ck0001540305-20221231
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QTUM |
Defiance Quantum
ETF |
FIVG |
Defiance Next Gen Connectivity
ETF |
HDRO |
Defiance Next Gen H2
ETF |
CRUZ |
Defiance Hotel, Airline, and Cruise
ETF |
Listed
on NYSE Arca, Inc.
PROSPECTUS
April 30,
2023
The
U.S. Securities and Exchange Commission (“SEC”) has not approved or disapproved
of these securities or passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
TABLE
OF CONTENTS
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Defiance
Next Gen H2 ETF |
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Defiance
Hotel, Airline, and Cruise ETF |
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Investment Objective
The Defiance Quantum ETF (the
“Fund” or the “Quantum ETF”) seeks to track the total return performance, before
fees and expenses, of the BlueStar Quantum Computing and Machine Learning Index
(the “Index”).
Fees and Expenses of the Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.40% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.40% |
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or redeem all of
your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1 Year |
3
Years |
5
Years |
10
Years |
$41 |
$128 |
$224 |
$505 |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal year ended December
31, 2022, the Fund’s portfolio turnover rate was 24% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund uses a “passive management” (or indexing) approach to track the total
return performance, before fees and expenses, of the Index.
BlueStar
Quantum Computing and Machine Learning Index
The
Index consists of a modified equal-weighted portfolio of the stock of companies
that derive at least 50% of their annual revenue or operating activity from the
development of quantum computing and machine learning technology. “Quantum
computing” refers to hardware and software designed to take advantage of
extremely fast computers that leverage the field of quantum mechanics, a branch
of physics dealing with particles and the complexities in which they naturally
behave. Such technologies include research and development of quantum computers;
use of quantum computing for applied sciences or communications; development of
technology-enabled interactions between quantum and traditional computers;
development of advanced hardware and/or software used in machine learning;
production of specialized machinery used in advanced semiconductor and
integrated circuit packaging; or the production and/or processing of raw
materials used in quantum computing. The companies included in the Index are
screened semi-annually from the universe of globally-listed stocks (including in
emerging markets) by BlueStar Global Investors, LLC (“BlueStar” or the “Index
Provider”) based primarily on descriptions of a company’s primary business
activities in regulatory filings (e.g.,
financial statements, annual reports, investor presentations), analyst reports,
and industry-specific trade publications. Companies identified by BlueStar’s
screening process are then screened for investibility, including a minimum
market capitalization of US$150 million and minimum liquidity thresholds.
The
Index is rebalanced and reconstituted semi-annually after the close of business
on the third Friday of June and December each year based on data as of the
Tuesday before the second Friday of June and December each year. However, new
initial public offerings (“IPOs”) that meet the Index’s eligibility requirements
may be added on a “fast-entry basis” in between reconstitution dates. In
addition to the semi-annual reconstitutions in June and December, new IPOs are
reviewed for fast-entry addition in March and September, and may be added after
the close of business on the third Friday of March and September. Fast-entry
additions are added at an equal weight with the weight reduced from existing
components proportionally. Index constituents will be removed from the Index at
the time of a reconstitution if they fail to meet the eligibility
requirements.
In
determining the companies included in the Index at the time of each rebalance
and reconstitution of the Index, the largest eligible companies by market
capitalization are included until 98.5% of the market capitalization of such
eligible companies is included in the Index, plus any companies already included
in the Index whose market capitalization is in the top 99.5% of the market
capitalization of eligible companies. If such rules result in fewer than 70
Index components, the largest remaining eligible companies are selected until
the number of components reaches 70.
As
of March 31, 2023, the Index had 70 constituents, 13 of which were listed on a
non-U.S. exchange. At the time of each rebalance and reconstitution of the
Index, each constituent is equally-weighted, subject to a downward adjustment
for securities trading below certain liquidity thresholds. Additionally, the
weight of each Index component may rise and/or fall between Index rebalance
dates.
The
Index was established in 2018 and is owned by the Index Provider.
The
Fund’s Investment Strategy
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning
the Fund will generally invest in all of the component securities of the
Index in the same approximate proportions as in the Index.
However, the Fund may use a “representative sampling” strategy, meaning it may
invest in a sample of the securities in the Index whose risk, return, and other
characteristics closely resemble the risk, return, and other characteristics of
the Index as a whole, when the Fund’s sub-adviser believes it is in the best
interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund generally may invest in securities or other investments not included in the
Index, but which the Fund’s sub-adviser believes will help the Fund track the
Index. For example, the Fund may invest in securities that are not components of
the Index to reflect various corporate actions and other changes to the Index
(such as reconstitutions, additions, and deletions).
To
the extent the Index concentrates (i.e., holds more than 25% of its total assets)
in the securities of a particular industry or group of related industries, the
Fund will concentrate its investments to approximately the same extent as the
Index. As of March 31, 2023, the Index was concentrated in the semiconductors
industry and had significant exposure to other information technology sector
industries, including the software industry
group.
Principal Investment Risks
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Funds.”
•Capital
Controls and Sanctions Risk.
Economic conditions, such as volatile currency exchange rates and interest
rates, political events, military action and other conditions may, without prior
warning, lead to foreign government intervention (including intervention by the
U.S. government with respect to foreign governments, economic sectors, foreign
companies and related securities and interests) and the imposition of capital
controls and/or sanctions, which may also include retaliatory actions of one
government against another government, such as seizure of assets. Capital
controls and/or sanctions include the prohibition of, or restrictions on, the
ability to transfer currency, securities or other assets. Capital controls
and/or sanctions may also impact the ability of the Fund to buy, sell or
otherwise transfer securities or currency, negatively impact the value and/or
liquidity of such instruments, adversely affect the trading market and price for
Shares, and cause the Fund to decline in value.
•Concentration
Risk.
The
Fund’s investments will be concentrated in an industry or group of industries to
the extent that the Index is so concentrated. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries.
•Currency
Exchange Rate Risk. The
Fund may invest in investments denominated in non-U.S. currencies or in
securities that provide exposure to such currencies. Changes in currency
exchange rates and the relative value of non-U.S. currencies will affect the
value of the Fund’s investment and the value of your Shares. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the value of an investment in the Fund may change quickly and without
warning and you may lose money.
•Depositary
Receipt Risk.
Depositary receipts involve
risks similar to those associated with investments in foreign securities, such
as changes in political or economic conditions of other countries and changes in
the exchange rates of foreign currencies.
Depositary receipts listed on U.S. exchanges are issued by banks or trust
companies, and entitle the holder to all dividends and capital gains that are
paid out on the underlying foreign shares (“Underlying Shares”). When the Fund
invests in depositary receipts as a substitute for an investment directly in the
Underlying Shares, the Fund is exposed to the risk that the depositary receipts
may not provide a return that corresponds precisely with that of the Underlying
Shares.
•Emerging
Markets Risk.
The Fund may invest in companies organized in emerging market nations.
Investments in securities and instruments traded in developing or emerging
markets, or that provide exposure to such securities or markets, can involve
additional risks relating to political, economic, or regulatory conditions not
associated with investments in U.S. securities and instruments or investments in
more developed international markets. Such conditions may impact the ability of
the Fund to buy, sell or otherwise transfer securities, adversely affect the
trading market and price for Shares and cause the Fund to decline in value.
•Emerging
Technologies Investment Risk. The
Fund invests primarily to gain exposure to emerging technologies, such as
quantum computing, in accordance with the Index. Companies across a wide variety
of industries, primarily in the technology and communications services sectors,
are exploring the possible applications of these technologies. The extent of
such technologies’ versatility has not yet been fully explored. Consequently,
the Fund’s holdings may include equity securities of operating companies that
have exposure to a wide variety of industries, and the economic fortunes of
certain companies held by the Fund may be significantly tied to such industries.
Currently, there are few public companies for which these emerging technologies
represent an attributable and significant revenue or profit stream, and such
technologies may not ultimately have a material effect on the economic returns
of companies in which the Fund invests.
•Equity
Market Risk.
The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from issuers. In addition,
local, regional or global events such as war, including Russia’s invasion of
Ukraine, acts of terrorism, spread of infectious diseases or other public health
issues, recessions, rising inflation, or other events could have a significant
negative impact on the Fund and its investments. For example, the global
pandemic caused by COVID-19, a novel coronavirus, and the aggressive responses
taken by many governments, including closing borders, restricting international
and domestic travel, and the imposition of prolonged quarantines or similar
restrictions, has had negative impacts, and in many cases severe impacts, on
markets worldwide. The COVID-19 pandemic has caused prolonged disruptions to the
normal business operations of companies around the world and the impact of such
disruptions is hard to predict. Such events may affect certain geographic
regions, countries, sectors and industries more significantly than others. Such
events could adversely affect the prices and liquidity of the Fund’s portfolio
securities or other instruments and could result in disruptions in the trading
markets.
•ETF
Risks. The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, the Fund is likely to experience
premiums and discounts greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. These and other factors
can make investments in the Fund more volatile and potentially less liquid than
other types of investments.
•Geographic
Investment Risk.
To the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
•Geopolitical
Risk. Some
countries and regions in which the Fund invests have experienced security
concerns, war or threats of war and aggression, terrorism, economic uncertainty,
natural and environmental disasters and/or systemic market dislocations that
have led, and in the future may lead, to increased short-term market volatility
and may have adverse long-term effects on the U.S. and world economies and
markets generally, each of which may negatively impact the Fund’s investments.
•Index
Methodology Risk. The
Index may not include all companies around the globe whose products or services
are predominantly tied to the development of quantum computing and machine
learning technologies because the Index includes only those companies meeting
the Index criteria. For example, companies that would otherwise be included in
the Index might be excluded from the Index if they omit discussion of their
quantum computing and machine learning technologies from descriptions of their
business in regulatory filings or otherwise keep such work hidden from public
(and the Index Provider’s) view.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Adviser relies upon the Index Provider and its
agents to compile, determine, maintain, construct, reconstitute, rebalance,
compose, calculate (or arrange for an agent to calculate), and disseminate the
Index accurately. Any losses or costs associated with errors made by the Index
Provider or its agents generally will be borne by the Fund and its
shareholders.
•Market
Capitalization Risk
◦Large-Capitalization
Investing.
The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
•Passive
Investment Risk.
The Fund is not actively managed, and its sub-adviser would not sell shares of
an equity security due to current or projected underperformance of a security,
industry, or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
or rebalancing of the Index in accordance with the Index methodology.
•Quantum
Computing and Machine Learning Investment Risk.
Companies across a wide variety of industries, primarily in the technology
sector, are exploring the possible applications of quantum computing and machine
learning technologies. The extent of such technologies’ versatility has not yet
been fully explored. Consequently, the Fund’s holdings may include equity
securities of operating companies that focus on or have exposure to a wide
variety of industries, and the economic fortunes of certain companies held by
the Fund may not be significantly tied to such technologies. Currently, there
are few public companies for which quantum computing and machine learning
technologies represent an attributable and significant revenue or profit stream,
and such technologies may not ultimately have a material effect on the economic
returns of companies in which the Fund invests.
•Sector
Risk. To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors.
◦Information
Technology Sector Risk.
The Fund is generally expected to invest significantly in companies in the
information technology sector, including the semiconductor industry, and
therefore the performance of the Fund could be negatively impacted by events
affecting this sector. Market or economic factors impacting information
technology companies and companies that rely heavily on technological advances
could have a significant effect on the value of the Fund’s investments. The
value of stocks of information technology companies and companies that rely
heavily on technology is particularly vulnerable to rapid changes in technology
product cycles, rapid product obsolescence, government regulation and
competition, both domestically and internationally, including competition from
foreign competitors with lower production costs. Stocks of information
technology companies and companies that rely heavily on technology, especially
those of smaller, less-seasoned companies, tend to be more volatile than the
overall market. Information technology companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of which may adversely
affect
profitability.
Information technology companies and companies that rely heavily on technology
may also be prone to operational and information security risks resulting from
cyber-attacks and/or technological malfunctions.
•Securities
Lending Risk.
There are certain risks associated with securities lending, including the risk
that the borrower may fail to return the securities on a timely basis or even
the loss of rights in the collateral deposited by the borrower, if the borrower
should fail financially. The Fund could also lose money in the event of a
decline in the value of collateral provided for loaned securities or a decline
in the value of any investments made with cash collateral. As a result, the Fund
may lose money.
•Tracking
Error Risk. As with all index funds, the performance of
the Fund and its Index may differ from each other for a variety of reasons. For
example, the Fund incurs operating expenses and portfolio transaction costs not
incurred by the Index. In addition, the Fund may not be fully invested in the
securities of the Index at all times or may hold securities not included in the
Index.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for calendar
years ended December 31. The table illustrates how the Fund’s average annual
returns for the 1-year and since inception periods compare with those of a broad
measure of market performance and the Index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.defianceetfs.com.
Calendar Year Total
Returns
During the period of time shown
in the bar chart, the Fund’s highest quarterly return
was 30.89% for the quarter ended June 30, 2020, and
the lowest quarterly return was
-19.48% for the quarter ended June 30,
2022.
Average
Annual Total Returns
(For
the Periods Ended December 31, 2022)
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Defiance
Quantum ETF |
1
Year |
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Since
Inception
(9/4/18) |
Return Before
Taxes |
-28.56% |
| 11.91% |
Return After Taxes on
Distributions |
-28.80% |
| 11.70% |
Return After Taxes on Distributions and
Sale of Fund Shares |
-16.73% |
| 9.44% |
BlueStar
Quantum Computing and Machine Learning Index®
(reflects no deduction for
fees, expenses, or taxes) |
-28.37% |
| 12.46% |
S&P
500 TR Index
(reflects
no deduction for fees, expenses, or taxes) |
-18.11% |
| 8.61% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts. In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Shares” may be
higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax deduction that benefits the
investor.
Portfolio
Management
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Adviser |
Defiance
ETFs, LLC |
Sub-Adviser |
Penserra
Capital Management LLC (“Penserra” or the
“Sub-Adviser”) |
Portfolio
Managers |
Dustin
Lewellyn, CFA, Managing Director of Penserra; Ernesto Tong, CFA, Managing
Director of Penserra; and Anand Desai, Senior Vice President of Penserra
have been portfolio managers of the Fund since its inception in September
2018. |
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.defianceetfs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
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DEFIANCE
NEXT
GEN
CONNECTIVITY
ETF |
Investment Objective
The Defiance Next Gen
Connectivity ETF (the “Fund” or the “Connectivity ETF”) seeks to track the total
return performance, before fees and expenses, of the BlueStar 5G Communications
Index (the “Index”).
Fees and Expenses of the Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
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Management
Fees |
0.30% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.30% |
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or redeem all of
your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1 Year |
3
Years |
5
Years |
10
Years |
$31 |
$97 |
$169 |
$381 |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal year ended
December 31, 2022, the Fund’s portfolio turnover rate was 25% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund uses a “passive management” (or indexing) approach to track the total
return performance, before fees and expenses, of the Index.
