Guru
Favorite Stocks ETF
Annual
Report
November
30, 2023
GURU
FAVORITE STOCKS ETF
TABLE
OF CONTENTS
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7
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23
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29
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29
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GURU
FAVORITE STOCKS ETF
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LETTER
TO SHAREHOLDERS |
November
30, 2023 (UNAUDITED) |
Dear
GFGF shareholders,
Thank
you for your investment in the Guru Favorite Stocks ETF (“GFGF” or the “Fund”).
The information presented in this letter relates to the operations of the Fund
for its fiscal year ended November 30, 2023 (“FY 2023”).
The
Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve
its investment objective of long-term capital appreciation by investing in high
quality companies that are favored by prominent long-term investors (“Gurus”)
and at reasonable prices (“Guru Strategy”). The Fund’s sub-adviser, GuruFocus
Investments, LLC (“GuruFocus”), tracks the equity portfolio holdings of
approximately 20 Gurus. To be considered a Guru, the investor must have a
long-term, publicly available track record of at least 10 years. In addition,
the Guru must follow an investment strategy of investing in companies that the
Guru considers to be high-quality. The list of Gurus will generally remain
consistent, absent unusual circumstances – for example, the retirement of a
particular Guru.
For
FY 2023, GFGF was up 10.99% at its market price and up 11.17% at net asset value
(NAV). Over the period, GFGF underperformed the Solactive GBS United States 1000
NTR Index, which was up 13.10%. For the calendar year of 2023, the net asset
value per share of GFGF was up 24.51%, while the broad market index S&P 500
was up 26.29%. For the second half of 2023, the net asset value per share of
GFGF was up 9.21%, while the S&P 500 was up 8.04%. For the quarter ended on
December 31, 2023, the net asset value per share of GFGF was 14.98%, while the
S&P 500 was up 11.69%.
It
is now a little more than two years since the launch of GFGF. The S&P 500 is
now back to about where it was two years ago; the Nasdaq Index is slightly lower
than it was two years ago. GFGF is also almost back to its launch price. While I
would love to do better than this, the performance of GFGF is within the range
of my expectations and within the range of what the strategy has done in the
past. We will continue to focus on the stocks that are favored by our selected
group of Gurus, have high quality underlying businesses and are traded at
reasonable valuations.
The
best and worst performers of the Fund are listed below based on their
contribution to the Fund’s return over FY 2023, taking into consideration the
weighting of each security.
The
best performing security in the Fund’s portfolio during FY 2023 was Microsoft
Corp., which returned 54.77%. The second-best performing security was Lam
Research Corp., which returned 78.28%. The third-best performing security for
the period was Monolithic Power System, Inc., which returned 70.81%.
The
worst performing security in the Fund’s portfolio during FY 2023 was Charles
Schwab Corp., which returned -17.03%. The second-worst performing security was
Elevance Health Inc, which returned -5.18%. The third-worst performing security
was United Healthcare, Inc., which returned 2.78%.
GFGF
distributes income to shareholders on an annual basis.
GURU
FAVORITE STOCKS ETF
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LETTER
TO SHAREHOLDERS |
November
30, 2023 (CONTINUED) (UNAUDITED)
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Outlook
For
2023 the market has seen outsized gains for mega cap stocks, especially those in
the technology sector, as shown in the chart below (source: GuruFocus.com). The
stocks in healthcare, energy and financial services have underperformed,
especially the stocks of smaller companies. With the high valuation of large
tech companies, I expect their upsides to be much smaller than they were a year
ago.
With
the overall underperformance of the last year and lower valuation, I expect that
the smaller companies will do better in the next 12-24 months. Interest rates
will be most likely to come down, which tends to elevate the valuations of
fast-growing smaller companies. In December 2023, as the expectation for the
interest rates to decline, the Small-Cap Russell 2000 Index soared about 14%, on
track for its biggest monthly gain in three years. This trend may continue into
2024.
As
interest rates decline, the stocks that have higher-than-average dividend yield
may come into favor, too. These stocks have largely underperformed in 2023. We
can find many of them in the sectors of healthcare, consumer defense and energy.
GURU
FAVORITE STOCKS ETF
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LETTER
TO SHAREHOLDERS |
November
30, 2023 (CONTINUED) (UNAUDITED)
|
As
to the economy, the Federal Reserve seems to have successfully engineered a soft
landing. With the latest data, the corporate profit margin is still close to its
historical highs, as shown in the chart below (source: GuruFocus.com). With the
profit margin this high, it is unlikely that the economy will slip into
recession in the short term. Therefore, the stock market will be unlikely to
have large declines, especially when the interest rates will likely decline this
year.
Overall,
the stock market is not cheap. There are spots that are very expensive, whereas
there are other spots that are relatively cheap. Overall, I think we can be
optimistic with the market. I believe that companies with high quality
characteristics and reasonable valuations will do better. That is the Guru
Strategy that GFGF follows.
As
I said many times before, I cannot guarantee the performance of the Fund. What I
can guarantee is that much of my net worth is invested in GFGF and thus has the
same rate of return. I didn’t sell even one share and never will for as long as
I am the fund manager. I also added to my GFGF position during 2023 and my three
children also own GFGF. GFGF is among the largest holdings for them.
We
appreciate your continued investment in the Fund.
Sincerely,
/s/
Charlie Tian
Charlie
Tian, Ph.D.
Chief
Executive Officer
GuruFocus
Investments, LLC
GURU
FAVORITE STOCKS ETF
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LETTER
TO SHAREHOLDERS |
November
30, 2023 (CONTINUED) (UNAUDITED)
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Here
are the answers and explanations to some of the questions that I have received
from shareholders.
Is
Dr. Charlie Tian getting paid for managing GFGF?
No.
So far Dr. Tian has not taken any compensation from managing GFGF. Although GFGF
has an total expense ratio of 0.65%. Dr. Tian may start to take compensation if
the AUM of GFGF is more than $100 million.
Is
GFGF liquid enough if I want to buy or sell large amounts?
Although
GFGF is a relatively small ETF, and sometimes the traded volume is small, the
liquidity of GFGF is dependent only on the trading volumes of the stocks in the
portfolio. All of our stocks are large companies with high trading volumes.
Therefore, GFGF is very liquid as well.
Why
does the price of GFGF sometimes not change during the day?
For
all ETFs, there are two numbers: its trading price and its net asset value. The
net asset value changes constantly during trading hours, as the prices of the
stocks in the portfolio change. But the ETF’s trading price will change only if
there is a trade with the ETF. Therefore, there is a premium/discount between
the trading price and the net asset value. But even if the ETF is not traded for
a long time, the next time someone wants to trade, the trading price will still
be around the net asset value instead of the price it was traded last time.
Why
do GFGF prices sometimes seem out of sync with the changes of the stock prices
of the holdings?
This
is caused by the discrepancy between the trading price and the net asset value.
It is usually a small number, within +/- 0.5%. But if you look at the daily
changes, it may appear to be out of sync with the changes of the stock prices in
the holdings.
Because
of this, sometimes it might be helpful to use a limit order when buying an ETF,
as a limit order can limit the price to a small range from the net asset value.
You can find the net asset value of GFGF here: https://gurufocusetf.com/gfgf/
The
performance data quoted represents past performance. Past performance does not
guarantee future results. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost and current performance may be lower
or higher than the performance quoted.
Shares
are bought and sold at market price (not at net asset value (“NAV”)), and are
not individually redeemed from the Funds. Market price returns are based upon
the midpoint of the bid/ask spread at the close of the exchange and does not
represent the returns an investor would receive if shares were traded at other
times. Brokerage commissions will reduce returns. NAVs are calculated using
prices as of the close of regular trading on the exchange, normally 4:00 p.m.
Eastern Time.
Any
offering must be preceded or accompanied by a prospectus.
Opinions
expressed are subject to change at any time, are not guaranteed, and should not
be considered investment advice. Current and future portfolio holdings are
subject to change and risk. Please refer to the Schedule of Investments
contained in this report for a full listing of Fund holdings.
