.
| CONSOLIDATED FINANCIAL HIGHLIGHTS | ||||||||||||||
Selected
Per Share Data & Ratios
For
a Share Outstanding Throughout the Period
| Net Asset Value, Beginning of Period ($) | Net Investment Income ($)* | Net Realized and Unrealized Loss on Investments ($) | Total from Operations ($) | Distribution from Net Investment Income ($) | Distribution from Capital Gains ($) | Return of Capital ($) | Total from Distributions ($) | Net Asset Value, End of Period ($) |
Total Return (%)** | Net Assets End of Period ($)(000) | Ratio of Expenses to Average Net Assets (%) | Ratio of Net Investment Income to Average Net Assets (%) | Portfolio Turnover (%)†† | |||||||||||||||||||||||||||||||
| Global X Blockchain & Bitcoin Strategy ETF | ||||||||||||||||||||||||||||||||||||||||||||
|
2022(1)(2) |
119.00 | 0.80 | (90.72) | (89.92) | (1.52) | — | — | (1.52) | 27.56 | (76.40) | 8,061 | 0.65†# | 1.96† | 0.00 | ||||||||||||||||||||||||||||||
| * | Per share data calculated using average shares method. | ||||
| ** | Total return is for the period indicated and has not been annualized. The return shown does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. | ||||
| † | Annualized. | ||||
| # | Excludes fees and expenses incurred indirectly as a result of investments in underlying funds (See Note 3 in the Consolidated Notes to Financial Statements). | ||||
| †† | Portfolio turnover rate is for the period indicated and periods of less than one year have not been annualized. Excludes effect of in-kind transfers. | ||||
| (1) | The Fund commenced operations on November 15, 2021. | ||||
| (2) | Per
share amounts have been adjusted for a 1 for 4 reverse share split on
December 19, 2022 (See Note 9 in the Consolidated Notes to Financial Statements). | ||||
Amounts
designated as "—" are $0 or have been rounded to $0.
49
OTHER
INFORMATION
The
Fund is not sponsored, endorsed, sold or promoted by any national securities
exchange. No national securities exchange makes any representation or warranty,
express or implied, to the owners of Shares or any member of the public
regarding the advisability of investing in securities generally or in the Fund
particularly or the ability of the Fund to achieve its objective. No national
securities exchange has any obligation or liability in connection with the
administration, marketing or trading of the Fund.
For
purposes of the 1940 Act, shares that are issued by a registered investment
company and purchases of such shares by investment companies and companies
relying on Sections 3(c)(1) or 3(c)(7) of the 1940 Act are subject to the
restrictions set forth in Section 12(d)(1) of the 1940 Act.
The
method by which Creation Units are created and traded may raise certain issues
under applicable securities laws. Because new Creation Units are issued and sold
by the 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 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 such 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 categorization
as an underwriter.
Broker-dealers
who are not “underwriters” but are participating in a distribution (as
contrasted with ordinary secondary trading transactions), and thus dealing with
Shares that are part of an “unsold allotment” within the meaning of Section
4(a)(3)(C) of the Securities Act, would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act.
This is because the prospectus delivery exemption in Section 4(a)(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 ordinary secondary market transactions) and thus dealing with
the Shares that are part of an overallotment within the meaning of Section
4(a)(3)(A) of the Securities Act would be unable to take advantage of the
prospectus delivery exemption provided by Section 4(a)(3) of the Securities Act.
Firms that incur a prospectus delivery obligation with respect to Shares are
reminded that, under Rule 153 of the Securities Act, a prospectus delivery
obligation under Section 5(b)(2) of the Securities Act owed to an exchange
member in connection with a sale on NASDAQ is satisfied by the fact that the
prospectus is available at NASDAQ upon request. The prospectus delivery
mechanism provided in Rule 153 is only available with respect to transactions on
an exchange.
50
For
more information visit our website at
www.globalxetfs.com
or
call 1-888-493-8631
|
Investment
Adviser and Administrator
Global
X Management Company LLC
605
Third Avenue, 43rd Floor
New
York, NY 10158
| ||
|
Distributor
SEI
Investments Distribution Co.
One
Freedom Valley Drive
Oaks,
PA 19456
| ||
|
Custodian
and Transfer Agent
Brown
Brothers Harriman & Co.
50
Post Office Square
Boston,
MA 02110
| ||
|
Sub-Administrator
SEI
Investments Global Funds Services
One
Freedom Valley Drive
Oaks,
PA 19456
| ||
|
Legal
Counsel to the Global X Funds®
and Independent Trustees
Stradley
Ronon Stevens & Young, LLP
2000
K Street N.W., Suite 700
Washington,
DC 20006
| ||
|
Independent
Registered Public Accounting Firm
PricewaterhouseCoopers
LLP
Two
Commerce Square, Suite 1800
2001
Market Street
Philadelphia,
PA 19103 | ||
51
A
Statement of Additional Information dated March 1, 2023, which contains
more details about the Fund, is incorporated by reference in its entirety into
this Prospectus, which means that it is legally part of this
Prospectus.
Additional
information about the Fund and its investments is available in its annual and
semi-annual reports to shareholders. The annual report explains the market
conditions and investment strategies affecting the Fund’s performance during its
last fiscal year.
You
can ask questions or obtain a free copy of the Fund’s semi-annual and annual
report or the Statement of Additional Information by calling 1-888-493-8631.
Free copies of the Fund’s semi-annual and annual report and the Statement of
Additional Information are available from our website at
www.globalxetfs.com.
Information
about the Fund, including its semi-annual and annual reports and the Statement
of Additional Information, has been filed with the SEC. You can also request
copies of these materials, upon payment of a duplicating fee, by electronic
request at the SEC’s e-mail address ([email protected]).
PROSPECTUS
Distributor
SEI
Investments Distribution Co.
One
Freedom Valley Drive
Oaks,
PA 19456
March 1,
2023
Investment
Company Act File No.: 811-22209
GLX-PS-071-0100
52