BlueStar
5G Communications Index
The
Index is a rules-based index that consists of a tiered, modified market
capitalization-weighted portfolio of the U.S.-listed equity securities,
including depositary receipts, of companies whose products or services are
predominantly tied to the development of 5G networking and communication
technologies (collectively, “5G Companies”). 5G Companies are assigned to one of
four segments of the 5G communications industry, as described below. At the time
of each rebalance and reconstitution of the Index, each segment is assigned a
weight, and companies within each segment are market capitalization-weighted,
subject to a minimum weight of 0.50% and the maximum weights described below.
Additionally, to qualify for inclusion in the Index, a 5G Company must have a
minimum market capitalization of $150 million, except as otherwise described
below, and must meet certain liquidity, free-float (i.e.,
the percentage of shares available to the public), and trading cost thresholds.
Segment
1 (40% weight) consists
of 5G Companies whose products or services are predominantly tied to core
cellular network equipment (e.g.,
carrier-grade routers, antennas, or other equipment or semiconductors used in 5G
networks). At the time of each rebalance and reconstitution of the Index, this
segment will be assigned an aggregate weight of 40% of the Index, with the
weight of any individual company limited to 5% and any excess weight reallocated
to companies in such segment with a weight below 5%.
Segment
2 (30% weight) consists
of 5G Companies (i) that are organized as cellphone tower or data center real
estate investment trusts (“REITs”), (ii) that predominantly provide services as
a mobile network operator (“MNO”), or (iii) whose products or services are
predominantly tied to optical fiber cables. REITs and MNOs must have a minimum
market capitalization of $1 billion to be included in the Index. At the
time of each rebalance and reconstitution of the Index, this segment will be
assigned an aggregate weight of 30% of the Index, with the weight of any
individual company limited to 3% and any excess weight reallocated to companies
in such segment with a weight below 3%.
Segment
3 (15% weight) consists
of 5G Companies whose products or services are predominantly tied to (i)
hardware and software focused on quality of service assurance for MNOs and media
companies or (ii) network testing and bandwidth optimization
equipment.
At the time of each rebalance and reconstitution of the Index, this segment will
be assigned an aggregate weight of 15% of the Index, with the weight of any
individual company limited to 3% and any excess weight reallocated to companies
in such segment with a weight below 3%.
Segment
4 (15% weight) consists
of 5G Companies whose products or services are predominantly tied to (i)
enhanced mobile broadband (eMBB) modems capable of increased bandwidth for
end-user devices or (ii) whose products or services are predominantly tied to
the infrastructure or cloud-based services supporting REITs and MNOs. At the
time of each rebalance and reconstitution of the Index, this segment will be
assigned an aggregate weight of 15% of the Index, with the weight of any
individual company limited to 1% and any excess weight reallocated to companies
in such segment with a weight below 1%.
The
companies included in the Index are screened from the universe of global
companies with equity securities or depositary receipts listed on a U.S.
exchange by BlueStar Global Investors, LLC (“BlueStar” or the “Index
Provider”) based primarily on descriptions of a company’s primary business
activities in regulatory filings (e.g.,
financial statements, annual reports, investor presentations), analyst reports,
and industry-specific trade publications. 5G Companies identified by
BlueStar’s screening process are added to the Index, subject to meeting the
investibility requirements described above. The Index may include small-, mid-,
and large-capitalization companies.
The
Index is rebalanced and reconstituted semi-annually after the close of business
on the third Friday of each June and December based on data as of the first
Thursday of each such reconstitution month. As of March 31, 2023, the Index had
79 constituents. At the time of each rebalance and reconstitution of the Index,
each constituent is weighted as described above, subject to a downward
adjustment for securities trading below certain liquidity thresholds.
Additionally, the weight of each Index component may rise and/or fall between
Index rebalance dates.
To
reduce turnover, existing Index components will not be removed from the Index
solely for not meeting the minimum market capitalization or liquidity criteria
unless they do not meet such requirements for two consecutive reconstitutions.
Additionally, components that were previously removed from the Index must meet
such requirements for two consecutive reconstitutions to be eligible for
re-entry into the Index.
The
Index was established in 2019 and is owned by the Index Provider.
The
Fund’s Investment Strategy
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund will generally invest in all of the component
securities of the Index in the same approximate proportions as in the
Index. However, the Fund may use a “representative sampling” strategy, meaning
it may invest in a sample of the securities in the Index whose risk, return, and
other characteristics closely resemble the risk, return, and other
characteristics of the Index as a whole, when the Fund’s sub-adviser believes it
is in the best interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
The
Fund generally may invest in securities or other investments not included in the
Index, but which the Fund’s sub-adviser believes will help the Fund track the
Index. For example, the Fund may invest in securities that are not components of
the Index to reflect various corporate actions and other changes to the Index
(such as reconstitutions, additions, and deletions).
To
the extent the Index concentrates (i.e., holds more than 25% of its total assets)
in the securities of a particular industry or group of related industries, the
Fund will concentrate its investments to approximately the same extent as the
Index. As of March 31, 2023, the Index was concentrated in the semiconductor
industry and had significant exposure to the communications equipment
industry.
Principal Investment Risks
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Funds.”
•5G
Investment Risk. Companies
across a wide variety of industries, primarily in the technology sector, are
exploring the possible applications of 5G technologies. The extent of such
technologies’ versatility has not yet been fully explored. Consequently, the
Fund’s holdings may include equity securities of operating companies that focus
on or have exposure to a wide variety of industries, and the economic fortunes
of certain companies held by the Fund may not be significantly tied to such
technologies. Currently, there are few public companies for which 5G
technologies represent an attributable and significant revenue or profit stream,
and such technologies may not ultimately have a material effect on the economic
returns of companies in which the Fund invests.
•Capital
Controls and Sanctions Risk.
Economic conditions, such as volatile currency exchange rates and interest
rates, political events, military action and other conditions may, without prior
warning, lead to foreign government intervention (including intervention by the
U.S. government with respect to foreign governments, economic sectors, foreign
companies and related securities and interests) and the imposition of capital
controls and/or sanctions, which may also include retaliatory actions of one
government against another government, such as seizure of assets. Capital
controls and/or sanctions include the prohibition of, or restrictions on, the
ability to transfer currency, securities or other assets. Capital controls
and/or sanctions may also impact the ability of the Fund to buy, sell or
otherwise transfer securities or currency, negatively impact the value and/or
liquidity of such instruments, adversely affect the trading market and price for
Shares, and cause the Fund to decline in value.
•Concentration
Risk.
The
Fund’s investments will be concentrated in an industry or group of industries to
the extent that the Index is so concentrated. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries.
•Depositary
Receipt Risk.
Depositary
Receipts involve risks similar to those associated with investments in foreign
securities, such as changes in political or economic conditions of other
countries and changes in the exchange rates of foreign currencies. Depositary
Receipts listed on U.S. exchanges are issued by banks or trust companies and
entitle the holder to all dividends and capital gains that are paid out on the
underlying foreign shares (“Underlying Shares”). When the Fund invests in
Depositary Receipts as a substitute for an investment directly in the Underlying
Shares, the Fund is exposed to the risk that the Depositary Receipts may not
provide a return that corresponds precisely with that of the Underlying Shares.
•Emerging
Technologies Investment Risk.
The Fund invests primarily to gain exposure to emerging technologies, such as 5G
technologies, in accordance with the Index. Companies across a wide variety of
industries, primarily in the technology sector, are exploring the possible
applications of these technologies. The extent of such technologies’ versatility
has not yet been fully explored. Consequently, the Fund’s holdings may include
equity securities of operating companies that have exposure to a wide variety of
industries, and the economic fortunes of certain companies held by the Fund may
be significantly tied to such industries. Currently, there are few public
companies for which these emerging technologies represent an attributable and
significant revenue or profit stream, and such technologies may not ultimately
have a material effect on the economic returns of companies in which the Fund
invests.
•Equity
Market Risk.
The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from issuers. In addition,
local, regional or global events such as war, including Russia’s invasion of
Ukraine, acts of terrorism, spread of infectious diseases or other public health
issues, recessions, rising inflation, or other events could have a significant
negative impact on the Fund and its investments. For example, the global
pandemic caused by COVID-19, a novel coronavirus, and the aggressive responses
taken by many governments, including closing borders, restricting international
and domestic travel, and the imposition of prolonged quarantines or similar
restrictions, has had negative impacts, and in many cases severe impacts, on
markets worldwide. The COVID-19 pandemic has caused prolonged disruptions to the
normal business operations of companies around the world and the impact of such
disruptions is hard to predict. Such events may affect certain geographic
regions, countries, sectors and industries more significantly than others. Such
events could adversely affect the prices and liquidity of the Fund’s portfolio
securities or other instruments and could result in disruptions in the trading
markets.
•ETF
Risks. The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid/ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading. Although
Shares are listed for trading on the NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may be subject to withholding or other taxes. These and other factors can make
investments in the Fund more volatile and potentially less liquid than other
types of investments.
•Index
Methodology Risk. The
Index may not include all 5G Companies around the globe because the Index
includes only those companies meeting the Index criteria. For example, companies
that would otherwise be included in the Index might be excluded from the Index
if they omit discussion of their development of 5G networking and communication
technologies from descriptions of their business in regulatory filings or
otherwise keep such work hidden from public (and Defiance’s) view.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Adviser relies upon the Index Provider and its
agents to compile, determine, maintain, construct, reconstitute, rebalance,
compose, calculate (or arrange for an agent to calculate), and disseminate the
Index accurately. Any losses or costs associated with errors made by the Index
Provider or its agents generally will be borne by the Fund and its
shareholders.
•Market
Capitalization Risk
◦Large-Capitalization
Investing.
The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
large- or mid-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large- or mid-capitalization stocks or the
stock market as a whole. There is typically less publicly available information
concerning smaller-capitalization companies than for larger, more established
companies.
•Passive
Investment Risk.
The Fund is not actively managed, and its sub-adviser would not sell shares of
an equity security due to current or projected underperformance of a security,
industry, or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
or rebalancing of the Index in accordance with the Index
methodology.
•REIT
Investment Risk. Investments
in REITs involve unique risks. REITs may have limited financial resources, may
trade less frequently and in limited volume, and may be more volatile than other
securities. REITs may be affected by changes in the value of their underlying
properties or mortgages or by defaults by their borrowers or tenants.
Furthermore, these entities depend upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
financing a limited number of projects. In addition, the performance of a U.S.
REIT may be affected by changes in the tax laws or by its failure to qualify for
tax-free pass-through of income.
•Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those sectors.
◦Communications
Services Sector Risk. The
Fund is generally expected to invest significantly in companies in the
communications services sector, including those in the communications equipment
industry, and therefore the performance of the Fund could be negatively impacted
by events affecting this sector. Communications services companies are subject
to extensive government regulation. The costs of complying with governmental
regulations, delays or failure to receive required regulatory approvals, or the
enactment of new adverse regulatory requirements may adversely affect the
business of such companies. Companies in the communications services sector can
also be significantly affected by intense competition, including competition
with alternative technologies such as wireless communications (including with 5G
and other technologies), product compatibility, consumer preferences, rapid
product obsolescence, and research and development of new products.
Technological innovations may make the products and services of such companies
obsolete.
◦Information
Technology Sector Risk.
The Fund is generally expected to invest significantly in companies in the
information technology sector, including those in the semiconductor industry,
and therefore the performance of the Fund could be
negatively
impacted by events affecting this sector. Market or economic factors impacting
information technology companies and companies that rely heavily on
technological advances could have a significant effect on the value of the
Fund’s investments. The value of stocks of information technology companies and
companies that rely heavily on technology is particularly vulnerable to rapid
changes in technology product cycles, rapid product obsolescence, government
regulation and competition, both domestically and internationally, including
competition from foreign competitors with lower production costs. Stocks of
information technology companies and companies that rely heavily on technology,
especially those of smaller, less-seasoned companies, tend to be more volatile
than the overall market. Information technology companies are heavily dependent
on patent and intellectual property rights, the loss or impairment of which may
adversely affect profitability. Information technology companies and companies
that rely heavily on technology may also be prone to operational and information
security risks resulting from cyber-attacks and/or technological malfunctions.
•Securities
Lending Risk.
There are certain risks associated with securities lending, including the risk
that the borrower may fail to return the securities on a timely basis or even
the loss of rights in the collateral deposited by the borrower, if the borrower
should fail financially. The Fund could also lose money in the event of a
decline in the value of collateral provided for loaned securities or a decline
in the value of any investments made with cash collateral. As a result, the Fund
may lose money.
•Tracking
Error Risk. As with all index funds, the performance of
the Fund and its Index may differ from each other for a variety of reasons. For
example, the Fund incurs operating expenses and portfolio transaction costs not
incurred by the Index. In addition, the Fund may not be fully invested in the
securities of the Index at all times or may hold securities not included in the
Index.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for the most
recent calendar year ended December 31. The table illustrates how the Fund’s
average annual returns for the 1-year and since inception periods compare with
those of a broad measure of market performance and the Index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.defianceetfs.com.
Calendar Year Total
Returns
During the period of time shown
in the bar chart, the highest quarterly return
was 25.18% for the quarter ended June 30, 2020, and the
lowest quarterly return was
-16.38% for the quarter ended March 31,
2020.
Average
Annual Total Returns
(For
the Periods ended December 31, 2022)
|
|
|
|
|
|
|
| |
Defiance
Next Gen Connectivity ETF |
1-Year |
Since
Inception
(3/4/2019) |
Return Before
Taxes |
-27.20% |
6.09% |
Return After Taxes on
Distributions |
-27.47% |
5.77% |
Return After Taxes on Distributions and
Sale of Shares |
-15.89% |
4.73% |
BlueStar
5G Communications Index TR
(reflects no deduction for
fees, expenses, or taxes) |
-27.29% |
6.32% |
S&P
500 TR Index
(reflects
no deduction for fees, expenses, or taxes) |
-18.11% |
10.54% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts. In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Shares” may be
higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax deduction that benefits the
investor.
Portfolio
Management
|
|
|
|
| |
Adviser |
Defiance
ETFs, LLC |
Sub-Adviser |
Penserra
Capital Management LLC (“Penserra” or the
“Sub-Adviser”) |
Portfolio
Managers |
Dustin
Lewellyn, CFA, Managing Director of Penserra; Ernesto Tong, CFA, Managing
Director of Penserra; and Anand Desai, Senior Vice President of Penserra
have been portfolio managers of the Fund since its inception in March
2019. |
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.defianceetfs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
Investment Objective
The Defiance Next Gen H2 ETF
(the “Fund” or the “Next Gen H2 ETF”) seeks to track the total return
performance, before fees and expenses, of the BlueStar Hydrogen & NextGen
Fuel Cell Index (the “Index”).
Fees and Expenses of the Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
| |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
| |
Management
Fees |
0.30% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.30% |
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or redeem all of
your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
| |
1 Year |
3
Years |
5
Years |
10
Years |
$31 |
$97 |
$169 |
$381 |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal year ended
December 31, 2022, the Fund’s portfolio turnover rate was 81% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund uses a “passive management” (or indexing) approach to track the total
return performance, before fees and expenses, of the Index.