An
investment in the Fund is subject to numerous risks, including possible loss of
principal. The Fund is actively managed and does not seek to replicate a
specified index. The Fund is subject to the following principal risks, among
others:
Investment
Risk. When
you sell your Shares of the Fund, they could be worth less than what you paid
for them. The Fund could lose money due to short-term market movements and over
longer periods during market downturns. Securities may decline in value due to
factors affecting securities markets generally or particular asset classes or
industries represented in the markets. The value of a security may decline due
to general market conditions, economic trends or events that are not
specifically related to the issuer of the security or to factors
GURU
FAVORITE STOCKS ETF
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LETTER
TO SHAREHOLDERS |
November
30, 2023 (CONTINUED) (UNAUDITED)
|
that
affect a particular industry or group of industries. During a general downturn
in the securities markets, multiple asset classes may be negatively affected.
Therefore, you may lose money by investing in the Fund.
Stale
Information Risk. The
Sub-Adviser will recommend securities for the Fund based on publicly available
information about the Gurus’ holdings. However, the publicly available
information does not generally reflect real-time portfolio holdings. For
example, information obtained via Form 13F filings are available only quarterly,
and will contain information that is at least 45 days’ old. As a result, the
Sub-Adviser may rank a particular security higher than it would have been ranked
if the Sub-Adviser had access to all of the Guru’s portfolio holdings on a
real-time basis. As a result, the Fund may purchase securities or retain
securities that are no longer favored by the Gurus, which may hurt the Fund’s
performance.
Equity
Investing Risk. An
investment in the Fund involves risks similar to those of investing in any fund
holding equity securities, such as market fluctuations, changes in interest
rates and perceived trends in stock prices. The values of equity securities
could decline generally or could underperform other investments. In addition,
securities may decline in value due to factors affecting a specific issuer,
market or securities markets generally.
Quantitative
Security Selection Risk. Data
for some companies may be less available and/or less current than data used by
other investment advisory firms. The Sub-Adviser uses quantitative analyses, and
its processes could be adversely affected if erroneous or outdated data is
utilized. In addition, securities selected using a quantitative analysis could
perform differently from the financial markets as a whole as a result of the
characteristics used in the analysis, the weight placed on each characteristic,
and changes in the characteristic’s historical trends.
Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Adviser’s or Sub-Adviser’s success or failure to implement investment strategies
for the Fund.
Semi-Annual
Reallocation Risk. Because
the Sub-Adviser will normally recommend changes to the Fund’s portfolio on a
semi-annual basis, (i) the Fund’s market exposure may be affected by significant
market movements promptly following a semi-annual reconstitution that are not
predictive of the market’s performance for the subsequent semi-annual period and
(ii) changes to the Fund’s market exposure may lag a significant change in the
market’s direction (up or down) by as long as a half a year if such changes
first take effect promptly following a semi-annual reconstitution. Such lags
between market performance and changes to the Fund’s exposure may result in
significant underperformance relative to the broader equity or fixed income
market.
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. Investing
in securities of medium-capitalization companies involves greater risk than
customarily is associated with investing in larger, more established companies.
These companies’ securities may be more volatile and less liquid than those of
more established companies. Often medium-capitalization companies and the
industries in which they focus are still evolving and, as a result, they may be
more sensitive to changing market conditions.
Geopolitical/Natural
Disaster Risks. The
Fund’s investments are subject to geopolitical and natural disaster risks, such
as war, terrorism, trade disputes, political or economic dysfunction within some
nations, public health crises and related geopolitical events, as well as
environmental disasters, epidemics and/or pandemics, which may add to
instability in world economies and volatility in markets. The impact may be
short-term or may last for extended periods.
Please
refer to the prospectus for additional risk information.
The
Solactive GBS United States 1000 NTR Index intends to track the performance of
the largest 1000 companies from the US stock market and is based on the
Solactive Global Benchmark Series. Constituents are selected based on company
market capitalization and weighted by free float market capitalization. The
index is calculated as a net total return index in USD and is reconstituted
quarterly.
GURU
FAVORITE STOCKS ETF
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LETTER
TO SHAREHOLDERS |
November
30, 2023 (CONTINUED)(UNAUDITED) |
The
S&P 500 Index is a market-capitalization weighted index of 500 leading
publicly traded companies in the U.S.
The
CAPE ratio is a valuation measure that uses real earnings per share (EPS) over a
10-year period to smooth out fluctuations in corporate profits that occur over
different periods of a business cycle. The CAPE ratio, using the acronym for
cyclically adjusted price-to-earnings ratio, was popularized by Yale University
professor Robert Shiller. It is also known as the Shiller P/E ratio.
The
Fund is distributed by Quasar Distributors, LLC.
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Average
Annual Return* |
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Since
Inception |
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1
Year |
(December
16, 2021) |
Guru
Favorite Stocks ETF - NAV |
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11.17%
|
-2.55%
|
Guru
Favorite Stocks ETF - Market |
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10.99%
|
-2.46%
|
Solactive
GBS United States 1000 NTR Index |
13.10%
|
-1.30%
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*This
chart assumes an initial gross investment of $10,000 made on December 16,
2021. Returns shown include the dividends. Past
performance does not guarantee future results. The
graph and table do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
Investment return and principal value will fluctuate, so that your shares,
when redeemed, may be worth more or less than the original cost.
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GURU
FAVORITE STOCKS ETF
Tabular
Presentation of Schedule of Investments
As
of November 30, 2023 (Unaudited)
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Sector
1
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%
of Net Assets |
Information
Technology |
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42.2%²
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Financials
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20.5%
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Health
Care |
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14.7%
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Communication
Services |
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9.8%
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Consumer
Discretionary |
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8.1%
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Industrials
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4.3%
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Other³
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0.4%
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Total
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100.0%
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1
|
Sector
designations may be different than the sector designations presented in
other Fund materials. The sector designations may represent the investment
adviser’s internal sector classifications. |
2
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For
purposes of the Fund’s compliance with its concentration limits, the Fund
uses various sub-classifications and none of the Fund’s holdings in the
sub-classifications exceed 25% of the Fund’s total assets. |
3
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Cash,
cash equivalents, short-term investments and other assets less
liabilities. |
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Guru
Favorite Stocks ETF |
Schedule
of Investments |
November
30, 2023 |
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Shares
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Value
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COMMON
STOCKS - 99.6% |
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Apparel,
Accessories & Luxury Goods - 3.1% |
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2,252
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Lululemon
Athletica, Inc. (a) |
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$
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1,006,194
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Application
Software - 13.3% |
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2,132
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Adobe,
Inc. (a) |
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1,302,673
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3,323
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ANSYS,
Inc. (a) |
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974,835
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1,618
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Intuit,
Inc. |
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924,622
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4,438
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Salesforce,
Inc. (a) |
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1,117,932
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4,320,062
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Automotive
Retail - 2.1% |
|
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10,681
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CarMax,
Inc. (a) |
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682,943
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Broadline
Retail - 2.9% |
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6,499
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Amazon.com,
Inc. (a) |
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949,439
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Diversified
Support Services - 4.3% |
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27,538
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Copart,
Inc. (a) |
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1,382,958
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Financial
Exchanges & Data - 6.3% |
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2,758
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Moody's
Corp. |
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1,006,560
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2,482
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S&P
Global, Inc. |
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1,032,090
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2,038,650
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Health
Care Equipment - 3.0% |
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3,168
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Intuitive
Surgical, Inc. (a) |
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984,741
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Health
Care Facilities - 2.3% |
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3,025
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HCA
Healthcare, Inc. |
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757,702
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Health
Care Supplies - 2.2% |
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3,313
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Align
Technology, Inc. (a) |
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708,319
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Interactive
Media & Services - 9.8% |
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15,941
|
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Alphabet,
Inc. - Class A (a) |
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2,112,661
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3,204
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Meta
Platforms, Inc. - Class A (a) |
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1,048,189
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3,160,850
|
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Investment
Banking & Brokerage - 2.0% |
|
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10,608
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Charles
Schwab Corp. |
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650,483
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IT
Consulting & Other Services - 3.9% |
|
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3,802
|
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Accenture
PLC - Class A ADR (b) |
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1,266,598
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Managed
Health Care - 7.1% |
|
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2,620
|
Elevance
Health, Inc. |
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1,256,265
|
|
1,919
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UnitedHealth
Group, Inc. |
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1,061,149
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2,317,414
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Multi-Sector
Holdings - 4.1% |
|
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3,724
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Berkshire
Hathaway, Inc. - Class B (a) |
|
1,340,640
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Semiconductor
Materials & Equipment - 4.8% |
|
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2,162
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Lam
Research Corp. |
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1,547,819
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Semiconductors
- 5.5% |
|
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2,249
|
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Monolithic
Power Systems, Inc. |
|
1,234,071
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|
1,170
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NVIDIA
Corp. |
|
547,209
|
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|
1,781,280
|
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Guru
Favorite Stocks ETF |
Schedule
of Investments |
November
30, 2023 |
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Shares
|
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Value
|
Systems
Software - 10.9% |
|
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9,296
|
|
Microsoft
Corp. |
|
3,522,347
|
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Technology
Hardware, Storage & Peripherals - 3.8% |
|
|
6,481
|
|
Apple,
Inc. |
|
1,231,066
|
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Transaction
& Payment Processing Services - 8.1% |
|
|
3,046
|
|
Mastercard,
Inc. - Class A |
|
1,260,526
|
|
5,379
|
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Visa,
Inc. - Class A |
|
1,380,682
|
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2,641,208
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TOTAL
COMMON STOCKS (Cost $28,418,613) |
|
32,290,713
|
|
MONEY
MARKET FUNDS - 0.4% |
|
|
127,515
|
|
First
American Government Obligations Fund - Class X, 5.29% (c) |
|
127,515
|
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TOTAL
MONEY MARKET FUNDS (Cost $127,515) |
|
127,515
|
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TOTAL
INVESTMENTS (Cost $28,546,128) - 100.0% |
|
$
|
32,418,228
|
|
|
|
Other
Liabilities in Excess of Assets - (0.0%) (d) |
|
(680)
|
|
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TOTAL
NET ASSETS - 100.0% |
|
$
|
32,417,548
|
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Percentages
are stated as a percent of net assets.
ADR
- American Depositary Receipt
PLC
- Public Limited Company
|
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(a)
|
Non-income
producing security. |
(b)
|
Foreign
issued security. |
(c)
|
Rate
shown is the 7-day effective yield. |
(d)
|
Represents
less than 0.05% of net assets. |
The
Global Industry Classification Standard (GICS®) was developed by and/or is the
exclusive property of MSCI, Inc. and Standard & Poor Financial Services LLC
(“S&P”). GICS is a service mark of MSCI and S&P and has been licensed
for use by U.S. Bancorp Fund Services, LLC.
The
accompanying notes are an integral part of these financial statements.
GURU
FAVORITE STOCKS ETF
STATEMENT
OF ASSETS AND LIABILITIES
November
30, 2023
|
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Assets:
|
|
|
Investments
in securities, at value |
|
$
|
32,418,228
|
|
Dividends
and interest receivable |
|
15,998
|
Total
assets |
|
32,434,226
|
Liabilities:
|
|
|
Accrued
investment advisory fees |
|
16,678
|
Total
liabilities |
|
16,678
|
Net
Assets |
|
$
|
32,417,548
|
|
|
|
|
Net
Assets Consist of: |
|
|
Paid-in
capital |
|
34,972,456
|
|
Total
distributable earnings (accumulated deficit) |
|
(2,554,908)
|
|
Net
Assets: |
|
$
|
32,417,548
|
|
|
|
|
Calculation
of Net Asset Value Per Share: |
|
|
Net
Assets |
|
$
|
32,417,548
|
|
Shares
Outstanding (unlimited shares of beneficial interest authorized, no par
value) |
|
1,370,000
|
Net
Asset Value per Share |
|
$
|
23.66
|
|
|
|
|
Cost
of Investments in Securities |
|
$
|
28,546,128
|
|
The
accompanying notes are an integral part of these financial statements.
GURU
FAVORITE STOCKS ETF
STATEMENT
OF OPERATIONS
For
the Year Ended November 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Income: |
|
|
Dividend
income |
|
$
|
221,835
|
|
Interest
income |
|
5,715
|
Securities
lending income, net (Note 5) |
|
75
|
Total
investment income |
|
227,625
|
|
|
|
Expenses:
|
|
|
Investment
advisory fees |
|
195,705
|
Net
expenses |
|
195,705
|
|
|
|
Net
Investment Income (Loss) |
|
31,920
|
|
|
|
Realized
and Unrealized Gain (Loss) on Investments: |
|
|
Net
realized gain (loss) on: |
|
|
Investments
|
|
(3,266,053)
|
|
|
(3,266,053)
|
Net
change in unrealized appreciation (depreciation) on: |
|
|
Investments
|
|
6,504,977
|
|
|
6,504,977
|
Net
realized and unrealized gain (loss) on investments: |
|
3,238,924
|
Net
Increase (Decrease) in Net Assets Resulting from Operations |
|
$
|
3,270,844
|
|
The
accompanying notes are an integral part of these financial statements.
GURU
FAVORITE STOCKS ETF
STATEMENT
OF CHANGES IN NET ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ended November 30, 2023 |
|
For
the Period Ended November 30, 2022⁽¹⁾ |
Increase
(Decrease) in Net Assets from: |
|
|
|
|
Operations:
|
|
|
|
|
Net
investment income (loss) |
|
$
31,920 |
|
$
|
115,394
|
|
Net
realized gain (loss) on investments |
|
(3,266,053)
|
|
(2,768,282)
|
Net
change in unrealized appreciation (depreciation) on investments |
|
6,504,977
|
|
(2,632,876)
|
Net
increase (decrease) in net assets resulting from operations |
|
3,270,844
|
|
(5,285,764)
|
|
|
|
|
|
Distributions
to Shareholders: |
|
|
|
|
Distributable
earnings |
|
(117,903)
|
|
(3,002)
|
Total
distributions to shareholders |
|
(117,903)
|
|
(3,002)
|
|
|
|
|
|
Capital
Share Transactions: |
|
|
|
|
Proceeds
from shares sold |
|
3,693,264
|
|
42,446,633
|
Payments
for shares redeemed |
|
(4,563,812)
|
|
(7,024,003)
|
Transaction
fees (See Note 1) |
|
2
|
|
1,289
|
Net
increase (decrease) in net assets derived from net change in capital share
transactions |
|
(870,546)
|
|
35,423,919
|
Net
Increase in Net Assets |
|
2,282,395
|
|
30,135,153
|
|
|
|
|
|
Net
Assets: |
|
|
|
|
Beginning
of period |
|
30,135,153
|
|
—
|
End
of period |
|
$
|
32,417,548
|
|
|
$
|
30,135,153
|
|
|
|
|
|
|
Changes
in Shares Outstanding: |
|
|
|
|
Shares
outstanding, beginning of period |
|
1,410,000
|
|
—
|
Shares
sold |
|
160,000
|
|
1,760,000
|
Shares
repurchased |
|
(200,000)
|
|
(350,000)
|
Shares
outstanding, end of period |
|
1,370,000
|
|
1,410,000
|
(1)
The Fund commenced operations on December 16, 2021.
The
accompanying notes are an integral part of these financial statements.
GURU
FAVORITE STOCKS ETF
FINANCIAL
HIGHLIGHTS
For
the Year Ended November 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset Value, Beginning of Period |
Net
Investment Income (1)
|
Net
Realized and Unrealized Gain (Loss) on Investments |
Net
Increase (Decrease) in Net Asset Value Resulting from Operations
|
Distributions
from Net Investment Income |
Total
Distributions |
Transaction
Fees (See Note 1) |
Net
Asset Value, End of Period |
Total
Return (2)
|
Net
Assets, End of Period (000's) |
Net
Expenses (3)(4)
|
Net
Investment Income (3)
|
Portfolio
Turnover Rate (5)
|
Year
Ended November 30, 2023 |
$21.37
|
0.02
|
2.35
|
2.37
|
(0.08)
|
(0.08)
|
(0.00)
(7)
|
$23.66
|
11.17%
|
$32,418
|
0.65%
|
0.11%
|
81%
|
December
16, 2021 (6)
to
November 30, 2022 |
$25.00
|
0.08
|
(3.71)
|
(3.63)
|
(0.00)
(7)
|
(0.00)
(7)
|
(0.00)
(7)
|
$21.37
|
-14.50%
|
$30,135
|
0.65%
|
0.40%
|
28%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net
investment income per share represents net investment income divided by
the daily average shares of beneficial interest outstanding throughout the
period. |
|
(2)
|
All
returns reflect reinvested dividends, if any, but do not reflect the
impact of taxes. Total return for a period of less than one year is not
annualized. |
|
(3)
|
For
periods of less than one year, these ratios are annualized. |
|
(4)
|
Net
expenses include effects of any reimbursement or recoupment. |
|
(5)
|
Portfolio
turnover is not annualized and is calculated without regard to short-term
securities having a maturity of less than one year. Excludes the impact of
in-kind transactions. |
|
(6)
|
Commencement
of operations. |
|
(7)
|
Rounds
to less than $0.005. |
The
accompanying Notes to the Financial Statements are an integral part of these
Financial Statements.