BlueStar
Hydrogen & NextGen Fuel Cell Index
The
Index is a rules-based index that tracks the performance of a group of globally
listed equity securities of companies involved in the development of
hydrogen-based energy sources and fuel cell technologies. The Index is
predominantly comprised of “pure-play” companies, i.e.,
those that generate at least 50% of their revenues from products that facilitate
hydrogen-based energy production, including fuel cells capable of using hydrogen
as a fuel source (collectively, “H2 Companies”). At the time of each quarterly
reconstitution of the Index, pure-play companies will comprise at least 85% of
the weight of the Index.
Up
to 15% of the Index’s weight, at the time of each quarterly reconstitution, may
be comprised of “non-pure-play” companies, i.e., those
that are engaged in hydrogen or hydrogen-based fuel cell projects, including the
production of hydrogen and other industrial gases, and either have the potential
to become pure-play companies or that play a significant role in the global
hydrogen or fuel cell segment. Vehicle manufacturers are not eligible for
inclusion in the Index. The Index may include companies in developed countries,
including the United States, as well as emerging market countries.
At
the time of each quarterly reconstitution of the Index, MV Index Solutions GmbH
(the “Index Provider”) identifies the universe of pure-play and non-pure-play
companies. To be eligible for being added to the Index, such companies must meet
investibility requirements (the “Investibility Requirements”),
including:
•a
market capitalization of at least US$150 million that is within the top 85% of
the free-float market capitalization of the universe of pure-play
companies;
•a
3-month average daily value traded greater than or equal to US$1
million;
•250,000
shares traded per month over the prior six months; and
•a
free float (i.e.,
the proportion of shares that are publicly available) of at least
10%.
Once
included in the Index, companies are eligible to remain in the Index at lower
investibility thresholds.
At
the time of each quarterly reconstitution of the Index, pure-play companies are
added to the Index based on their free-float market capitalization (from largest
to smallest) until their aggregate free-float market capitalization is at least
90% of the free-float market capitalization of all pure-play companies meeting
the Investibility Requirements. In the event the Index would include fewer than
25 pure-play companies, the Index will include non-pure-play companies (from
largest to smallest based on their free-float market capitalization) meeting the
Investibility Requirements and, if necessary, add the next largest pure-play or
non-pure-play company that does not meet the Investibility Requirements until
there are a minimum of 25 companies in the Index.
At
the time of each quarterly reconstitution of the Index, Index constituents are
weighted using a modified market-capitalization methodology that establishes a
minimum aggregate weight of 85% for pure-play companies, limits the weight of
any individual security to 10% (4% for industrial gas companies), and adjusts
the weight of a constituent downward based on certain liquidity criteria. Excess
weight resulting from the above adjustments is redistributed among the remaining
constituents. Additionally, at the time of each rebalance of the Index, the
aggregate weight of constituents with a weight greater than or equal to 5% is
limited to 50%, and the weight of the smallest constituent(s) that would
otherwise cause the Index to exceed the 50% threshold and all other constituents
with a weight greater than 4.5% but less than 5% will be set to
4.5%.
The
Index is reconstituted quarterly, effective after the close of trading on the
third Friday of each March, June, September, and December (the “Rebalance
Date”). For each rebalance and reconstitution of the Index, Index constituents
and their weights are determined based on data prior to the Rebalance
Date.
As
of March 31, 2023, the Index was composed of 25 constituents. The Index was
established in 2021 and is owned and maintained by the Index Provider. The Index
Provider partnered with the Fund’s investment adviser to co-develop the
methodology used to determine the securities included in the Index.
The
Fund’s Investment Strategy
Under
normal circumstances, at least 80% of the Fund’s net assets (plus borrowings for
investment purposes) will be invested in H2 Companies (as described
above).
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund will generally invest in all of the component
securities of the Index in the same approximate proportions as in the
Index. However, the Fund may use a “representative sampling” strategy, meaning
it may invest in a sample of the securities in the Index whose risk, return, and
other characteristics closely resemble the risk, return, and other
characteristics of the Index as a whole, when the Fund’s sub-adviser believes it
is in the best interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable, or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
To
the extent the Index concentrates (i.e., holds more than 25% of its total assets)
in the securities of a particular industry or group of related industries, the
Fund will concentrate its investments to approximately the same extent as the
Index. The Index is expected to be concentrated in hydrogen and fuel cell
companies.
The
Fund is considered to be non-diversified, which means that it may invest more of
its assets in the securities of a single issuer or a smaller number of issuers
than if it were a diversified fund.
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Funds.”
•Concentration
in Hydrogen and Fuel Cell Companies Risk. The
Fund’s investments will be concentrated in an industry or group of industries to
the extent that the Index is so concentrated. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries. The Index is expected
to be concentrated in hydrogen and fuel cell companies. Such companies may
depend largely on the availability of hydrogen gas, certain third-party key
suppliers for components in their products, and a small number of customers for
a significant portion of their business. Hydrogen and fuel cell companies are
also subject to risks related to the obsolescence of existing technology, short
product cycles, falling prices and profits, competition from new market
entrants, and general economic conditions that significantly affect the
hydrogen, fuel cell, and overall clean energy industry. Risks associated with
hazardous materials, fluctuations in energy prices and supply and demand of
alternative energy fuels, energy conservation, the success of exploration
projects and tax and other government regulations can also significantly affect
this industry. Shares in the companies involved in this industry may be
significantly more volatile than shares of companies operating in other, more
established industries.
•Currency
Exchange Rate Risk.
The Fund may invest a relatively large percentage of its assets in investments
denominated in non-U.S. currencies or in securities that provide exposure to
such currencies. Changes in currency exchange rates and the relative value of
non-U.S. currencies will affect the value of the Fund’s investment and the value
of your Shares. Currency exchange rates can be very volatile and can change
quickly and unpredictably. As a result, the value of an investment in the Fund
may change quickly and without warning and you may lose money.
•Emerging
Markets Risk.
Investments
in securities and instruments traded in developing or emerging markets, or that
provide exposure to such securities or markets, can involve additional risks
relating to political, economic, or regulatory conditions not associated with
investments in U.S. securities and instruments. For example, developing and
emerging markets may be subject to (i) greater market volatility,
(ii) lower trading volume and liquidity, (iii) greater social,
political and economic uncertainty, (iv) governmental controls on foreign
investments and limitations on repatriation of invested capital, (v) lower
disclosure, corporate governance, auditing and financial reporting standards,
(vi) fewer protections of property rights, (vii) fewer investor rights
and limited legal or practical remedies available to investors against emerging
market companies, (viii) restrictions on the transfer of securities or
currency, and (ix) settlement and trading practices that differ from those
in U.S. markets. Each of these factors may impact the ability of the Fund to
buy, sell or otherwise transfer securities, adversely affect the trading market
and price for Shares and cause the Fund to decline in value.
Additionally,
limitations on the availability of financial and business information about
companies in emerging markets may affect the Index Provider’s ability to
accurately determine the companies meeting the Index’s criteria.
•Equity
Market Risk.
The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from issuers. In addition,
local, regional or global events such as war, including Russia’s invasion of
Ukraine, acts of terrorism, spread of infectious diseases or other public health
issues, recessions, rising inflation, or other events could have a significant
negative impact on the Fund and its investments. For example, the global
pandemic caused by COVID-19, a novel coronavirus, and the aggressive responses
taken by many governments, including closing borders, restricting international
and domestic travel, and the imposition of prolonged quarantines or similar
restrictions, has had negative impacts, and in many cases severe impacts, on
markets worldwide. The COVID-19 pandemic has caused prolonged disruptions to the
normal business operations of companies around the world and the impact of such
disruptions is hard to predict. Such events may affect certain geographic
regions, countries, sectors and industries more significantly than others. Such
events could adversely affect the prices and liquidity of the Fund’s portfolio
securities or other instruments and could result in disruptions in the trading
markets.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, there are likely to be deviations
between the current price of a security and the security’s last quoted price
from the closed foreign market. This may result in premiums and discounts that
are greater than those experienced by domestic ETFs.
◦Trading. Although
Shares are listed for trading on NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares, and this could lead to differences between the market price of the
Shares and the underlying value of those Shares.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. Investments in non-U.S. securities also
may be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. These and other factors
can make investments in the Fund more volatile and potentially less liquid than
other types of investments.
•Geographic
Investment Risk.
To the extent the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region.
•Index
Methodology Risk. The
Index may not include all companies around the globe whose products or services
are predominantly tied to the development of quantum computing and machine
learning technologies because the Index includes only those companies meeting
the Index criteria. For example, companies that would otherwise be included in
the Index might be excluded from the Index if they omit discussion of their
quantum computing and machine learning technologies from descriptions of their
business in regulatory filings or otherwise keep such work hidden from public
(and the Index Provider’s) view.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Adviser relies upon the Index Provider and its
agents to compile, determine, maintain, construct, reconstitute, rebalance,
compose, calculate (or arrange for an agent to calculate), and disseminate the
Index accurately. Any losses or costs associated with errors made by the Index
Provider or its agents generally will be borne by the Fund and its
shareholders.
•Market
Capitalization Risk
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing. The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies, but they may also be subject to slower growth
than small-capitalization companies during times of economic expansion. The
securities of mid-capitalization companies generally trade in lower volumes and
are subject to greater and more unpredictable price changes than large
capitalization stocks or the stock market as a whole, but they may also be
nimbler and more responsive to new challenges than large-capitalization
companies. Some mid-capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization
companies.
◦Small-Capitalization
Investing. The
securities of small-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some small capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to larger capitalization companies. There
is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and earnings.
•Non-Diversification
Risk.
The Fund is considered to be non-diversified,
which means that it may invest more of its assets in the securities of a single
issuer or a smaller number of issuers than if it were a diversified fund. As a
result, the Fund may be more exposed to the risks associated with and
developments affecting an individual issuer or a smaller number of issuers than
a fund that invests more widely. This may increase the Fund’s volatility and
cause the performance of a relatively smaller number of issuers to have a
greater impact on the Fund’s performance. However, the Fund intends to satisfy
the diversification requirements for qualifying as a regulated investment
company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as
amended (the “Code”).
•Passive
Investment Risk.
The Fund is not actively managed, and its sub-adviser would not sell shares of
an equity security due to current or projected underperformance of a security,
industry, or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
or rebalancing of the Index in accordance with the Index methodology.
•Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those sectors.
◦Industrial
Sector Risk. The
industrial sector can be significantly affected by, among other things,
worldwide economic growth, supply and demand for specific products and services,
rapid technological developments, international political and economic
developments, environmental issues, tariffs and trade barriers, and tax and
governmental regulatory policies. As the
demand
for, or prices of, industrials increase, the value of the Fund’s investments
generally would be expected to also increase. Conversely, declines in the demand
for, or prices of, industrials generally would be expected to contribute to
declines in the value of such securities. Such declines may occur quickly and
without warning and may negatively impact the value of the Fund and your
investment.
•Securities
Lending Risk.
There are certain risks associated with securities lending, including the risk
that the borrower may fail to return the securities on a timely basis or even
the loss of rights in the collateral deposited by the borrower, if the borrower
should fail financially. The Fund could also lose money in the event of a
decline in the value of collateral provided for loaned securities or a decline
in the value of any investments made with cash collateral. As a result, the Fund
may lose money.
•Tax
Risk.
To qualify for the favorable tax treatment generally available to RICs, the Fund
must satisfy certain diversification requirements. In particular, among other
requirements, at the end of each quarter of the Fund’s taxable year, the Fund’s
assets must be diversified so that at least 50% of the value of the Fund’s total
assets is represented by cash and cash items, U.S. government securities,
securities of other RICs, and other securities, with such other securities
limited, in respect to any one issuer, to an amount not greater in value than 5%
of the value of the Fund’s total assets and to not more than 10% of the
outstanding voting securities of such issuer, including the equity securities of
a qualified publicly traded partnership. Given the concentration of the Index in
a relatively small number of securities, it may not always be possible for the
Fund to fully implement a replication strategy or a representative sampling
strategy while satisfying these diversification requirements. The Fund’s efforts
to satisfy the diversification requirements may affect the Fund’s execution of
its investment strategy and may cause the Fund’s return to deviate from that of
the Index, and the Fund’s efforts to replicate or represent the Index may cause
it inadvertently to fail to satisfy the diversification requirements. If the
Fund were to fail to satisfy the diversification requirements, it could incur
penalty taxes and be forced to dispose of certain assets, or it could fail to
qualify as a RIC. If the Fund were to fail to qualify as a RIC, it would be
taxed in the same manner as an ordinary corporation, and distributions to its
shareholders would not be deductible by the Fund in computing its taxable
income.
•Tracking
Error Risk.
As with all index funds, the performance of
the Fund and the Index may differ from each other for a variety of reasons. For
example, the Fund incurs operating expenses and portfolio transaction costs not
incurred by the Index. In addition, the Fund may not be fully invested in the
securities of the Index at all times or may hold securities not included in the
Index.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for the most
recent calendar year ended December 31. The table illustrates how the Fund’s
average annual returns for the 1-year and since inception periods compare with
those of a broad measure of market performance and the Index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.defianceetfs.com.
Calendar Year Total
Return
During the period of time shown
in the bar chart, the highest quarterly return
was 1.65% for the quarter ended December 31, 2022, and
the lowest quarterly return was
-35.07% for the quarter ended June 30,
2022.
Average
Annual Total Returns
(For
the Periods ended December 31, 2022)
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|
|
| |
Defiance
Next Gen H2 ETF |
1-Year |
Since
Inception
(3/9/2021) |
Return Before
Taxes |
-50.98% |
-44.41% |
Return After Taxes on
Distributions |
-50.98% |
-44.41% |
Return After Taxes on Distributions and
Sale of Shares |
-30.18% |
-31.71% |
BlueStar
Hydrogen & NextGen Fuel Cell Index
(reflects no deduction for
fees, expenses, or taxes) |
-50.99% |
-44.02% |
S&P
500 TR Index
(reflects
no deduction for fees, expenses, or taxes) |
-18.11% |
1.02% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts. In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Shares” may be
higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax deduction that benefits the
investor.
Portfolio
Management
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| |
Adviser |
Defiance
ETFs, LLC |
Sub-Adviser |
Penserra
Capital Management LLC (“Penserra” or the
“Sub-Adviser”) |
Portfolio
Managers |
Dustin
Lewellyn, CFA, Managing Director of Penserra; Ernesto Tong, CFA, Managing
Director of Penserra; and Anand Desai, Associate of Penserra have been
portfolio managers of the Fund since its inception in March
2021. |
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.defianceetfs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an
individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser or its affiliates may pay
Intermediaries for certain activities related to the Fund, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange traded products, including the Fund, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of Shares. These payments may create a conflict of
interest by influencing the Intermediary and your salesperson to recommend the
Fund over another investment. Any such arrangements do not result in increased
Fund expenses. Ask your salesperson or visit the Intermediary’s website for more
information.
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DEFIANCE
HOTEL,
AIRLINE,
AND
CRUISE
ETF |
Investment Objective
The Defiance Hotel, Airline,
and Cruise ETF (the “Fund” or the “Travel ETF”) seeks to track the total return
performance, before fees and expenses, of the BlueStar Global Hotels, Airlines,
and Cruises Index (the “Index”).
Fees and Expenses of the
Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
| |
Annual
Fund Operating Expenses (expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fees |
0.45% |
Distribution
and/or Service (12b-1) Fees |
0.00% |
Other
Expenses |
0.00% |
Total
Annual Fund Operating Expenses |
0.45% |
Expense Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or redeem all of
your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
|
|
|
|
|
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|
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| |
1 Year |
3
Years |
5
Years |
10
Years |
$46 |
$144 |
$252 |
$567 |
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal year ended
December 31, 2022, the Fund’s portfolio turnover rate was 32% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund uses a “passive management” (or indexing) approach to track the total
return performance, before fees and expenses, of the Index.
BlueStar
Global Hotels, Airlines, and Cruises Index
The
Index is a rules-based index that consists of globally-listed stocks of
companies that derive at least 50% of their revenues from the passenger airline,
hotel and resort, or cruise industries (“Travel Companies”) as determined by MV
Index Solutions GmbH (the “Index Provider”). The Index may include companies in
developed countries, including the United States, as well as emerging market
countries. To be added to the Index, an Index component must meet the Index’s
investibility and liquidity requirements, including a market capitalization
greater than or equal to US$150 million, and once included in the Index,
companies are eligible to remain in the Index at reduced investibility and
liquidity thresholds (collectively, the “Investibility
Requirements”).
At
the time of each semi-annual reconstitution of the Index, Travel Companies
meeting the Investibility Requirements are added to the Index based on their
free-float market capitalization (from largest to smallest) until their
aggregate free-float market capitalization is at least 95% of the free-float
market capitalization of all Travel Companies meeting the Investibility
Requirements with at least 25 Travel Companies. If such rules result in fewer
than 25 Index components, the largest remaining eligible companies are selected
until the number of components reaches 25.
At
the time of each quarterly rebalance of the Index, the Index components are
initially weighted by their float-adjusted market capitalization and separated
into three tiers: (i) hotels, (ii) airlines, and (iii) cruises. If the aggregate
weight of any tier would exceed 50%, then that tier’s weight is set to 50% and
the excess weight is distributed to the other two tiers on a pro-rata basis. If
the weight of any tier would be less than 15%, that tier’s weight is set to 15%
and the difference is subtracted from the other two tiers on a pro-rata basis.
Index components are then weighted based on their float-adjusted market
capitalization within each tier, subject to a maximum weight of 8% for any
individual security and adjustments downward based on certain liquidity
criteria. Excess weight resulting from such adjustments is redistributed among
the remaining constituents in the applicable tier.
The
Index is reconstituted semi-annually after the close of business on the third
Friday of each March and September and rebalanced quarterly on the third Friday
of each March, June, September, and December based on data as of the last
business day of the month prior to such reconstitution or rebalance.
As
of March 31, 2023, the Index was composed of 56 constituents, 20 of which were
listed on a non-U.S. exchange. The Index was established in 2021 and is owned
and maintained by the Index Provider. The Index Provider partnered with the
Fund’s investment adviser to co-develop the methodology used to determine the
securities included in the Index. The Index Provider is not affiliated with the
Fund or its investment adviser, sub-adviser, or distributor.
The
Fund’s Investment Strategy
Under
normal circumstances, the Fund invests at least 80% of its net assets (plus
borrowings for investment purposes) in Travel Companies. The foregoing policy
may be changed without shareholder approval upon 60 days’ written notice to
shareholders.
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning the Fund will generally invest in all of the component
securities of the Index in the same approximate proportions as in the
Index. However, the Fund may use a “representative sampling” strategy, meaning
it may invest in a sample of the securities in the Index whose risk, return, and
other characteristics closely resemble the risk, return, and other
characteristics of the Index as a whole, when the Fund’s sub-adviser believes it
is in the best interests of the Fund (e.g.,
when
replicating the Index involves practical difficulties or substantial costs, an
Index constituent becomes temporarily illiquid, unavailable, or less liquid, or
as a result of legal restrictions or limitations that apply to the Fund but not
to the Index).
To
the extent the Index concentrates (i.e., holds more than 25% of its total assets)
in the securities of a particular industry or group of related industries, the
Fund will concentrate its investments to approximately the same extent as the
Index. The Index, and consequently the Fund, is expected to be concentrated in
Travel Companies.
The
Fund is considered to be non-diversified, which means that it may invest more of
its assets in the securities of a single issuer or a smaller number of issuers
than if it were a diversified fund.
Principal Investment
Risks
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Funds.”
•Concentration
in Travel Companies Risk. The
Fund’s investments will be concentrated in an industry or group of industries to
the extent that the Index is so concentrated. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries. Travel Companies may
be adversely affected by a downturn in economic conditions that can result in
decreased demand for leisure and business travel. Due to the discretionary
nature of business and leisure travel spending, Travel Company revenues are
heavily influenced by the condition of the U.S. and foreign economies. Travel
Companies may also be significantly affected by changes in labor relations and
insurance costs. Travel Companies in the airline and cruise industries may also
be significantly affected by changes in fuel prices, which may be very volatile
and may not be able to be passed on to customers by increasing fares. Airline
companies may also be highly dependent on aircraft or related equipment from a
small number of suppliers, and consequently, issues affecting the availability,
reliability, safety, or longevity of such aircraft or equipment (e.g.,
the inability of a supplier to meet aircraft demand or the grounding of an
aircraft due to safety concerns) may have a significant effect on the operations
and profitability of airline companies. Companies in the hotel and lodging
industry, as well as the cruise industry, are subject to various risks that may
cause significant losses, which includes risks related to uncertainty in travel
(due to global, regional or local events), guest safety, security, and privacy,
changing consumer demands, shortages of experienced personnel, consumer
perception of risk (for example, due to terrorist attacks, pandemics, and
political or social violence), and changing or increased regulations.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and in many cases unprecedented volatility and
severe losses due to the global pandemic caused by COVID‑19, a novel
coronavirus. The pandemic has resulted in a wide range of social and economic
disruptions, including closed borders and reduced or prohibited domestic or
international travel. Some sectors of the economy and individual issuers,
including Travel Companies, have experienced particularly large losses. Such
disruptions may continue for an extended period of time or reoccur in the future
to a similar or greater extent.
In
addition, the Russian invasion of Ukraine and the resulting sanctions by Western
countries on Russia, as well as retaliatory measures by Russia, may have a
significant impact on Travel Companies. Bans on oil and energy imports from
Russia by certain Western countries may increase the costs of travel, including
jet fuel, gasoline, and fuel used in cruise liners. In addition, certain Western
nations have closed their airspace and ports to all Russian aircraft and
shipping vessels, respectively, and/or seized leased
aircraft
located in Western airports. In response, Russia has closed its airspace and
ports to certain Western aircraft and shipping vessels, and Russia has seized
certain leased aircraft located in Russia. These actions may lead to higher
ticket prices, flight and cruise cancellations, longer routes, fewer diversion
airports, a decreased demand for travel, and the permanent loss of property for
Western companies. These and any related events could significantly and
adversely affect the Fund’s performance and the value of an investment in the
Fund.
•Currency
Exchange Rate Risk.
The Fund may invest a relatively large percentage of its assets in investments
denominated in non-U.S. currencies or in securities that provide exposure to
such currencies. Changes in currency exchange rates and the relative value of
non-U.S. currencies will affect the value of the Fund’s investment and the value
of your Shares. Currency exchange rates can be very volatile and can change
quickly and unpredictably. As a result, the value of an investment in the Fund
may change quickly and without warning and you may lose money.
•Emerging
Markets Risk.
The Fund may invest in companies organized in emerging market nations.
Investments in securities and instruments traded in developing or emerging
markets, or that provide exposure to such securities or markets, can involve
additional risks relating to political, economic, or regulatory conditions not
associated with investments in U.S. securities and instruments or investments in
more developed international markets. Such conditions may impact the ability of
the Fund to buy, sell or otherwise transfer securities, adversely affect the
trading market and price for Shares and cause the Fund to decline in value.
◦Capital
Controls and Sanctions Risk.
Economic
conditions, such as volatile currency exchange rates and interest rates,
political events, military action and other conditions may, without prior
warning, lead to government intervention (including intervention by the U.S.
government with respect to foreign governments, economic sectors, foreign
companies and related securities and interests) and the imposition of capital
controls and/or sanctions, which may also include retaliatory actions of one
government against another government, such as seizure of assets. Capital
controls and/or sanctions include the prohibition of, or restrictions on, the
ability to transfer currency, securities or other assets. Levies may be placed
on profits repatriated by foreign entities (such as the Fund). Capital controls
and/or sanctions may also impact the ability of the Fund to buy, sell or
otherwise transfer securities or currency, negatively impact the value and/or
liquidity of such instruments, adversely affect the trading market and price for
Shares, and cause the Fund to decline in value.
◦Geopolitical
Risk. Some
countries and regions in which the Fund invests have experienced security
concerns, war or threats of war and aggression, terrorism, economic uncertainty,
natural and environmental disasters and/or systemic market dislocations that
have led, and in the future may lead, to increased short-term market volatility
and may have adverse long-term effects on the U.S. and world economies and
markets generally. Such geopolitical and other events may also disrupt
securities markets and, during such market disruptions, the Fund’s exposure to
the other risks described herein will likely increase. Each of the foregoing may
negatively impact the Fund’s investments.
•Equity
Market Risk.
The
equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests. Common
stocks are generally exposed to greater risk than other types of securities,
such as preferred stock and debt obligations, because common stockholders
generally have inferior rights to receive payment from issuers. In addition,
local, regional or global events such as war, including Russia’s invasion of
Ukraine, acts of terrorism, spread of infectious diseases or other public health
issues, recessions, rising inflation, or other events could have a significant
negative impact on the Fund and its investments. For example, the global
pandemic caused by COVID-19, a novel coronavirus, and the aggressive responses
taken by many governments, including closing borders, restricting international
and domestic travel, and the imposition of prolonged quarantines or similar
restrictions, has had negative impacts, and in many cases severe impacts, on
markets worldwide. The COVID-19 pandemic has caused prolonged disruptions to the
normal business operations of companies around the world and the impact of such
disruptions is hard to predict. Such events may affect certain geographic
regions, countries, sectors and industries more significantly than others. Such
events could adversely affect the prices and liquidity of the Fund’s portfolio
securities or other instruments and could result in disruptions in the trading
markets.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, there are likely to be deviations
between the current price of a security and the security’s last quoted price
from the closed foreign market. This may result in premiums and discounts that
are greater than those experienced by domestic ETFs.
◦Trading. Although
Shares are listed for trading on NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares, and this could lead to differences between the market price of the
Shares and the underlying value of those Shares.
•Foreign
Securities Risk.
Investments in non-U.S. securities involve certain risks that may not be present
with investments in U.S. securities. For example, investments in non-U.S.
securities may be subject to risk of loss due to foreign currency fluctuations
or to political or economic instability. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may be
subject to different accounting, auditing, financial reporting and investor
protection standards than U.S. issuers. Investments in non-U.S. securities may
be subject to withholding or other taxes and may be subject to additional
trading, settlement, custodial, and operational risks. With respect to certain
countries, there is the possibility of government intervention and expropriation
or nationalization of assets. Because legal systems differ, there is also the
possibility that it will be difficult to obtain or enforce legal judgments in
certain countries. Since foreign exchanges may be open on days when the Fund
does not price its Shares, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell the
Shares. Conversely, Shares may trade on days when foreign exchanges are closed.
Each of these factors can make investments in the Fund more volatile and
potentially less liquid than other types of investments.
•Geographic
Investment Risk.
To
the extent that the Fund invests a significant portion of its assets in the
securities of companies of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region. For example,
political and economic conditions and changes in regulatory, tax, or economic
policy in a country could significantly affect the market in that country and in
surrounding or related countries and have a negative impact on the Fund’s
performance. Currency developments or restrictions, political and social
instability, and changing economic conditions have resulted in significant
market volatility.
•Index
Methodology Risk. The
Index may not include all companies around the globe whose products or services
are predominantly tied to the development of quantum computing and machine
learning technologies because the Index includes only those companies meeting
the Index criteria. For example, companies that would otherwise be included in
the Index might be excluded from the Index if they omit discussion of their
quantum computing and machine learning technologies from descriptions of their
business in regulatory filings or otherwise keep such work hidden from public
(and the Index Provider’s) view.
•Index
Provider Risk. There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Adviser relies upon the Index Provider and its
agents to compile, determine, maintain, construct, reconstitute, rebalance,
compose, calculate (or arrange for an agent to calculate), and disseminate the
Index accurately. Any losses or costs associated with errors made by the Index
Provider or its agents generally will be borne by the Fund and its
shareholders.
•Market
Capitalization Risk
◦Large-Capitalization
Investing.
The securities of large-capitalization companies may be relatively mature
compared to smaller companies and therefore subject to slower growth during
times of economic expansion. Large-capitalization companies may also be unable
to respond quickly to new competitive challenges, such as changes in technology
and consumer tastes.
◦Mid-Capitalization
Investing. The
securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies, but they may also be subject to slower growth
than small-capitalization companies during times of economic expansion. The
securities of mid-capitalization companies generally trade in lower volumes and
are subject to greater and more unpredictable price changes than large
capitalization stocks or the stock market as a whole, but they may also be
nimbler and more responsive to new challenges than large-capitalization
companies. Some mid-capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization
companies.
◦Small-Capitalization
Investing. The
securities of small-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some small capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to larger capitalization companies. There
is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and earnings.
•Non-Diversification
Risk.
The Fund is considered to be non-diversified,
which means that it may invest more of its assets in the securities of a single
issuer or a smaller number of issuers than if it were a diversified fund. As a
result, the Fund may be more exposed to the risks associated with and
developments affecting an individual issuer or a smaller number of issuers than
a fund that invests more widely. This may increase the Fund’s volatility and
cause the performance of a relatively smaller number of issuers to have a
greater impact on the Fund’s performance. However, the Fund intends to satisfy
the diversification requirements for qualifying as a regulated investment
company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as
amended (the “Code”).
•Passive
Investment Risk.
The Fund is not actively managed, and its sub-adviser would not sell a security
held by the Fund due to current or projected underperformance of the security,
industry, or sector, unless that security is removed from the Index or the
selling of that security is otherwise required upon a reconstitution or
rebalancing of the Index in accordance with the Index methodology.
•Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those sectors.
◦Consumer
Discretionary Sector Risk.
The success of consumer product manufacturers and retailers is tied closely to
the performance of domestic and international economies, interest rates,
exchange rates, competition, consumer confidence, changes in demographics and
consumer preferences. Companies in the consumer discretionary sector depend
heavily on disposable household income and consumer spending, and such companies
may be strongly affected by social trends and marketing campaigns. These
companies may be subject to severe competition, which may have an adverse impact
on their profitability.