GURU
FAVORITE STOCKS ETF
NOTES
TO THE FINANCIAL STATEMENTS
NOVEMBER
30, 2023
NOTE
1 – ORGANIZATION
Guru
Favorite Stocks ETF (the “Fund”) is a series of the EA Series Trust (the
“Trust”), which was organized as a Delaware statutory trust on October 11, 2013.
The Trust is registered with the Securities and Exchange Commission (“SEC”)
under the Investment Company Act of 1940, as amended (the “1940 Act”), as an
open-end management investment company and the offering of the Fund’s shares
(“Shares”) is registered under the Securities Act of 1933, as amended (the
“Securities Act”). The Fund is considered diversified under the 1940 Act. The
Fund commenced operations on December 16, 2021. The Fund qualifies as an
investment company as defined in the Financial Accounting Standards Codification
Topic 946-Financial Services- Investment Companies. The Fund’s investment
objective is to seek long-term capital appreciation.
Shares
of the Fund are listed and traded on the Nasdaq Stock Market. Market prices for
the shares may be different from their net asset value (“NAV”). The Fund issues
and redeems shares on a continuous basis at NAV only in blocks of 10,000 shares,
called “Creation Units.” Creation Units are issued and redeemed principally
in-kind for securities included in a specified universe. Once created, shares
generally trade in the secondary market at market prices that change throughout
the day in share amounts less than a Creation Unit. Except when aggregated in
Creation Units, shares are not redeemable securities of the Fund. Shares of the
Fund may only be purchased or redeemed by certain financial institutions
(“Authorized Participants”). An Authorized Participant is either (i) a
broker-dealer or other participant in the clearing process through the
Continuous Net Settlement System of the National Securities Clearing Corporation
or (ii) a DTC participant and, in each case, must have executed a Participant
Agreement with the Distributor. Most retail investors do not qualify as
Authorized Participants nor have the resources to buy and sell whole Creation
Units. Therefore, they are unable to purchase or redeem the shares directly from
the Fund. Rather, most retail investors may purchase shares in the secondary
market with the assistance of a broker and are subject to customary brokerage
commissions or fees.
Authorized
Participants may be required to pay a transaction fee to compensate the Trust or
its custodian for costs incurred in connection with creation and redemption
transactions. The standard transaction fee, which is payable to the Trust’s
custodian, typically applies to in-kind purchases of the Fund effected through
the clearing process on any business day, regardless of the number of Creation
Units purchased or redeemed that day (“Standard Transaction Fees”). Variable
fees are imposed to compensate the Fund for the transaction costs associated
with the cash transactions fees. Certain fund deposits consisting of
cash-in-lieu or cash value may be subject to a variable charge (“Variable
Transaction Fees”), which is payable to the Fund, of up to 2.00% of the value of
the order in addition to the Standard Transaction Fees. Variable Transaction
Fees received by the Fund, if any, are displayed in the Capital Share
Transactions sections of the Statements of Changes in Net Assets.
Because,
among other things, the Fund imposes transaction fees on purchases and
redemptions of Shares to cover the custodial and other costs incurred by the
Fund in effecting trades, the Board determined that it is not necessary to adopt
policies and procedures to detect and deter market timing of the Fund’s Shares.
GURU
FAVORITE STOCKS ETF
NOTES
TO THE FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER
30, 2023
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
The
following is a summary of significant accounting policies consistently followed
by the Fund. These policies are in conformity with accounting principles
generally accepted in the United States of America (“GAAP”).
|
|
|
|
|
|
|
|
|
|
A.
|
Security
Valuation .
Equity securities that are traded on a national securities exchange,
except those listed on the NASDAQ Global Market ®
(“NASDAQ”)
are valued at the last reported sale price on the exchange on which the
security is principally traded. Securities traded on NASDAQ will be valued
at the NASDAQ Official Closing Price (“NOCP”). If, on a particular day, an
exchange-traded or NASDAQ security does not trade, then the most recent
quoted bid for exchange-traded or the mean between the most recent quoted
bid for exchange-traded or the mean between the most recent quoted bid and
ask price for NASDAQ securities will be used. Equity securities that are
not traded on a listed exchange are generally valued at the last sale
price in the over-the-counter market. If a non-exchange traded security
does not trade on a particular day, then the mean between the last quoted
closing bid and asked price will be used. Prices denominated in foreign
currencies are converted to U.S. dollar equivalents at the current
exchange rate, which approximates fair value. Redeemable securities issued
by open-end investment companies are valued at the investment company’s
applicable net asset value, with the exception of exchange-traded open-end
investment companies which are priced as equity securities.
|
Subject
to its oversight, the Trust’s Board of Trustees (the “Board”) has delegated
primary responsibility for determining or causing to be determined the value of
the Fund’s investments to Empowered Funds, LLC dba EA Advisers (the “Adviser”),
pursuant to the Trust’s valuation policy and procedures, which have been adopted
by the Trust and approved by the Board. In accordance with Rule 2a-5 under
the 1940 Act, the Board designated the Adviser as the “valuation designee” of
the Fund. If the Adviser, as valuation designee, determines that reliable market
quotations are not readily available for an investment, the investment is valued
at fair value as determined in good faith by the Adviser in accordance with the
Trust’s fair valuation policy and procedures. The Adviser will provide the Board
with periodic reports, no less frequently than quarterly, that discuss the
functioning of the valuation process, if applicable, and that identify issues
and valuation problems that have arisen, if any. As appropriate, the Adviser and
the Board will review any securities valued by the Adviser in accordance with
the Trust’s valuation policies during these periodic reports. The use of fair
value pricing by the Fund may cause the net asset value of its shares to differ
significantly from the net asset value that would be calculated without regard
to such considerations. As
of November 30, 2023, the Fund did not hold any securities that required fair
valuation due to unobservable inputs.
As
described above, the Fund may use various methods to measure the fair value of
their investments on a recurring basis. GAAP establishes a hierarchy that
prioritizes inputs to valuation methods. The three levels of inputs are:
Level
1 – Unadjusted quoted prices in active markets for identical assets or
liabilities that the Fund has the ability to access.
Level
2 – Observable inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly. These
inputs may include quoted prices for the identical instrument on an inactive
market, prices for similar instruments, interest rates, prepayment speeds,
credit risk, yield curves, default rates and similar data.
Level
3 – Unobservable inputs for the asset or liability, to the extent relevant
observable inputs are not available; representing the Fund’s own assumptions
about the assumptions a market participant would use in valuing the asset or
liability and would be based on the best information available.
The
availability of observable inputs can vary from security to security and is
affected by a wide variety of factors, including, for example, the type of
security, whether the security is new and not yet established in the
marketplace, the liquidity of markets, and other characteristics particular to
the security. To the extent that valuation is based on models or inputs that are
less observable or unobservable in the market, the determination of fair value
requires more judgment. Accordingly, the degree of judgment exercised in
determining fair value is greatest for instruments categorized in Level 3.
The
inputs used to measure fair value may fall into different levels of the fair
value hierarchy. In such cases, for disclosure purposes, the level in the fair
value hierarchy within which the fair value measurement falls in its entirety,
is determined based on the lowest level input that is significant to the fair
value measurement in its entirety.