◦Industrial
Sector Risk. The
industrial sector can be significantly affected by, among other things,
worldwide economic growth, supply and demand for specific products and services,
rapid technological developments, international political and economic
developments, environmental issues, tariffs and trade barriers, and tax and
governmental regulatory policies. As the demand for, or prices of, industrials
increase, the value of the Fund’s investments generally would be expected to
also increase. Conversely, declines in the demand for, or prices of, industrials
generally would be expected to contribute to declines in the value of such
securities. Such declines may occur quickly and without warning and may
negatively impact the value of the Fund and your investment.
•Securities
Lending Risk.
There are certain risks associated with securities lending, including the risk
that the borrower may fail to return the securities on a timely basis or even
the loss of rights in the collateral deposited by the borrower, if the borrower
should fail financially. The Fund could also lose money in the event of a
decline in the value of collateral provided for loaned securities or a decline
in the value of any investments made with cash collateral. As a result, the Fund
may lose money.
•Tracking
Error Risk. As
with all index funds, the performance of the Fund and its Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for the most
recent calendar year ended December 31. The table illustrates how the Fund’s
average annual returns for the 1-year and since inception periods compare with
those of a broad measure of market performance and the Index. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.defianceetfs.com.
Calendar Year Total
Return
During the period of time shown
in the bar chart, the highest quarterly return
was 14.18% for the quarter ended December 31, 2022, and
the lowest quarterly return was
-30.42% for the quarter ended June 30,
2022.
Average
Annual Total Returns
(For
the Periods ended December 31, 2022)
|
|
|
|
|
|
|
| |
Defiance
Hotel, Airline, and Cruise ETF |
1-Year |
Since
Inception
(6/3/2021) |
Return Before
Taxes |
-23.80% |
-23.00% |
Return After Taxes on
Distributions |
-23.83% |
-23.02% |
Return After Taxes on Distributions and
Sale of Shares |
-14.07% |
-17.20% |
BlueStar
Global Hotels, Airlines, and Cruises Index
(reflects no deduction for
fees, expenses, or taxes) |
-23.62% |
-22.86% |
S&P
500 TR Index
(reflects
no deduction for fees, expenses, or taxes) |
-18.11% |
-3.97% |
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts. In certain cases, the figure
representing “Return After Taxes on Distributions and Sale of Shares” may be
higher than the other return figures for the same period. A higher after-tax
return results when a capital loss occurs upon redemption and provides an
assumed tax deduction that benefits the
investor.
Portfolio
Management
|
|
|
|
| |
Adviser |
Defiance
ETFs, LLC |
Sub-Adviser |
Penserra
Capital Management LLC (“Penserra” or the “Sub-Adviser”) |
Portfolio
Managers |
Dustin
Lewellyn, CFA, Managing Director of Penserra; Ernesto Tong, CFA, Managing
Director of Penserra; and Anand Desai, Associate of Penserra have been
portfolio managers of the Fund since its inception in June
2021. |
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at www.defianceetfs.com.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an
individual retirement account (“IRA”) or other tax-advantaged account.
Distributions on investments made through tax-deferred arrangements may be taxed
later upon withdrawal of assets from those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Fund’s investment adviser, sub-adviser
or their affiliates may pay Intermediaries for certain activities related to the
Fund, including participation in activities that are designed to make
Intermediaries more knowledgeable about exchange traded products, including the
Fund, or for other activities, such as marketing, educational training or other
initiatives related to the sale or promotion of Shares. These payments may
create a conflict of interest by influencing the Intermediary and your
salesperson to recommend the Fund over another investment. Any such arrangements
do not result in increased Fund expenses. Ask your salesperson or visit the
Intermediary’s website for more information.
ADDITIONAL
INFORMATION
ABOUT
THE
INDEXES
Each
Index is calculated by an independent third-party calculation agent that is not
affiliated with the applicable Fund or its Adviser, Sub-Adviser, distributor,
Index Provider, or any of their affiliates. Each Fund’s Index Provider is not
affiliated with the Funds’ Adviser, Sub-Adviser, administrator, or distributor.
Each Index was created for the purpose of being licensed for use by the
applicable Fund.
BlueStar
Quantum Computing and Machine Learning Index
The
BlueStar Quantum Computing and Machine Learning Index consists of a modified
equal-weighted portfolio of the stock of companies that derive at least 50% of
their annual revenue or operating activity from the development of quantum
computing and machine learning technology. “Quantum computing” refers to
hardware and software designed to take advantage of extremely fast computers
that leverage the field of quantum mechanics, a branch of physics dealing with
particles and the complexities in which they naturally behave. Quantum computers
are capable of processing multiple pieces of information at the smallest
particle level, as opposed to traditional computers, whose smallest unit of data
(a “bit”) can only be a zero or a one. “Machine learning” refers to technologies
that enable a computer to “learn” from data it has processed to incorporate
different assumptions or past experience into future computations or
analyses.
In
determining the companies included in the Index at the time of each rebalance
and reconstitution of the Index, the largest eligible companies by market
capitalization are included until 98.5% of the market capitalization of such
eligible companies is included in the Index, plus any companies already included
in the Index whose market capitalization is in the top 99.5% of the market
capitalization of eligible companies. In addition, all companies that meet the
Index’s eligibility requirements and have at least 50% of their annual revenue
or operating activity from quantum computing-related products or activities will
be selected. If such rules result in fewer than 70 Index components, the largest
remaining eligible companies are selected until the number of components reaches
70.
BlueStar
Global Hotels, Airlines, and Cruises Index
Companies
listed on the following exchanges are not eligible for inclusion in the Index:
Bahrain, China (domestic market), India, Kuwait, Oman, Qatar, Saudi Arabia,
United Arab Emirates, Russia, Turkey, Vietnam, or South American or Central
American exchanges.
At
the time of each semi-annual reconstitution of the Index, Travel Companies
meeting the Investibility Requirements are added to the Index based on their
free-float market capitalization (from largest to smallest) until their
aggregate free-float market capitalization is at least 95% of the free-float
market capitalization of all Travel Companies meeting the Investibility
Requirements with at least 25 Travel Companies. If such rules result in fewer
than 25 Index components, the largest remaining eligible companies are selected
until the number of components reaches 25.
Companies
included in the Index may earn a substantial portion of the revenue from a
country or countries other than the country in which such company’s shares are
listed.
ADDITIONAL
INFORMATION
ABOUT
THE
FUNDS
Investment
Objectives
Each
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
Principal
Investment Risks
This
section provides additional information regarding the principal risks described
in each Fund Summary. As in each Fund Summary, the principal risks below are
presented in alphabetical order to facilitate finding particular risks and
comparing them with other funds. Each risk described below is considered a
“principal risk” of investing in the applicable Fund, regardless of the order in
which it appears. Each of the factors below could have a negative impact on the
applicable Fund’s performance and trading prices.
•5G
Investment Risk
(Connectivity ETF only). Companies
across a wide variety of industries, primarily in the technology sector, are
exploring the possible applications of 5G technologies. The extent of such
technologies’ versatility has not yet been fully explored. Consequently, the
Fund’s holdings may include equity securities of operating companies that focus
on or have exposure to a wide variety of industries, and the economic fortunes
of certain companies held by the Fund may not be significantly tied to such
technologies. Currently, there are few public companies for which 5G
technologies represent an attributable and significant revenue or profit stream,
and such technologies may not ultimately have a material effect on the economic
returns of companies in which the Fund invests.
•Capital
Controls and Sanctions Risk (Quantum
ETF, Connectivity ETF, and Travel ETF only).
Economic
conditions, such as volatile currency exchange rates and interest rates,
political events, military action and other conditions, may, without prior
warning, lead to government intervention (including intervention by the U.S.
government with respect to foreign governments, economic sectors, foreign
companies and related securities and interests) and the imposition of capital
controls and/or sanctions, which may also include retaliatory actions of one
government against another government, such as seizure of assets. Capital
controls
and/or sanctions include the prohibition of, or restrictions on, the ability to
transfer currency, securities or other assets. Levies may be placed on profits
repatriated by foreign entities (such as the Fund). Capital controls and/or
sanctions may also impact the ability of the Fund to buy, sell or otherwise
transfer securities or currency, negatively impact the value and/or liquidity of
such instruments, adversely affect the trading market and price for Shares, and
cause the Fund to decline in value.
•Concentration
Risk (Quantum
ETF and Connectivity ETF only).
The
Fund’s investments will be concentrated in an industry or group of industries to
the extent that the Index is so concentrated. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries.
•Concentration
in Hydrogen and Fuel Cell Companies Risk
(Next
Gen H2 ETF only).
The
Fund’s investments will be concentrated in an industry or group of industries to
the extent that the Index is so concentrated. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries. The Index is expected
to be concentrated in hydrogen and fuel cell companies. Such companies may
depend largely on the availability of hydrogen gas, and an insufficient supply
of hydrogen could negatively affect their sales and the deployment of their
products and services. They may also be dependent on certain third-party key
suppliers for components in their products, and any decline in availability of
such components or increase in their cost could negatively affect the
profitability of such companies. These companies may also be dependent on a
small number of customers for a significant portion of their business, and their
business may require significant capital to continue operating or expand, which
may create additional risks.
Hydrogen
and fuel cell companies are also subject to risks related to the obsolescence of
existing technology, short product cycles, falling prices and profits,
competition from new market entrants, and general economic conditions that
significantly affect the hydrogen, fuel cell, and overall clean energy industry.
In addition, intense competition and legislation resulting in more strict
government regulations and enforcement policies and specific expenditures for
cleanup efforts can affect this industry. Risks associated with hazardous
materials, fluctuations in energy prices and supply and demand of alternative
energy fuels, energy conservation, the success of exploration projects and tax
and other government regulations can also significantly affect this industry.
Also, supply of, and demand for, specific products or services, the supply of,
and demand for, oil and gas, the price of oil and gas, production spending,
government regulation, world events and economic conditions may affect the
industry. Shares in the companies involved in this industry may be significantly
more volatile than shares of companies operating in other, more established
industries. Currently, certain methods used to value hydrogen and fuel cell
companies, particularly those companies that have not yet traded profitably,
have not been in widespread use for a significant period of time. As a result,
the use of these valuation methods may serve to increase further the volatility
of the share prices of these companies.
•Concentration
in Travel Companies Risk (Travel
ETF only). The
Fund’s investments will be concentrated in an industry or group of industries to
the extent that the Index is so concentrated. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries. Travel Companies may
be adversely affected by a downturn in economic conditions that can result in
decreased demand for leisure and business travel. Due to the discretionary
nature of business and leisure travel spending, Travel Company revenues are
heavily influenced by the condition of the U.S. and foreign economies. Travel
Companies may also be significantly affected by changes in labor relations and
insurance costs. Travel Companies in the airline and cruise industries may also
be significantly affected by changes in fuel prices, which may be very volatile
and may not be able to be passed on to customers by increasing fares. Airline
companies may also be highly dependent on aircraft or related equipment from a
small number of suppliers, and consequently, issues affecting the availability,
reliability, safety, or longevity of such aircraft or equipment (e.g.,
the inability of a supplier to meet aircraft demand or the grounding of an
aircraft due to safety concerns) may have a significant effect on the operations
and profitability of airline companies. Companies in the hotel and lodging
industry, as well as the cruise industry, are subject to various risks that may
cause significant losses, which includes risks related to uncertainty in travel
(due to global, regional or local events), guest safety, security, and privacy,
changing consumer demands, shortages of experienced personnel, consumer
perception of risk (for example, due to terrorist attacks, pandemics, and
political or social violence), and changing or increased regulations.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID‑19, a novel
coronavirus. The pandemic has resulted in a wide range of social and economic
disruptions, including closed borders and reduced or prohibited domestic or
international travel. Some sectors of the economy and individual issuers,
including Travel Companies, have experienced particularly large losses. Such
disruptions may continue for an extended period of time or reoccur in the future
to a similar or greater extent.
In
addition, the Russian invasion of Ukraine and the resulting Russian sanctions by
Western countries, including the United States, Canada, European Union, Japan,
United Kingdom, and others, as well as retaliatory measures by Russia, may have
a significant impact on Travel Companies. Bans on oil and energy imports from
Russia, as well as commitments to phase out such imports in the near future, by
certain Western countries may increase the costs of travel, including jet fuel,
gasoline and fuel used by cruise liners. In addition, certain Western nations
have closed their airspace and ports to all Russian aircraft and shipping
vessels, respectively. Also, Western companies have issued a recall of aircraft
leased to Russian airlines and, in certain cases, have seized such aircraft
located in Western airports. In response, Russia has closed its airspace and
ports to certain Western aircraft and shipping vessels, and Russia has seized
certain leased aircraft and equipment located in Russia. These actions may
lead
to higher ticket prices, flight and cruise cancellations, longer routes, fewer
diversion airports (i.e.,
airports along a route where a plane can land safely if it is diverted), a
decreased demand for travel, and the permanent loss of property for Western
companies that leased aircraft to Russian airlines. Increased costs and reduced
supply of certain metals exported from Russia, such as titanium, may also slow
the production of aircraft and engines, making it more difficult for airline
companies to increase passenger capacity and repair or upgrade their aircraft.
These and any related events could significantly and adversely affect the Fund’s
performance and the value of an investment in the Fund.
•Currency
Exchange Rate Risk
(Quantum
ETF, Next Gen H2 ETF, and Travel ETF only).
Changes in currency exchange rates and the relative value of non-U.S. currencies
will affect the value of a Fund’s investments and the value of your Shares.
Because a Fund’s NAV is determined on the basis of U.S. dollars, the U.S. dollar
value of your investment in a Fund may go down if the value of the local
currency of the non-U.S. markets in which a Fund invests depreciates against the
U.S. dollar. This is true even if the local currency value of securities in a
Fund’s holdings goes up. Conversely, the dollar value of your investment in a
Fund may go up if the value of the local currency appreciates against the U.S.
dollar. The value of the U.S. dollar measured against other currencies is
influenced by a variety of factors. These factors include: national debt levels
and trade deficits, changes in balances of payments and trade, domestic and
foreign interest and inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual or potential
government intervention, and global energy prices. Political instability, the
possibility of government intervention and restrictive or opaque business and
investment policies may also reduce the value of a country’s currency.
Government monetary policies and the buying or selling of currency by a
country’s government may also influence exchange rates. Currency exchange rates
can be very volatile and can change quickly and unpredictably. As a result, the
value of an investment in a Fund may change quickly and without warning, and you
may lose money.
•Depositary
Receipt Risk (Quantum
ETF and Connectivity ETF only).
Each Fund may hold the securities of non-U.S. companies in the form of American
Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”). ADRs are
negotiable certificates issued by a U.S. financial institution that represent a
specified number of shares in a foreign stock and trade on a U.S. national
securities exchange, such as the New York Stock Exchange. Sponsored ADRs are
issued with the support of the issuer of the foreign stock underlying the ADRs
and carry all of the rights of common shares, including voting rights. GDRs are
similar to ADRs but may be issued in bearer form and are typically offered for
sale globally and held by a foreign branch of an international bank. The
underlying issuers of certain depositary receipts, particularly unsponsored or
unregistered depositary receipts, are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities. Issuers of
unsponsored depositary receipts are not contractually obligated to disclose
material information in the U.S. and, therefore, such information may not
correlate to the market value of the unsponsored depositary receipt. The
underlying securities of the ADRs and GDRs in a Fund’s portfolio are usually
denominated or quoted in currencies other than the U.S. Dollar. As a result,
changes in foreign currency exchange rates may affect the value of a Fund’s
portfolio. In addition, because the underlying securities of ADRs and GDRs trade
on foreign exchanges at times when the U.S. markets are not open for trading,
the value of the securities underlying the ADRs and GDRs may change materially
at times when the U.S. markets are not open for trading, regardless of whether
there is an active U.S. market for Shares.
•Emerging
Markets Risk (Quantum
ETF, Next Gen H2 ETF, and Travel ETF only).
Investments
in securities and instruments traded in developing or emerging markets, or that
provide exposure to such securities or markets, can involve additional risks
relating to political, economic, or regulatory conditions not associated with
investments in U.S. securities and instruments. For example, developing and
emerging markets may be subject to (i) greater market volatility, (ii) lower
trading volume and liquidity, (iii) greater social, political and economic
uncertainty, (iv) governmental controls on foreign investments and limitations
on repatriation of invested capital, (v) lower disclosure, corporate
governance, auditing and financial reporting standards, (vi) fewer protections
of property rights, (vii) restrictions on the transfer of securities or
currency, and (viii) settlement and trading practices that differ from those in
U.S. markets. Each of these factors may impact the ability of a Fund to buy,
sell or otherwise transfer securities, adversely affect the trading market and
price for Shares and cause a Fund to decline in value.
Additionally,
limitations on the availability of financial and business information about
companies in emerging markets may affect the Index Provider’s ability to
accurately determine the companies meeting the Index’s criteria.
•Emerging
Technologies Investment Risk
(Quantum
ETF and Connectivity ETF only).
Each Fund invests primarily to gain exposure to emerging technologies, such as
5G technologies and quantum computing, in accordance with the Fund’s Index.
Companies across a wide variety of industries, primarily in the technology
sector, are exploring the possible applications of these technologies. The
extent of such technologies’ versatility has not yet been fully explored.
Consequently, each Fund’s holdings may include equity securities of operating
companies that focus on or have exposure to a wide variety of industries, and
the economic fortunes of certain companies held by the Fund may not be
significantly tied to such technologies. Currently, there are few public
companies for which these emerging technologies represent an attributable and
significant revenue or profit stream, and such technologies may not ultimately
have a material effect on the economic returns of companies in which a Fund
invests.
•Equity
Market Risk.
Common stocks are susceptible to general stock market fluctuations and to
volatile increases and decreases in value as market confidence in and
perceptions of their issuers change. These investor perceptions are based on
various and unpredictable factors including: expectations regarding government,
economic, monetary and fiscal policies; inflation and interest rates; economic
expansion or contraction; local, regional or global events
such
as acts of terrorism or war, including Russia’s
invasion
of Ukraine; and global or regional political, economic, public health, and
banking crises. If you held common stock, or common stock equivalents, of any
given issuer, you would generally be exposed to greater risk than if you held
preferred stocks and debt obligations of the issuer because common stockholders,
or holders of equivalent interests, generally have inferior rights to receive
payments from issuers in comparison with the rights of preferred stockholders,
bondholders, and other creditors of such issuers.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. The pandemic resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, and supply chain disruptions affecting the United
States and many other countries. Some sectors of the economy and individual
issuers have experienced particularly large losses as a result of these
disruptions, and such disruptions may continue for an extended period of time or
reoccur in the future to a similar or greater extent. In response, the U.S.
government and the Federal Reserve have taken extraordinary actions to support
the domestic economy and financial markets. Many countries, including the U.S.,
are subject to few restrictions related to the spread of COVID-19. It is unknown
how long circumstances related to the pandemic will persist, whether they will
reoccur in the future, whether efforts to support the economy and financial
markets will be successful, and what additional implications may follow from the
pandemic. The impact of these events and other epidemics or pandemics in the
future could adversely affect Fund performance.
•ETF
Risks. Each
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration Risk.
Each
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the
business or significantly reduce their business activities and no other entities
step forward to perform their functions.
◦Costs
of Buying or Selling Shares. Investors
buying or selling Shares in the secondary market will pay brokerage commissions
or other charges imposed by brokers, as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant proportional cost
for investors seeking to buy or sell relatively small amounts of Shares. In
addition, secondary market investors will also incur the cost of the difference
between the price at which an investor is willing to buy Shares (the “bid”
price) and the price at which an investor is willing to sell Shares (the “ask”
price). This difference in bid and ask prices is often referred to as the
“spread” or “bid/ask spread.” The bid/ask spread varies over time for Shares
based on trading volume and market liquidity, and is generally lower if Shares
have more trading volume and market liquidity and higher if Shares have little
trading volume and market liquidity. Further, a relatively small investor base
in a Fund, asset swings in a Fund and/or increased market volatility may cause
increased bid/ask spreads. Due to the costs of buying or selling Shares,
including bid/ask spreads, frequent trading of Shares may significantly reduce
investment results and an investment in Shares may not be advisable for
investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of the Shares will
approximate a Fund’s NAV, there may be times when the market price and the NAV
vary significantly, including due to supply and demand of a Fund’s Shares and/or
during periods of market volatility. Thus, you may pay more (or less) than NAV
intra-day when you buy Shares in the secondary market, and you may receive more
(or less) than NAV when you sell those Shares in the secondary market. This risk
is heightened in times of market volatility, periods of steep market declines,
and periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant. To the
extent securities held by a Fund
may
trade on foreign exchanges that are closed when the Fund’s primary listing
exchange is open, such Fund is likely to experience premiums and discounts
greater than those of domestic ETFs.
◦Trading. Although
Shares are listed for trading on the applicable Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500 Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of a Fund’s underlying
portfolio holdings, which can be significantly less liquid than
Shares.
•Foreign
Securities Risk.
Investments
in non-U.S. securities involve certain risks that may not be present with
investments in U.S. securities. For example, investments in non-U.S. securities
may be subject to risk of loss due to foreign currency fluctuations or to
political
or economic instability. There may be less information publicly available about
a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may be subject to
different accounting, auditing, financial reporting and investor protection
standards than U.S. issuers. Investments in non-U.S. securities may be subject
to withholding or other taxes and may be subject to additional trading,
settlement, custodial, and operational risks. With respect to certain countries,
there is the possibility of government intervention and expropriation or
nationalization of assets. Because legal systems differ, there is also the
possibility that it will be difficult to obtain or enforce legal judgments in
certain countries. Since foreign exchanges may be open on days when a Fund does
not price its shares, the value of the securities in a Fund’s portfolio may
change on days when shareholders will not be able to purchase or sell such
Fund’s shares. Conversely, Shares may trade on days when foreign exchanges are
closed. Each of these factors can make investments in a Fund more volatile and
potentially less liquid than other types of investments.
•Geographic
Investment Risk (Quantum
ETF, Next Gen H2 ETF, and Travel ETF only).
To the extent that a Fund’s Index invests a significant portion of its assets in
the securities of companies of a single country or region, it is more likely to
be impacted by events or conditions affecting that country or region. For
example, political and economic conditions and changes in regulatory, tax, or
economic policy in a country could significantly affect the market in that
country and in surrounding or related countries and have a negative impact on a
Fund’s performance. Currency developments or restrictions, political and social
instability, and changing economic conditions have resulted in significant
market volatility.
•Geopolitical
Risk (Quantum
ETF and Travel ETF only).
Some countries and regions in which a Fund invests have experienced security
concerns, war or threats of war and aggression, terrorism, economic uncertainty,
natural and environmental disasters and/or systemic market dislocations that
have led, and in the future may lead, to increased short-term market volatility
and may have adverse long-term effects on the U.S. and world economies and
markets generally. Such geopolitical and other events may also disrupt
securities markets and, during such market disruptions, a Fund’s exposure to the
other risks described herein will likely increase. Each of the foregoing may
negatively impact a Fund’s investments.
•Index
Methodology Risk.
An Index may not include all companies around the globe whose products or
services are predominantly tied to the theme of the applicable Index because the
Index includes only those companies meeting the Index criteria. For example,
companies that would otherwise be included in the Index might be excluded from
the Index if they omit discussion of their emerging technologies from
descriptions of their business in regulatory filings or otherwise keep such work
hidden from public (and the Index Provider’s) view.
•Index
Provider Risk.
There
is no assurance that the Index Provider, or any agents that act on its behalf,
will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Adviser relies upon the Index Provider and its
agents to compile, determine, maintain, construct, reconstitute, rebalance,
compose, calculate (or arrange for an agent to calculate), and disseminate the
Index accurately. Any losses or costs associated with errors made by the Index
Provider or its agents generally will be borne by the Fund and its shareholders.
To correct any such error, the Index Provider or its agents may carry out an
unscheduled rebalance of the Index or other modification of Index constituents
or weightings. When the Fund in turn rebalances its portfolio, any transaction
costs and market exposure arising from such portfolio rebalancing will be borne
by the Fund and its shareholders. Unscheduled rebalances also expose the Fund to
additional tracking error risk. Errors in respect of the quality, accuracy, and
completeness of the data used to compile the Index may occur from time to time
and may not be identified and corrected by the Index Provider for a period of
time or at all, particularly where the Index is less commonly used as a
benchmark by funds or advisors. For example, during a period where the Index
contains incorrect constituents, the Fund tracking the Index would have market
exposure to such constituents and would be underexposed to the Index’s other
constituents. Such errors may negatively impact the Fund and its shareholders.
The Index Provider and its agents rely on various sources of information to
assess the criteria of issuers included in the Index, including information that
may be based on assumptions and estimates. Neither the Fund nor the Adviser can
offer assurances that the Index’s calculation methodology or sources of
information will provide an accurate assessment of included
issuers.
•Market
Capitalization Risk.
◦Large-Capitalization
Investing. The
securities of large-capitalization companies may be relatively mature compared
to smaller companies and therefore subject to slower growth during times of
economic expansion. Large-capitalization companies may also be unable to respond
quickly to new competitive challenges, such as changes in technology and
consumer tastes.
◦Mid-Capitalization
Investing.
The securities of mid-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
large-capitalization companies. The securities of mid-capitalization companies
generally trade in lower volumes and are subject to greater and more
unpredictable price changes than large capitalization stocks or the stock market
as a whole. Some medium capitalization companies have limited product lines,
markets, financial resources, and management personnel and tend to concentrate
on fewer geographical markets relative to large-capitalization companies.
◦Small-Capitalization
Investing.
The securities of small-capitalization companies may be more vulnerable to
adverse issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes
than
larger capitalization stocks or the stock market as a whole. Some small
capitalization companies have limited product lines, markets, and financial and
managerial resources and tend to concentrate on fewer geographical markets
relative to larger capitalization companies. There is typically less publicly
available information concerning smaller-capitalization companies than for
larger, more established companies. Small-capitalization companies also may be
particularly sensitive to changes in interest rates, government regulation,
borrowing costs and earnings.
•Non-Diversification
Risk
(Next
Gen H2 ETF and Travel ETF only).
Each
Fund is considered to be non-diversified, which means that it may invest more of
its assets in the securities of a single issuer or a smaller number of issuers
than if it were a diversified fund. As a result, a Fund may be more exposed to
the risks associated with and developments affecting an individual issuer or a
smaller number of issuers than a fund that invests more widely. This may
increase a Fund’s volatility and cause the performance of a relatively smaller
number of issuers to have a greater impact on such Fund’s
performance.
However,
the Fund intends to satisfy the asset diversification requirements for
qualifying as a RIC under Subchapter M of the Code.
•Passive
Investment Risk.
Each Fund invests in the securities included in, or representative of, its Index
regardless of their investment merit. Each Fund does not attempt to outperform
its Index or take defensive positions in declining markets. As a result, a
Fund’s performance may be adversely affected by a general decline in the market
segments relating to its Index. The returns from the types of securities in
which a Fund invests may underperform returns from the various general
securities markets or different asset classes. This may cause a Fund to
underperform other investment vehicles that invest in different asset classes.
Different types of securities (for example, large-, mid- and
small-capitalization stocks) tend to go through cycles of doing better – or
worse – than the general securities markets. In the past, these periods have
lasted for as long as several years.
•Quantum
Computing and Machine Learning Investment Risk
(Quantum
ETF only).
Companies across a wide variety of industries, primarily in the technology
sector, are exploring the possible applications of quantum computing and machine
learning technologies. The extent of such technologies’ versatility has not yet
been fully explored. Consequently, the Fund’s holdings may include equity
securities of operating companies that focus on or have exposure to a wide
variety of industries, and the economic fortunes of certain companies held by
the Fund may not be significantly tied to such technologies. Currently, there
are few public companies for which quantum computing and machine learning
technologies represent an attributable and significant revenue or profit stream,
and such technologies may not ultimately have a material effect on the economic
returns of companies in which the Fund invests.
•REIT
Investment Risk
(Connectivity
ETF only). Investments
in REITs involve unique risks. REITs may have limited financial resources, may
trade less frequently and in limited volume, and may be more volatile than other
securities. In addition, to the extent the Fund holds interests in REITs, it is
expected that investors in the Fund will bear two layers of asset-based
management fees and expenses (directly at the Fund level and indirectly at the
REIT level). The risks of investing in REITs include certain risks associated
with the direct ownership of real estate and the real estate industry in
general. These include risks related to general, regional and local economic
conditions; fluctuations in interest rates and property tax rates; shifts in
zoning laws, environmental regulations and other governmental action such as the
exercise of eminent domain; cash flow dependency; increased operating expenses;
lack of availability of mortgage funds; losses due to natural disasters;
overbuilding; losses due to casualty or condemnation; changes in property values
and rental rates; and other factors.
In
addition to these risks, residential/diversified REITs and commercial equity
REITs may be affected by changes in the value of the underlying property owned
by the trusts, while mortgage REITs may be affected by the quality of any credit
extended. Further, REITs are dependent upon management skills and generally may
not be diversified. REITs are also subject to heavy cash flow dependency,
defaults by borrowers and self-liquidation. In addition, REITs could possibly
fail to qualify for the beneficial tax treatment available to REITs under the
Code, or to maintain their exemptions from registration under the Investment
Company Act of 1940, as amended (the “1940 Act”). The Fund expects that
dividends received from a REIT and distributed to Fund shareholders generally
will be taxable to the shareholder as ordinary income. The above factors may
also adversely affect a borrower’s or a lessee’s ability to meet its obligations
to the REIT. In the event of a default by a borrower or lessee, the REIT may
experience delays in enforcing its rights as a mortgagee or lessor and may incur
substantial costs associated with protecting investments.
•Sector
Risk. To
the extent a Fund invests more heavily in particular sectors of the economy, its
performance will be especially sensitive to developments that significantly
affect those sectors.