GURU
FAVORITE STOCKS ETF
NOTES
TO THE FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER
30, 2023
The
following is a summary of the fair value classification of the Fund’s
investments as of November 30, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DESCRIPTION
|
|
LEVEL
1 |
|
LEVEL
2 |
|
LEVEL
3 |
|
TOTAL
|
Assets*
|
|
|
|
|
|
|
|
|
Common
Stocks |
|
$
|
32,290,713
|
|
|
$
- |
|
$
- |
|
$
|
32,290,713
|
|
Money
Market Funds |
|
127,515
|
|
-
|
|
-
|
|
127,515
|
Total
Investments in Securities |
|
$
|
32,418,228
|
|
|
$
- |
|
$
- |
|
$
|
32,418,228
|
|
*For
further detail on each asset class, see the Schedule of Investments
During
the fiscal year ended November 30, 2023, the Fund did not invest in any
Level 3 investments and recognized no transfers to/from Level 3. Transfers
between levels are recognized at the end of the reporting period.
|
|
|
|
|
|
|
|
|
|
B.
|
Foreign
Currency. Investment
securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts using the spot rate of
exchange at the date of valuation. Purchases and sales of investment
securities and income and expense items denominated in foreign currencies
are translated into U.S. dollar amounts on the respective dates of such
transactions. |
The
Fund isolates the portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from changes
in market prices of securities held. That portion of gains (losses) attributable
to the changes in market prices and the portion of gains (losses) attributable
to changes in foreign exchange rates are included on the “Statement of
Operations” under “Net realized gain (loss) – Foreign currency” and “Change in
Net Unrealized Appreciation (Depreciation) – Foreign Currency,” respectively.
The
Fund reports net realized foreign exchange gains or losses that arise from sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund’s books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
fair values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
|
|
|
|
|
|
|
|
|
|
C.
|
Federal
Income Taxes. The
Fund intends to continue to comply with the requirements of subchapter M
of the Internal Revenue Code of 1986, as amended, as necessary to qualify
as a regulated investment company and distribute substantially all net
taxable investment income and net realized gains to shareholders in a
manner which results in no tax cost to the Fund. Therefore, no federal
income tax provision is required. As of and during the fiscal year ended
November 30, 2023, the Fund did not have any tax positions that did not
meet the “more-likely-than-not” threshold of being sustained by the
applicable tax authority. As of and during the fiscal year ended November
30, 2023, the Fund did not have liabilities for any unrecognized tax
benefits. The Fund would/will recognize interest and penalties, if any,
related to unrecognized tax benefits on uncertain tax positions as income
tax expense in the Fund’s Statement of Operations. During the fiscal year
ended November 30, 2023, the Fund did not incur any interest or penalties.
The Fund is subject to examination by U.S. taxing authorities for the tax
periods since the Fund’s commencement of operations.
|
The
Fund may be subject to taxes imposed on realized and unrealized gains on
securities of certain foreign countries in which the Fund invests. The foreign
tax expense, if any, was recorded on an accrual basis and is included in “Net
realized gain (loss) on investments” and “Net increase (decrease) in unrealized
appreciation or depreciation on investments” on the accompanying Statements of
Operations. The amount of foreign tax owed, if any, is included in “Payable for
foreign taxes” on the accompanying Statements of Assets and Liabilities and is
comprised of withholding taxes on foreign dividends and taxes on unrealized
gains.
GURU
FAVORITE STOCKS ETF
NOTES
TO THE FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER
30, 2023
|
|
|
|
|
|
|
|
|
|
D.
|
Security
Transactions and Investment Income. Investment
securities transactions are accounted for on the trade date. Gains and
losses realized on sales of securities are determined on a specific
identification basis. Dividend income is recorded on the ex-dividend date,
net of any foreign taxes withheld at source. Interest income is recorded
on an accrual basis. Withholding taxes on foreign dividends have been
provided for in accordance with the Fund’s understanding of the applicable
tax rules and regulations. |
Distributions
to shareholders from net investment income and net realized gains on securities
for the Fund are declared and paid on annually. Distributions are recorded on
the ex-dividend date. The Fund may distribute more frequently, if necessary, for
tax purposes.
|
|
|
|
|
|
|
|
|
|
E.
|
Use
of Estimates. The
preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements,
as well as the reported amounts of increases and decreases in net assets
from operations during the period. Actual results could differ from those
estimates. |
|
|
|
|
|
|
|
|
|
|
F.
|
Share
Valuation. The
NAV per share of the Fund is calculated by dividing the sum of the value
of the securities held by the Fund, plus cash and other assets, minus all
liabilities (including estimated accrued expenses) by the total number of
shares outstanding for the Fund, rounded to the nearest cent. The Fund’s
shares will not be priced on the days on which the New York Stock Exchange
(“NYSE”) is closed for regular trading. The offering and redemption price
per share for the Fund is equal to the Fund’s net asset value per share.
|
|
|
|
|
|
|
|
|
|
|
G.
|
Guarantees
and Indemnifications. In
the normal course of business, the Fund enters into contracts with service
providers that contain general indemnification clauses. Additionally, as
is customary, the Trust’s organizational documents permit the Trust to
indemnify its officers and trustees against certain liabilities under
certain circumstances. The Fund’s maximum exposure under these
arrangements is unknown as this would involve future claims that may be
against the Fund that have not yet occurred. As of the date of this
Report, no claim has been made for indemnification pursuant to any such
agreement of the Fund. |
|
|
|
|
|
|
|
|
|
|
H.
|
Reclassification
of Capital Accounts. GAAP
requires that certain components of net assets relating to permanent
differences be reclassified between financial and tax reporting. These
reclassifications have no effect on net assets or net asset value per
share. In addition, the Fund’s realized net capital gains resulting from
in-kind redemptions, in which shareholders exchanged Fund shares for
securities held by the Funds rather than for cash. Because such gains are
not taxable to the Fund, and are not distributed to shareholders, they
have been reclassified from distributable earnings to paid-in capital. For
the fiscal year ended November 30, 2023, the following table shows the
reclassifications made: |
|
|
|
|
|
|
Distributable
Earnings |
Paid
In Capital |
$(1,232,569)
|
$1,232,569
|
|
|
NOTE
3 – RISKS
Markets
may perform poorly and the returns from the securities in which the Fund invests
may underperform returns from the general securities markets. Securities markets
may experience periods of high volatility and reduced liquidity in response to
governmental actions or intervention, economic or market developments, or other
external factors. The value of a company’s securities may rise or fall in
response to company, market, economic or other news.
Investment
Risk. When
you sell your Shares of the Fund, they could be worth less than what you paid
for them. The Fund could lose money due to short-term market movements and over
longer periods during market downturns. Securities may decline in value due to
factors affecting securities markets generally or particular asset classes or
industries represented in the markets. The value of a security may decline due
to general market conditions, economic trends or events that are not
specifically related to the issuer of the security or to factors that affect a
particular industry or group of industries. During a general downturn in the
securities markets, multiple asset classes may be negatively affected.
Therefore, you may lose money by investing in the Fund.
GURU
FAVORITE STOCKS ETF
NOTES
TO THE FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER
30, 2023
Stale
Information Risk .
The Sub-Adviser will recommend securities for the Fund based on publicly
available information about the Gurus’ holdings. However, the publicly available
information does not generally reflect real-time portfolio holdings. For
example, information obtained via Form 13F filings are available only quarterly,
and will contain information that is at least 45 days’ old. As a result, the
Sub-Adviser may rank a particular security higher than it would have been ranked
if the Sub-Adviser had access to all of the Guru’s portfolio holdings on a
real-time basis. As a result, the Fund may purchase securities or retain
securities that are no longer favored by the Gurus, which may hurt the Fund’s
performance.
Equity
Investing Risk .
An investment in the Fund involves risks similar to those of investing in any
fund holding equity securities, such as market fluctuations, changes in interest
rates and perceived trends in stock prices. The values of equity securities
could decline generally or could underperform other investments. In addition,
securities may decline in value due to factors affecting a specific issuer,
market or securities markets generally.
Quantitative
Security Selection Risk .
Data for some companies may be less available and/or less current than data used
by other investment advisory firms. The Sub-Adviser uses quantitative analyses,
and its processes could be adversely affected if erroneous or outdated data is
utilized. In addition, securities selected using a quantitative analysis could
perform differently from the financial markets as a whole as a result of the
characteristics used in the analysis, the weight placed on each characteristic,
and changes in the characteristic’s historical trends.
Management
Risk. The
Fund is actively managed and may not meet its investment objective based on the
Adviser’s or Sub-Adviser’s success or failure to implement investment strategies
for the Fund.