◦Communications
Services Sector Risk (Connectivity ETF only). The
Fund is generally expected to invest significantly in companies in the
communications services sector, and therefore the performance of the Fund could
be negatively impacted by events affecting this sector. Communications services
companies are subject to extensive government regulation. The costs of complying
with governmental regulations, delays or failure to receive required regulatory
approvals, or the enactment of new adverse regulatory requirements may adversely
affect the business of such companies. Companies in the communications services
sector can also be significantly affected by intense competition, including
competition with alternative technologies such as wireless communications
(including with 5G and other technologies), product compatibility, consumer
preferences, rapid product obsolescence, and research and development of new
products. Technological innovations may make the products and services of such
companies obsolete.
◦Consumer
Discretionary Sector Risk (Travel ETF only).
The success of consumer product manufacturers and retailers is tied closely to
the performance of domestic and international economies, interest rates,
exchange rates, competition, consumer confidence, changes in demographics and
consumer preferences. Companies in the consumer discretionary sector depend
heavily on disposable household income and consumer spending, and such companies
may be strongly affected by social trends and marketing campaigns. These
companies may be subject to severe competition, which may have an adverse impact
on their profitability.
◦Industrial
Sector Risk (Next Gen H2 ETF and Travel ETF only). The
industrial sector can be significantly affected by, among other things,
worldwide economic growth, supply and demand for specific products and services,
rapid technological developments, international political and economic
developments, environmental issues, tariffs and trade barriers, and tax and
governmental regulatory policies. As the demand for, or prices of, industrials
increase, the value of the Fund’s investments generally would be expected to
also increase. Conversely, declines in the demand for, or prices of, industrials
generally would be expected to contribute to declines in the value of such
securities. Such declines may occur quickly and without warning and may
negatively impact the value of the Fund and your investment.
◦Information
Technology Sector Risk
(Quantum
ETF and Connectivity ETF only). A
Fund is generally expected to invest significantly in companies in the
information technology sector, and therefore the performance of a Fund could be
negatively impacted by events affecting this sector.
Market
or economic factors impacting information technology companies and companies
that rely heavily on technological advances could have a significant effect on
the value of the Fund’s investments. The value of stocks of information
technology companies and companies that rely heavily on technology is
particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition, both domestically
and internationally, including competition from foreign competitors with lower
production costs. Stocks of information technology companies and companies that
rely heavily on technology, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall market. Information
technology companies are heavily dependent on patent and intellectual property
rights, the loss or impairment of which may adversely affect profitability.
Additionally, companies in the technology sector may face dramatic and often
unpredictable changes in growth rates and competition for the services of
qualified personnel.
Information
technology companies and companies that rely heavily on technology may also be
prone to operational and information security risks resulting from cyber-attacks
and/or technological malfunctions. Cyber-attacks include, among others, stealing
or corrupting data maintained online or digitally, preventing legitimate users
from accessing information or services on a website, releasing confidential
information without authorization, and causing operational disruption. In
general, cyber-attacks are deliberate, but unintentional events may have similar
effects. Successful cyber-attacks against, or security breakdowns of, a company
included in the Index may result in material adverse consequences for such
company, as well as other companies included in the Index, and may cause a
Fund’s investments to lose value.
•Securities
Lending Risk.
There
are certain risks associated with securities lending, including the risk that
the borrower may fail to return the securities on a timely basis or even the
loss of rights in the collateral deposited by the borrower, if the borrower
should fail financially. As a result, the Fund may lose money. The Fund could
also lose money in the event of a decline in the value of collateral provided
for loaned securities or a decline in the value of any investments made with
cash collateral. These events could also trigger adverse tax consequences for
the Fund.
•Tax
Risk (Next
Gen H2 ETF only).
To qualify for the favorable tax treatment generally available to RICs, the Fund
must satisfy certain diversification requirements. In particular, among other
requirements, at the end of each quarter of the Fund’s taxable year, the Fund’s
assets must be diversified so that at least 50% of the value of the Fund’s total
assets is represented by cash and cash items, U.S. government securities,
securities of other RICs, and other securities, with such other securities
limited, in respect to any one issuer, to an amount not greater in value than 5%
of the value of the Fund’s total assets and to not more than 10% of the
outstanding voting securities of such issuer, including the equity securities of
a qualified publicly traded partnership. Given the concentration of the Index in
a relatively small number of securities, it may not always be possible for the
Fund to fully implement a replication strategy or a representative sampling
strategy while satisfying these diversification requirements. The Fund’s efforts
to satisfy the diversification requirements may affect the Fund’s execution of
its investment strategy and may cause the Fund’s return to deviate from that of
the Index, and the Fund’s efforts to replicate or represent the Index may cause
it inadvertently to fail to satisfy the diversification requirements. If the
Fund were to fail to satisfy the diversification requirements, it could incur
penalty taxes and be forced to dispose of certain assets, or it could fail to
qualify as a RIC. If the Fund were to fail to qualify as a RIC, it would be
taxed in the same manner as an ordinary corporation, and distributions to its
shareholders would not be deductible by the Fund in computing its taxable
income.
•Tracking
Error Risk.
As
with all index funds, the performance of each Fund and its respective Index may
differ from each other for a variety of reasons. For example, the Funds incur
operating expenses and portfolio transaction costs not incurred by an Index. In
addition, the Funds may not be fully invested in the securities of their
respective Index at all times or may hold securities not included in the Index.
A Fund may use a representative sampling strategy to achieve its investment
objective, if the Fund’s Sub-Adviser believes it is in the best interest of the
Fund, which generally can be expected to produce a greater non-correlation
risk.
PORTFOLIO
HOLDINGS
INFORMATION
Information
about the Funds’ daily portfolio holdings is available at www.defianceetfs.com.
A description of the Funds’ policies and procedures with respect to the
disclosure of the Funds’ portfolio holdings is available in the Funds’ Statement
of Additional Information (“SAI”).
MANAGEMENT
Investment
Adviser
Defiance
ETFs, LLC serves as the investment adviser and has overall responsibility for
the general management and administration of the Funds. The Adviser is located
at 78 SW 7th Street, 9th Floor, Miami, Florida, 33130, and is an SEC-registered
investment adviser. The Adviser was founded in 2018 and arranges for
sub-advisory, transfer agency, custody, fund administration, and all other
related services necessary for the Funds to operate. The Adviser provides
investment advisory services to ETFs, including the Funds.
The
Adviser provides oversight of the Funds’ Sub-Adviser, monitoring of the
Sub-Adviser’s buying and selling of securities for the Funds, and review of the
Sub-Adviser’s performance.
For
the services it provides to the Funds, each Fund pays the Adviser a unified
management fee, which is calculated daily and paid monthly, at an annual rate
based on the applicable Fund’s average daily net assets as set forth in the
table below.
|
|
|
|
| |
Name
of Fund |
Management
Fee |
Quantum
ETF |
0.40% |
Connectivity
ETF |
0.30% |
| |
Next
Gen H2 ETF |
0.30% |
Travel
ETF |
0.45% |
Under
the Investment Advisory Agreement (the “Advisory Agreement”), the Adviser has
agreed to pay all expenses of the Funds, except for interest charges on any
borrowings, dividends and other expenses on securities sold short, taxes,
brokerage commissions and other expenses incurred in placing orders for the
purchase and sale of securities and other investment instruments, acquired fund
fees and expenses, accrued deferred tax liability, extraordinary expenses,
distribution fees and expenses paid by the Funds under any distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act, and the unified management
fee payable to the Adviser. The Adviser, in turn, compensates the Sub-Adviser
from the management fee it receives.
The
basis for the Board of Trustees’ approval of the Advisory Agreement for the
Quantum ETF and the Connectivity ETF is available in the Funds’ Semi-Annual
Report
to Shareholders for the period ended June 30, 2022. The basis for the Board
of Trustees’ approval of the Advisory Agreement for the Next Gen H2 ETF and the
Travel ETF is available in the Funds’ Semi-Annual
Report
to Shareholders for the period ended June 30, 2021.
Sub-Adviser
The
Adviser has retained Penserra Capital Management LLC to serve as sub-adviser for
the Funds. The Sub-Adviser is responsible for the day-to-day management of the
Funds. The Sub-Adviser is a registered investment adviser and New York limited
liability company whose principal office is located at 4 Orinda Way, Suite
100-A, Orinda, California 94563. The Sub-Adviser provides investment management
services to investment companies and other investment advisers. The Sub-Adviser
is responsible for trading portfolio securities for the Funds, including
selecting broker-dealers to execute purchase and sale transactions or in
connection with any rebalancing or reconstitution of the Index, subject to the
supervision of the Adviser and the Board.
For
its services, the Sub-Adviser is paid a fee by the Adviser, which fee is
calculated daily and paid monthly, at an annual rate based on the aggregate
average daily net assets for each fund advised by the Adviser, including the
Funds, and for which the Sub-Adviser serves as sub-adviser, as follows: 0.05% on
the first $500 million in aggregate net assets; 0.04% on the next $500 million
in aggregate net assets; 0.03% on the next $1 billion in aggregate net
assets; and 0.02% on aggregate net assets in excess of $2 billion.
The
basis for the Board of Trustees’ approval of the Sub-Advisory Agreement for the
Quantum ETF, the Connectivity ETF, and the Next Gen H2 ETF is available in the
Funds’ Semi-Annual
Report
to Shareholders for the period ended June 30, 2022. The basis for the Board
of Trustees’ approval of the Sub-Advisory Agreement for the Travel ETF is
available in the Fund’s Semi-Annual
Report
to Shareholders for the period ended June 30, 2021.
Portfolio
Managers
The
Funds are managed by Penserra’s portfolio management team. The individual
members of the team responsible for the day to day management of the Funds’
portfolios are listed below.
Dustin
Lewellyn, CFA, Managing Director of the Sub-Adviser, Ernesto Tong, CFA, Managing
Director of the Sub-Adviser and Anand Desai, Director of the Sub-Adviser, are
the Funds’ portfolio managers (the “Portfolio Managers”) and are jointly
responsible for the day to day management of the Funds. The Portfolio Managers
are responsible for various functions related to portfolio
management,
including, but not limited to, investing cash inflows, implementing investment
strategy, researching and reviewing investment strategy, and overseeing members
of their portfolio management team with more limited responsibilities.
Mr.
Lewellyn has been a Managing Director with the Sub-Adviser since 2012. He was
President and Founder of Golden Gate Investment Consulting LLC from 2011 through
2015. Prior to that, Mr. Lewellyn was a managing director at Charles Schwab
Investment Management, Inc. (“CSIM”), which he joined in 2009, and head of
portfolio management for Schwab ETFs. Prior to joining CSIM, he worked for two
years as director of ETF product management and development at a major financial
institution focused on asset and wealth management. Prior to that, he was a
portfolio manager for institutional clients at a financial services firm for
three years. In addition, he held roles in portfolio accounting and portfolio
management at a large asset management firm for more than 6 years.
Mr.
Tong has been a Managing Director with the Sub-Adviser since 2015. Prior to
joining Penserra, Mr. Tong spent seven years as a vice president at Blackrock,
where he was a portfolio manager for a number of the iShares ETFs, and prior to
that, he spent two years in the firm’s index research group.
Mr.
Desai has been a Director with the Sub-Adviser since 2023 and was a Senior Vice
President with the Sub-Adviser since 2021 and was previously an Associate since
2015. Prior to joining Penserra, Mr. Desai spent five years as a portfolio fund
accountant at State Street.
The
Funds’ SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of shares in each Fund.
HOW
TO
BUY
AND
SELL
SHARES
Each
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from a Fund, and only APs may tender their Shares for
redemption directly to a Fund, at NAV. APs must be a member or participant of a
clearing agency registered with the SEC and must execute a Participant Agreement
that has been agreed to by the Distributor (defined below), and that has been
accepted by a Fund’s transfer agent, with respect to purchases and redemptions
of Creation Units. Once created, Shares trade in the secondary market in
quantities less than a Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Shares are listed for trading on the secondary market on the Exchange and can be
bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the spread between the
bid and the offer price in the secondary market on each leg of a round trip
(purchase and sale) transaction. In addition, because secondary market
transactions occur at market prices, you may pay more than NAV when you buy
Shares and receive less than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Funds impose no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and redemptions by APs, who are the only parties that may purchase or redeem
Shares directly with a Fund, are an essential part of the ETF process and help
keep Share trading prices in line with NAV. As such, the Funds accommodate
frequent purchases and redemptions by APs. However, the Board has also
determined that frequent purchases and redemptions for cash may increase
tracking error and portfolio transaction costs and may lead to the realization
of capital gains. To minimize these potential consequences of frequent purchases
and redemptions, the Funds employ fair value pricing and may impose transaction
fees on purchases and redemptions of Creation Units to cover the custodial and
other costs incurred by a Fund in effecting trades. In addition, the Funds and
the Adviser reserve the right to reject any purchase order at any
time.
Determination
of Net Asset Value
Each
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day
the NYSE is open for business. The NAV for each Fund is calculated by dividing
the Fund’s net assets by its Shares outstanding.
In
calculating its NAV, each Fund generally values its assets on the basis of
market quotations, last sale prices, or estimates of value furnished by a
pricing service or brokers who make markets in such instruments. In particular,
each Fund generally values equity securities traded on any recognized U.S. or
non-U.S. exchange at the last sale price or official closing price on the
exchange or system on which they are principally traded. If such information is
not available for a security held by a Fund or is determined to be unreliable,
the security will be valued by the Adviser at fair value pursuant to procedures
established by the Adviser and approved by the Board (as described
below).
Fair
Value Pricing
The
Adviser has been designated by the Board as the valuation designee for the Funds
pursuant to Rule 2a-5 under the 1940 Act. In its capacity as valuation designee,
the Adviser has adopted procedures and methodologies to fair value Fund
securities whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) a security has
been de-listed or has had its trading halted or suspended; (ii) a security’s
primary pricing source is unable or unwilling to provide a price; (iii) a
security’s primary trading market is closed during regular market hours; or (iv)
a security’s value is materially affected by events occurring after the close of
the security’s primary trading market. The Board has appointed the Adviser as
each Fund’s valuation designee to perform all fair valuations of the Funds’
portfolio investments, subject to the Board’s oversight. Accordingly, the
Adviser has established procedures for its fair valuation of each Fund’s
portfolio investments. Generally, when fair valuing a security held by a Fund,
the Adviser will take into account all reasonably available information that may
be relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in accordance
with the fair value methodologies established by the Adviser. Due to the
subjective and variable nature of determining the fair value of a security or
other investment, there can be no assurance that the Adviser’s fair value will
match or closely correlate to any market quotation that subsequently becomes
available or the price quoted or published by other sources. In addition, a Fund
may not be able to obtain the fair value assigned to the security upon the sale
of such security.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Funds. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Funds is available through certain broker-dealers.
If you are interested in enrolling in householding and receiving a single copy
of prospectuses and other shareholder documents, please contact your
broker-dealer. If you are currently enrolled in householding and wish to change
your householding status, please contact your broker-dealer.
Investments
by Registered Investment Companies
Section 12(d)(1)
of the 1940 Act restricts investments by registered investment companies in the
securities of other investment companies, including Shares. Registered
investment companies are permitted to invest in a Fund beyond the limits set
forth in section 12(d)(1) subject to certain terms and conditions set forth in
Rule 12d1-4 under the 1940 Act, including that such investment companies enter
into an agreement with a Fund.