Semi-Annual
Reallocation Risk. Because the Sub-Adviser will normally recommend changes to
the Fund’s portfolio on a semi-annual basis, (i) the Fund’s market exposure may
be affected by significant market movements promptly following a semi-annual
reconstitution that are not predictive of the market’s performance for the
subsequent semi-annual period and (ii) changes to the Fund’s market exposure may
lag a significant change in the market’s direction (up or down) by as long as a
half a year if such changes first take effect promptly following a semi-annual
reconstitution. Such lags between market performance and changes to the Fund’s
exposure may result in significant underperformance relative to the broader
equity or fixed income market.
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 .
Investing in securities of medium-capitalization companies involves greater risk
than customarily is associated with investing in larger, more established
companies. These companies’ securities may be more volatile and less liquid than
those of more established companies. Often medium-capitalization companies and
the industries in which they focus are still evolving and, as a result, they may
be more sensitive to changing market conditions.
Consumer
Discretionary Sector Risk. Companies
engaged in the design, production or distribution of products or services for
the consumer discretionary sector are subject to the risk that their products or
services may become obsolete quickly. The success of these companies can depend
heavily on disposable household income and consumer spending. During periods of
an expanding economy, the consumer discretionary sector may outperform the
consumer staples sector but may underperform when economic conditions worsen.
Information
Technology Sector Risk. The
Fund will have exposure to companies operating in the technology sector.
Technology companies, including information technology companies, may have
limited product lines, financial resources and/or personnel. Technology
companies typically face intense competition and potentially rapid product
obsolescence. They are also heavily dependent on intellectual property rights
and may be adversely affected by the loss or impairment of those rights.
Financials
Sector Risk. The
Fund is expected to have exposure to companies in the financials sector, and
therefore, the Fund’s performance could be negatively impacted by events
affecting this sector. The financials sector includes, for example, banks and
financial institutions providing mortgage and mortgage related services. This
sector can be significantly affected by, among other things, changes in interest
rates, government regulation, the rate of defaults on corporate, consumer and
government debt, the availability and cost of capital, and fallout from the
housing and sub-prime mortgage crisis.
Geopolitical/Natural
Disaster Risks. The
Fund’s investments are subject to geopolitical and natural disaster risks, such
as war, terrorism, trade disputes, political or economic dysfunction within some
nations, public health crises and related geopolitical events, as well as
environmental disasters, epidemics and/or pandemics, which may add to
instability in world economies and volatility in markets. The impact may be
short-term or may last for extended periods.
GURU
FAVORITE STOCKS ETF
NOTES
TO THE FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER
30, 2023
NOTE
4 – COMMITMENTS AND OTHER RELATED PARTY TRANSACTIONS.
Empowered
Funds, LLC dba EA Advisers (the “Adviser”) serves as the investment adviser to
the Fund. Pursuant to an investment advisory agreement (the “Advisory
Agreement”) between the Trust, on behalf of the Fund, and the Adviser, the
Adviser provides investment advice to the Fund and oversees the day-to-day
operations of the Fund, subject to the direction and control of the Board and
the officers of the Trust. Under the Advisory Agreement, the Adviser is also
responsible for arranging transfer agency, custody, fund administration and
accounting, and other non-distribution related services necessary for the Fund
to operate. The Adviser administers the Fund’s business affairs, provides office
facilities and equipment and certain clerical, bookkeeping and administrative
services. The Adviser agrees to pay all expenses incurred by the Fund except for
the fee paid to the Adviser pursuant to the Advisory Agreement, payments under
any distribution plan adopted pursuant to Rule 12b-1, brokerage expenses,
acquired fund fees and expenses, taxes (including tax-related services),
interest (including borrowing costs), litigation expense (including class
action-related services) and other non-routine or extraordinary expenses.
GuruFocus
Investments, LLC, serves as a non-discretionary investment sub-adviser to the
Fund. Pursuant to an investment sub-advisory agreement (the “Sub-Advisory
Agreement”) among the Trust, the Adviser and the Sub-Adviser, the Sub-Adviser is
responsible for determining the investment exposures for the Fund, subject to
the overall supervision and oversight of the Adviser and the Board.
At
a Board meeting held on December 13, 2021, the Board of Trustees of the Trust
(the “Trustees”) including each Trustee who is not an “interested person” of the
Trust, as defined in the 1940 Act, approved the Advisory & Sub-Advisory
Agreements. Per the Advisory Agreement, the Fund pays an annual rate of 0.65% to
the Adviser monthly based on average daily net assets. A description of the
Board’s consideration is included in the semi-annual report dated May 31, 2022.
U.S.
Bancorp Fund Services, LLC (“Fund Services” or “Administrator”), doing business
as U.S. Bank Global Fund Services, acts as the Fund’s Administrator and, in that
capacity, performs various administrative and accounting services for the Fund.
The Administrator prepares various federal and state regulatory filings, reports
and returns for the Fund, including regulatory compliance monitoring and
financial reporting; prepares reports and materials to be supplied to the
trustees; monitors the activities of the Fund’s Custodian, transfer agent and
fund accountant. Fund Services also serves as the transfer agent and fund
accountant to the Fund. U.S. Bank N.A. (the “Custodian”), an affiliate of the
Administrator, serves as the Fund’s Custodian.
The
Custodian acts as the securities lending agent (the “Securities Lending Agent”)
for the Fund.
NOTE
5 – SECURITIES LENDING
The
Fund may lend up to 33 1/3
%
of the value of the securities in its portfolio to brokers, dealers and
financial institutions (but not individuals) under terms of participation in a
securities lending program administered by the Securities Lending Agent. The
securities lending agreement requires that loans are collateralized at all times
in an amount equal to at least 102% of the value of any domestic loaned
securities at the time of the loan, plus accrued interest. The use of loans of
foreign securities, which are denominated and payable in U.S. dollars, shall be
collateralized in an amount equal to 105% of the value of any loaned securities
at the time of the loan plus accrued interest. The Fund receives compensation in
the form of fees and earns interest on the cash collateral. The amount of fees
depends on a number of factors including the type of security and length of the
loan. The Fund continues to receive interest payments or dividends on the
securities loaned during the borrowing period. Gain or loss on the value of
securities loaned that may occur during the term of the loan will be for the
account of the Fund. The Fund has the right under the terms of the securities
lending agreement to recall the securities from the borrower on demand.
The
securities lending agreement provides that, in the event of a borrower’s
material default, the Securities Lending Agent shall take all actions the
Securities Lending Agent deems appropriate to liquidate the collateral, purchase
replacement securities at the Securities Lending Agent’s expense, or pay the
Fund an amount equal to the market value of the loaned securities, subject to
certain limitations which are set forth in detail in the securities lending
agreement between the Fund and the Securities Lending Agent.
During
the fiscal year, the Fund had loaned securities and received cash collateral for
the loans. The cash collateral is invested by the Securities Lending Agent in
accordance with the Trust approved investment guidelines. Those guidelines
require the cash collateral to be invested in readily marketable, high quality,
short-term obligations; however, such investments are subject to risk of payment
delays or default on the part of the issuer or counterparty or otherwise may not
generate sufficient interest to support the costs associated with securities
lending. The Fund could also experience delays in recovering its securities and
possible loss of income or value if the borrower fails to return the borrowed
securities, although the Fund is indemnified from this risk by contract with the
Securities Lending Agent .
As of the end of the fiscal year, there were no securities of the Fund out to
loan.
GURU
FAVORITE STOCKS ETF
NOTES
TO THE FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER
30, 2023
The
interest income earned by the Fund on the investment of cash collateral received
from borrowers for the securities loaned to them (“Securities Lending Income,
Net”) is reflected in the Fund’s Statement of Operations. Net securities lending
income earned on collateral investments and recognized by the Fund during the
fiscal year was $75.
Due
to the absence of a master netting agreement related to the Fund's participation
in securities lending, no additional offsetting disclosures have been made on
behalf of the Fund for the total borrowings listed above.
NOTE
6 – PURCHASES AND SALES OF SECURITIES
For
the fiscal year ended November 30, 2023, purchases and sales of securities
for the Fund, excluding short-term securities and in-kind transactions, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
Sales
|
|
$
27,798,758 |
|
$
24,496,115 |
For
the fiscal year ended November 30, 2023, in-kind transactions associated
with creations and redemptions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
Sales
|
|
$
- |
|
$
4,297,088 |
For
the fiscal year ended November 30, 2023, short-term and long-term gains on
in-kind transactions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
Term |
|
Long
Term |
|
$
463,141 |
|
$
769,428 |
There
were no purchases or sales of U.S. Government securities during the fiscal year.
NOTE
7 – TAX INFORMATION
The
components of tax basis cost of investments and net unrealized appreciation
(depreciation) for federal income tax purposes at November 30, 2023, were
as follows:
|
|
|
|
|
|
Tax
cost of Investments |
$
28,549,409 |
Gross
tax unrealized appreciation |
4,865,887
|
Gross
tax unrealized depreciation |
(997,068)
|
Net
tax unrealized appreciation (depreciation) |
3,868,819
|
Undistributed
ordinary income |
26,409
|
Undistributed
long-term gain |
-
|
Total
distributable earnings |
26,409
|
Other
accumulated gain (loss) |
(6,450,136)
|
Total
accumulated gain (loss) |
$
(2,554,908) |
The
difference between book and tax-basis cost is attributable to wash sales. Under
tax law, certain capital and foreign currency losses realized after October 31
and within the taxable year are deemed to arise on the first business day of the
Fund’s next taxable year.
For
the fiscal year ended November 30, 2023, the Fund did not defer any
qualified late year losses.
At
November 30, 2023, the Fund had the following capital loss carryforwards
that do not expire:
|
|
|
|
|
|
|
|
|
Short-Term
|
|
Long-Term |
$
|
(3,962,085)
|
|
|
$
|
(2,488,051)
|
|
GURU
FAVORITE STOCKS ETF
NOTES
TO THE FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER
30, 2023
NOTE
8 – DISTRIBUTIONS TO SHAREHOLDERS
The
tax character of distributions paid by the Fund during the fiscal year ended
November 30, 2023 and fiscal period ended November 30, 2022, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended November 30, 2023 |
|
|
Fiscal
Period Ended November 30, 2022 |
|
|
Ordinary
Income |
|
|
Ordinary
Income |
|
|
$
|
117,903
|
|
|
|
$
3,002 |
|
NOTE
9 – SUBSEQUENT EVENTS
In
preparing these financial statements, management of the Fund has evaluated
events and transactions for potential recognition or disclosure through date the
financial statements were issued. There were no transactions that occurred
during the period subsequent to November 30, 2023, that materially impacted
the amounts or disclosures in the Fund’s financial statements.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders of
Guru
Favorite Stocks ETF and
The
Board of Trustees of
EA
Series Trust
Opinion
on the Financial Statements
We
have audited the accompanying statement of assets and liabilities of Guru
Favorite Stocks ETF (the “Fund”), a series of EA Series Trust (the “Trust”),
including the schedule of investments, as of November 30, 2023, the related
statement of operations, the statement of changes in net assets and the
financial highlights for the year then ended, and the related notes
(collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial
position of the Fund as of November 30, 2023, and the results of its operations,
the changes in its net assets and the financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
The
statement of changes in net assets and the financial highlights for the period
from December 16, 2021 (commencement of operations) to November 30, 2022, were
audited by other auditors, whose report dated January 27, 2023, expressed an
unqualified opinion on the financial statements and financial highlights.
Basis
for Opinion
These
financial statements are the responsibility of the Fund’s management. Our
responsibility is to express an opinion on the Fund’s financial statements based
on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Funds in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB. We have served as the auditor of one or more
of the funds in the Trust since 2023.
We
conducted our audit in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Fund is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audit, we are required to obtain an understanding of
internal control over financial reporting, but not for the purpose of expressing
an opinion on the effectiveness of the Fund’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. Our procedures
included confirmation of securities owned as of November 30, 2023 by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
TAIT,
WELLER & BAKER LLP
Philadelphia,
Pennsylvania
January
26, 2024
|
|
|
EXPENSE
EXAMPLE NOVEMBER 30, 2023 (UNAUDITED)
|
As
a shareholder of the Fund, you incur two types of costs: (1) transaction costs,
including brokerage commissions on purchases and sales of Fund shares, and (2)
ongoing costs, including management fees and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds.
The
example is based on an investment of $1,000 invested at the beginning of the
most recent six-month period and held the entire period as indicated below.
Actual
Expenses
The
first line of the table below provides information about actual account values
and actual expenses. You may use the information in this line, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
line under the heading entitled “Expenses Paid During the Period” to estimate
the expenses you paid on your account during this period.
Hypothetical
Example for Comparison Purposes
The
second line of the table below provides information about hypothetical account
values and hypothetical expenses based on the Fund’s actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund’s
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund’s and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds. Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transactional costs, such as
brokerage commissions paid on purchases and sales of Fund shares. Therefore, the
second line of the table is useful in comparing ongoing costs only and will not
help you determine the relative total costs of owning different funds. If these
transactional costs were included, your costs would have been higher. The
information assumes the reinvestment of all dividends and distributions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized
Expense Ratio |
|
Beginning
Account Value June 1, 2023 |
|
Ending
Account Value November 30, 2023 |
|
Expenses
Paid During Period |
|
|
|
|
|
|
|
|
|
Actual
|
|
0.65%
|
|
$1,000.00
|
|
$1,094.90
|
|
$3.41
|
Hypothetical
(5% annual return before expenses) |
|
0.65%
|
|
1,000.00
|
|
1,021.81
|
|
3.29
|
|
|
|
|
|
|
1
|
The
dollar amounts shown as expenses paid during the period are equal to the
annualized six-month expense ratio multiplied by the average account value
during the period, multiplied by 183/365, to reflect the one-half year
period. |
|
|
|
REVIEW
OF LIQUIDITY RISK MANAGEMENT PROGRAM (UNAUDITED)
|
Pursuant
to Rule 22e-4 under the Investment Company Act of 1940, the Trust, on behalf of
the series of the Trust covered by this shareholder report (each a “Fund”, and
collectively, the “Funds”), has adopted a liquidity risk management program
(“the Program”) to govern the Trust’s approach to managing liquidity risk. Rule
22e-4 seeks to promote effective liquidity risk management, thereby reducing the
risk that a Fund will be unable to meet its redemption obligations and
mitigating dilution of the interests of fund shareholders. The Trust’s liquidity
risk management program is tailored to reflect each Fund’s particular risks, but
not to eliminate all adverse impacts of liquidity risk, which would be
incompatible with the nature of the Fund.
The
Trust’s Board of Trustees has designated certain representatives of the Adviser
as the Program Administrator, responsible for administering the Program and its
policies and procedures.
At
the June 9, 2023, meeting of the Board of Trustees of the Trust, the Program
Administrator provided the Trustees with a report pertaining to the operation,
adequacy, and effectiveness of implementation of the Program for the period
ended March 31, 2023. The report concluded that the Program appeared effectively
tailored to identify potential illiquid scenarios and to enable the Funds to
deliver appropriate reporting. In addition, the report concluded that the
Program is adequately operating, and its implementation has been effective. The
report reflected that there were no liquidity events that impacted the Funds’
ability to timely meet redemptions without dilution to existing shareholders.
The report further described material changes that were made to the Program
since its implementation.
There
can be no assurance that the Program will achieve its objectives in the future.
Please refer to the prospectus for more information regarding the Funds’
exposure to liquidity risk and other principal risks to which an investment in
the Funds may be subject.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FEDERAL
TAX INFORMATION (UNAUDITED) |
For
the fiscal year ended November 30, 2023, certain dividends paid by the Fund may
be subject to a maximum tax rate of 23.8%, as provided for by the Tax Cuts and
Jobs Act of 2017. The percentage of dividends declared from ordinary income
designated as qualified dividend income for the Fund was 100.00%.
For
corporate shareholders, the percent of ordinary income distributions qualifying
for the corporate dividends received deduction for the fiscal year ended
November 30, 2023 for the Fund was 100.00%.
The
percentage of taxable ordinary income distributions that are designated as
short-term capital gain distributions under the Internal Revenue Section 871
(k)(2)(C) for the Fund was 0.00%.
Trustees
and Officers
The
business and affairs of the Trust are managed by its officers under the
oversight of its Board. The Board sets broad policies for the Trust and may
appoint Trust officers. The Board oversees the performance of the Adviser, the
Sub-Adviser, and the Trust’s other service providers. Each Trustee serves until
his or her successor is duly elected or appointed and qualified.
The
Board is comprised of four Trustees. One Trustee and certain of the officers of
the Trust are directors, officers or employees of the Adviser. The other
Trustees (the “Independent Trustees”) are not “interested persons” (as defined
in Section 2(a)(19) of the Investment Company Act) of the Trust. The fund
complex includes all funds advised by the Adviser (“Fund Complex”).
The
Trustees, their age, term of office and length of time served, their principal
business occupations during the past five years, the number of portfolios in the
Fund Complex overseen and other directorships, if any, held by each Trustee, are
shown below. The officers, their age, term of office and length of time served
and their principal business occupations during the past five years are shown
below.
The
address of each Trustee and each Officer is: c/o EA Series Trust, 19 East Eagle
Road, Havertown, PA 19083.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
and Year of Birth |
Position(s)
Held with Trust |
Term
of Office and Length of Time Served |
Principal
Occupation During Past 5 Years |
Number
of Funds in Fund Complex Overseen by Trustee |
Other
Directorships Held by Trustee During Past 5 Years |
Independent
Trustees |
Daniel
Dorn Born: 1975 |
Trustee
|
Indefinite
term; Since 2014 |
Associate
Professor of Finance, Drexel University, LeBow College of Business
(2003–present). |
49
|
None
|
Michael
S. Pagano, Ph.D., CFA® Born: 1962 |
Trustee
and Audit Committee Chairman |
Indefinite
term; Since 2014 |
The
Robert J. and Mary Ellen Darretta Endowed Chair in Finance, Villanova
University (1999–present); Founder, Michael S. Pagano, LLC (business
consulting firm) (2008–present). |
49
|
Citadel
Federal Credit Union (pro bono service for non-profit) |
Chukwuemeka
(Emeka) O. Oguh Born: 1983 |
Trustee
|
Indefinite
term; Since 2018 |
Co-founder
and CEO, PeopleJoy (2016–present). |
49
|
None
|
Interested
Trustee* |
Wesley
R. Gray, Ph.D. Born: 1980 |
Trustee
and Chairman |
Indefinite
term; Since 2014; President (2014 – 2023) |
Founder
and Executive Managing Member, EA Advisers (2013–present); Founder and
Executive Managing Member, Empirical Finance, LLC d/b/a Alpha Architect
(2010–present). |
49
|
None
|
*
Dr. Gray is an “interested person,” as defined by the Investment Company Act,
because of his employment with and ownership interest in the Adviser.
Additional
information about the Affiliated Trustee and Independent Trustee is available in
the Statement of Additonal Information (SAI).
|
|
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|
|
MANAGEMENT
OF THE FUND (CONTINUED) |
Officers
|
|
|
|
|
|
|
|
|
|
|
|
Name
and Year of Birth |
Position(s)
Held with Trust |
Term
of Office and Length of Time Served |
Principal
Occupation During Past 5 Years |
Patrick
R. Cleary Born: 1982 |
President
and Chief Executive Officer |
Since
2023; Chief Compliance Officer (2015 – 2022); Secretary (2015
– 2023) |
Chief
Operating Officer and Managing Member, Alpha Architect (2014 – present);
Chief Executive Officer of EA Advisers (2021 – present). |
Alyssa
M. Bernard Born: 1988 |
Secretary
|
Since
2023 |
General
Counsel, EA Advisers (October 2023–present); Vice President—Regulatory
Administration, U.S. Bank Global Fund Services (2021–2023); Assistant Vice
President—Regulatory Administration, U.S. Bank Global Fund Services
(2018–2021). |
Sean
Hegarty Born: 1993 |
Treasurer,
Chief Financial Officer and Comptroller |
Since
2023; Assistant Treasurer (2022 – 2023) |
Chief
Operating Officer, EA Advisers (2022–present); Assistant Vice
President—Fund Administration, U.S. Bank Global Fund Services (2018–2022);
Staff Accountant, Cohen & Company (2015–2018). |
Jessica
Leighty Born: 1981 |
Chief
Compliance Officer |
Since
2022 |
Chief
Compliance Officer, EA Advisers (2021–present); Chief Compliance Officer,
Alpha Architect (2021 – present); Chief Compliance Officer, Snow Capital
(2015–2021). |
Brian
P. Massaro Born: 1997 |
Assistant
Treasurer |
Since
2023 |
Chief
Technology Officer, EA Advisers (2023 – present); Assistant Operating
Officer, EA Advisers (2022 – present); Mutual Funds Administrator, U.S.
Bank Global Fund Services (2019–2022). |
|
|
|
INFORMATION
ABOUT PORTFOLIO HOLDINGS (UNAUDITED) |
The
Fund files its complete schedule of portfolio holdings for its first and third
fiscal quarters with the Securities and Exchange Commission (“SEC”) on Part F of
Form N-PORT. The Fund’s Form N-PORT is available without charge, upon request,
by calling (215) 882-9983. Furthermore, you may obtain the Form N-PORT on the
SEC’s website at www.sec.gov. The Fund’s portfolio holdings are posted on its
website at https://gurufocusetf.com/.
|
|
|
INFORMATION
ABOUT PROXY VOTING (UNAUDITED) |
A
description of the policies and procedures the Fund uses to determine how to
vote proxies relating to portfolio securities is provided in the Statement of
Additional Information (“SAI”). The SAI is available without charge upon request
by calling (215) 882-9983, by accessing the SEC’s website at www.sec.gov, or by
accessing the Fund’s website at https://gurufocusetf.com/.
When
available, information regarding how the Fund’s voted proxies relating to
portfolio securities during the twelve months ending June 30 is (1)
available by calling (215) 882-9983 and (2) the SEC’s website at www.sec.gov.
|
|
|
FREQUENCY
DISTRIBUTION OF PREMIUMS AND DISCOUNTS (UNAUDITED)
|
Information
regarding how often shares of the Fund trades on an exchange at a price above
(i.e., at premium) or below (i.e., at a discount) the NAV of the Fund is
available, without charge, on the Fund’s website at
https://www.gurufocusetf.com/.
|
|
|
PRIVACY
POLICY (UNAUDITED) |
EA
Series Trust (the “Trust”) is strongly committed to preserving and safeguarding
the personal financial information of any customers of the Trust.
Confidentiality is extremely important to us.
Regulation
S-P requires, among others, each investment company to “adopt written policies
and procedures that address administrative, technical, and physical safeguards
for the protection of customer records and information.” However, Pursuant to
Regulation S-P’s definition of “customer,” the Trust currently does not have,
nor does it anticipate having in the future, any customers. In addition, the
Trust does not collect any non-public personal information from any consumers.
Nonetheless,
the Trust has instituted certain technical, administrative and physical
safeguards through which the Trust would seek to protect personal financial
information about any customers from unauthorized use and access. First,
technical procedures are used in order to limit the accessibility and exposure
of Trust-maintained information contained in electronic form. If customer
information were obtained by the Trust, such technical procedures would cover
such information.
Second,
administrative procedures that are in place, would be used to control the number
and type of employees, affiliated and non-affiliated persons, to whom customer
information (if the Trust were to obtain any) would be accessible.
Third,
physical safeguards have been established, which if customer information were
obtained by the Trust, to prevent access to such information contained in
hard-copy form.
As
these procedures illustrate, the Trust realizes the importance of information
confidentiality and security and emphasizes practices which are aimed at
achieving those goals.
Adviser
Empowered
Funds, LLC dba EA Advisers
19
East Eagle Road
Havertown,
Pennsylvania 19083
Sub-Adviser
GuruFocus
Investments, LLC
1309
West 15 th
Street,
Suite 370
Plano,
Texas 75075
Distributor
Quasar
Distributors, LLC
111
East Kilbourn Ave, Suite 2200
Milwaukee,
Wisconsin 53202
Custodian
and Securities Lending Agent
U.S.
Bank National Association
Custody
Operations
1555
North River Center Drive, Suite 302
Milwaukee,
Wisconsin 53212
Transfer
Agent
U.S.
Bancorp Fund Services, LLC
615
East Michigan Street
Milwaukee,
Wisconsin 53202
Independent
Registered Public Accounting Firm
Tait,
Weller & Baker LLP
Two
Liberty Place
50
South 16th Street, Suite 2900
Philadelphia,
Pennsylvania 19102
Legal
Counsel
Practus,
LLP
11300
Tomahawk Creek Parkway, Suite 310
Leawood,
Kansas 66211
Guru
Favorite Stocks ETF
Symbol
– GFGF
CUSIP
– 02072L789