DIVIDENDS,
DISTRIBUTIONS,
AND
TAXES
Dividends
and Distributions
Each
Fund intends to pay out dividends, if any, and distribute any net realized
capital gains to its shareholders at least annually. Each Fund will declare and
pay capital gain distributions in cash. Distributions in cash may be reinvested
automatically in additional whole Shares only if the broker through whom you
purchased Shares makes such option available. Your broker is responsible for
distributing the income and capital gain distributions to you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Funds. Your investment
in a Fund may have other tax implications. Please consult your tax advisor about
the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to Shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to Shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
Each
Fund has elected (or will elect) and intends to continue to qualify each year
for treatment as a RIC. If a Fund meets certain minimum distribution
requirements, a RIC is not subject to tax at the fund level on income and gains
from investments that are timely
distributed
to shareholders. However, a Fund’s failure to qualify as a RIC or to meet
minimum distribution requirements would result (if certain relief provisions
were not available) in fund-level taxation and, consequently, a reduction in
income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA plan, you need to be aware of the possible tax
consequences when a Fund makes distributions, when you sell your Shares listed
on the Exchange; and when you purchase or redeem Creation Units (APs
only).
Taxes
on Distributions
Each
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long a Fund owned the investments that generated them, rather
than how long a shareholder has owned his or her Shares. Sales of assets held by
a Fund for more than one year generally result in long-term capital gains and
losses, and sales of assets held by a Fund for one year or less generally result
in short-term capital gains and losses. Distributions of a Fund’s net capital
gain (the excess of net long-term capital gains over net short-term capital
losses) that are reported by such Fund as capital gain dividends (“Capital Gain
Dividends”) will be taxable as long-term capital gains, which for non-corporate
shareholders are subject to tax at reduced rates of up to 20% (lower rates apply
to individuals in lower tax brackets). Distributions of short-term capital gain
will generally be taxable as ordinary income. Dividends and distributions are
generally taxable to you whether you receive them in cash or reinvest them in
additional Shares.
Distributions
reported by the Funds as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Funds received in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market. Corporate shareholders may be
entitled to a dividends received deduction for the portion of dividends they
receive from a Fund that are attributable to dividends received by the Fund from
U.S. corporations, subject to certain limitations. Dividends received by a Fund
from a REIT may be treated as qualified dividend income generally only to the
extent so reported by such REIT. A Fund’s investment strategy may limit the
amount of distributions eligible for treatment as qualified dividend income in
the hands of non-corporate shareholders or eligible for the dividends received
deduction for corporate shareholders.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from a Fund.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by a Fund before your
investment (and thus were included in the Shares’ NAV when you purchased your
Shares).
You
may wish to avoid investing in a Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your investment.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
a Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
your Shares generally are not subject to U.S. taxation, unless you are a
nonresident alien individual who is physically present in the U.S. for 183 days
or more per year. A Fund may, under certain circumstances, report all or a
portion of a dividend as an “interest-related dividend” or a “short-term capital
gain dividend,” which would generally be exempt from this 30% U.S. withholding
tax, provided certain other requirements are met. Different tax consequences may
result if you are a foreign shareholder engaged in a trade or business within
the United States or if a tax treaty applies.
Each
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage (currently 24%) of the taxable distributions and sale proceeds paid
to any shareholder who fails to properly furnish a correct taxpayer
identification number, who has underreported dividend or interest income, or who
fails to certify that the shareholder is not subject to such withholding.
Taxes
When Shares are Sold on the Exchange
Any
capital gain or loss realized upon a sale of Shares generally is treated as a
long-term capital gain or loss if Shares have been held for more than one year
and as a short-term capital gain or loss if Shares have been held for one year
or less. However, any capital loss on a sale of Shares held for six months or
less is treated as long-term capital loss to the extent of Capital Gain
Dividends paid with respect to such Shares. Any loss realized on a sale will be
disallowed to the extent Shares of a Fund are acquired, including through
reinvestment of dividends, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of Shares. The ability to deduct capital
losses may be limited.
The
cost basis of Shares of a Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your
account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market their
holdings), or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax advisor with
respect to whether wash sale rules apply and when a loss might be deductible.
Each
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. Such Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause such Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, such Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
Net
Investment Income Tax
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
Investments
in Complex Securities (Connectivity
ETF and the Travel ETF only)
Each
Fund may invest in REITs. “Qualified REIT dividends” (i.e.,
ordinary REIT dividends other than capital gain dividends and portions of REIT
dividends designated as qualified dividend income eligible for capital gain tax
rates) are eligible for a 20% deduction by non-corporate taxpayers. This
deduction, if allowed in full, equates to a maximum effective tax rate of 29.6%
(37% top rate applied to income after 20% deduction). Distributions by the Funds
to their shareholders that are attributable to qualified REIT dividends received
by the Funds and which the Funds properly reports as “section 199A dividends,”
are treated as “qualified REIT dividends” in the hands of non-corporate
shareholders. A section 199A dividend is treated as a qualified REIT dividend
only if the shareholder receiving such dividend holds the dividend-paying RIC
shares for at least 46 days of the 91-day period beginning 45 days before the
shares become ex-dividend, and is not under an obligation to make related
payments with respect to a position in substantially similar or related
property. The Funds are permitted to report such part of their dividends as
section 199A dividends as are eligible, but is not required to do
so.
REITs
in which the Funds invest often do not provide complete and final tax
information to the Funds until after the time that the Funds issue a tax
reporting statement. As a result, the Funds may at times find it necessary to
reclassify the amount and character of their distributions to you after it
issues your tax reporting statement. When such reclassification is necessary,
the Funds (or their administrative agent) will send you a corrected, final Form
1099-DIV to reflect the reclassified information. If you receive a corrected
Form 1099-DIV, use the information on this corrected form, and not the
information on the previously issued tax reporting statement, in completing your
tax returns.
Foreign
Taxes
To
the extent a Fund invests in foreign securities, it may be subject to foreign
withholding taxes with respect to dividends or interest such Fund received from
sources in foreign countries. If more than 50% of the total assets of a Fund at
the close of its taxable year consists of stock or securities of foreign
corporations, the Fund will be eligible to and intends to file an election with
the IRS that may enable shareholders, in effect, to receive either the benefit
of a foreign tax credit, or a deduction from such taxes, with respect to any
foreign and U.S. possessions income taxes paid by the Fund, subject to certain
limitations. If a Fund makes the election, the Fund (or its administrative
agent) will report annually to its shareholders the respective amounts per share
of the Fund’s income from sources within, and taxes paid to, foreign countries
and U.S. possessions.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in each Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax advisor about the
potential tax consequences of an investment in Shares
under
all applicable tax laws. For more information, please see the section entitled
“Federal Income Taxes” in the SAI.
DISTRIBUTION
The
Distributor, Foreside Fund Services, LLC, a wholly-owned subsidiary of Foreside
Financial Group, LLC (d/b/a ACA Group), is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Funds on an agency basis
and does not maintain a secondary market in Shares. The Distributor has no role
in determining the policies of the Funds or the securities that are purchased or
sold by the Funds. The Distributor’s principal address is Three Canal Plaza,
Suite 100, Portland, Maine 04101.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, each Fund is authorized
to pay an amount up to 0.25% of its average daily net assets each year for
certain distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged in the
future, because the fees are paid out of Fund assets, over time these fees will
increase the cost of your investment and may cost you more than certain other
types of sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares traded on the Exchange at a price above (i.e., at
a premium) or below (i.e., at
a discount) the NAV per Share is available for the Quantum ETF, the Connectivity
ETF, the Next Gen H2 ETF, and the Travel ETF free of charge, on the Funds’
website at www.defianceetfs.com.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange makes no
representation or warranty, express or implied, to the owners of the Shares or
any member of the public regarding the ability of the Funds to track the total
return performance of their respective Index or the ability of the Indexes
identified herein to track the performance of their constituent securities. The
Exchange is not responsible for, nor has it participated in, the determination
of the compilation or the calculation of the Indexes, nor in the determination
of the timing of, prices of, or quantities of the Shares to be issued, nor in
the determination or calculation of the equation by which the Shares are
redeemable. The Exchange has no obligation or liability to owners of the Shares
in connection with the administration, marketing, or trading of the Shares.
The
Exchange does not guarantee the accuracy and/or the completeness of the Indexes
or the data included therein. The Exchange makes no warranty, express or
implied, as to results to be obtained by the Funds, owners of the Shares, or any
other person or entity from the use of the Indexes or the data included therein.
The Exchange makes no express or implied warranties, and hereby expressly
disclaims all warranties of merchantability or fitness for a particular purpose
with respect to the Indexes or the data included therein. Without limiting any
of the foregoing, in no event shall the Exchange have any liability for any lost
profits or indirect, punitive, special, or consequential damages even if
notified of the possibility thereof.
The
Adviser, the Sub-Adviser, each Index Provider, each Exchange, and each Fund make
no representation or warranty, express or implied, to the owners of Shares or
any member of the public regarding the advisability of investing in securities
generally or in a Fund particularly or the ability of an Index to track general
stock market performance. Each Index Provider has no obligation to take the
needs of the applicable Funds or the owners of Shares into consideration in
determining, composing, or calculating an Index. Each Index Provider is not
responsible for, and has not participated in, the determination of the timing
of, prices of, or quantities of Shares to be issued or in the determination or
calculation of the equation by which Shares are redeemable. The Funds, the
Adviser, and the Sub-Adviser do not guarantee the accuracy, completeness, or
performance of an Index or the data included therein and shall have no liability
in connection with the Index or Index calculation. The Index Calculation Agent
maintains and calculates the Index used by each Fund. The Index Calculation
Agent shall have no liability for any errors or omissions in calculating an
Index.
FINANCIAL
HIGHLIGHTS
The
financial highlights tables are intended to help you understand each Fund’s
financial performance for each Fund’s five most recent fiscal years (or the life
of the Fund, if shorter). Certain information reflects financial results for a
single Share. 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). This information has been
audited by Cohen & Company, Ltd., the Funds’ independent registered public
accounting firm, whose report, along with the Funds’ financial statements, is
included in the Funds’ annual report, which is available upon request.
Defiance
Quantum ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year/period
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| 2021 |
| 2020 |
| 2019 |
|
2018(1) |
|
Net
asset value, beginning of year/period |
$ |
55.76 |
|
| $ |
41.44 |
|
| $ |
29.37 |
|
| $ |
19.96 |
|
| $ |
25.00 |
| |
|
|
|
|
|
|
|
|
|
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
|
|
|
|
| |
Net
investment income (loss)(2) |
0.56 |
|
| 0.31 |
|
| 0.22 |
|
| 0.22 |
|
| 0.05 |
| |
Net
realized and unrealized gain (loss) on investments |
(16.48) |
|
| 14.26 |
|
| 12.06 |
|
| 9.36 |
|
| (5.05) |
| |
Total
from investment operations |
(15.92) |
|
| 14.57 |
|
| 12.28 |
|
| 9.58 |
|
| (5.00) |
| |
|
|
|
|
|
|
|
|
|
| |
DISTRIBUTIONS
TO SHAREHOLDERS: |
|
|
|
|
|
|
|
|
| |
Distributions
from: |
|
|
|
|
|
|
|
|
| |
Net
investment income |
(0.57) |
|
| (0.24) |
|
| (0.19) |
|
| (0.18) |
|
| (0.03) |
| |
Realized
gains |
— |
|
| (0.03) |
|
| (0.02) |
|
| — |
|
| — |
| |
Tax
return of capital to shareholders |
— |
|
| — |
|
| — |
|
| — |
|
| (0.01) |
| |
Total
distributions to shareholders |
(0.57) |
|
| (0.27) |
|
| (0.21) |
|
| (0.18) |
|
| (0.04) |
| |
|
|
|
|
|
|
|
|
|
| |
CAPITAL
SHARE TRANSACTIONS: |
|
|
|
|
|
|
|
|
| |
Transaction
fees |
0.00 |
|
(3) |
0.02 |
|
| 0.00 |
|
(3) |
0.01 |
|
| 0.00 |
|
(3) |
|
|
|
|
|
|
|
|
|
| |
Net
asset value, end of year/period |
$ |
39.27 |
|
| $ |
55.76 |
|
| $ |
41.44 |
|
| $ |
29.37 |
|
| $ |
19.96 |
| |
|
|
|
|
|
|
|
|
|
| |
Total
return |
-28.56 |
% |
| 35.27 |
% |
| 42.01 |
% |
| 48.20 |
% |
| -20.01 |
% |
(4) |
|
|
|
|
|
|
|
|
|
| |
SUPPLEMENTAL
DATA: |
|
|
|
|
|
|
|
|
| |
Net
assets at end of year/period (000’s) |
$ |
102,108 |
|
| $ |
178,418 |
|
| $ |
55,941 |
|
| $ |
20,558 |
|
| $ |
2,993 |
| |
|
|
|
|
|
|
|
|
|
| |
RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
|
|
|
| |
Expenses
to average net assets |
0.40 |
% |
| 0.40 |
% |
| 0.40 |
% |
| 0.40 |
% |
(5) |
0.65 |
% |
(6) |
Net
investment income (loss) to average net assets |
1.25 |
% |
| 0.61 |
% |
| 0.71 |
% |
| 0.87 |
% |
| 0.70 |
% |
(6) |
Portfolio
turnover rate(7) |
24 |
% |
| 35 |
% |
| 40 |
% |
| 45 |
% |
| 22 |
% |
(4) |
(1)
Commencement of operations on September 4, 2018.
(2)
Calculated based on average shares outstanding during the
year/period.
(3)
Less than $0.005.
(4)
Not annualized.
(5)
Effective January 14, 2019, the Adviser reduced its management fee from 0.65% to
0.40%.
(6)
Annualized.
(7)
Excludes the impact of in-kind transactions.
Defiance
Next Gen Connectivity ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Year
Ended December 31, |
| Period
Ended December 31, |
|
| 2022 |
| 2021 |
| 2020 |
|
2019(1) |
|
Net
asset value, beginning of year/period |
$ |
41.68 |
|
| $ |
33.60 |
|
| $ |
26.20 |
|
| $ |
25.00 |
| |
|
|
|
|
|
|
|
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
|
|
| |
Net
investment income (loss)(2) |
0.46 |
|
| 0.48 |
|
| 0.38 |
|
| 0.25 |
| |
Net
realized and unrealized gain (loss) on investments |
(11.77) |
|
| 8.09 |
|
| 7.35 |
|
| 1.15 |
| |
Total
from investment operations |
(11.31) |
|
| 8.57 |
|
| 7.73 |
|
| 1.40 |
| |
|
|
|
|
|
|
|
| |
DISTRIBUTIONS
TO SHAREHOLDERS: |
|
|
|
|
|
|
| |
Distributions
from: |
|
|
|
|
|
|
| |
Net
investment income |
(0.49) |
|
| (0.47) |
|
| (0.31) |
|
| (0.20) |
| |
Tax
return of capital to shareholders |
— |
|
| (0.02) |
|
| (0.02) |
|
| — |
| |
Total
distributions to shareholders |
(0.49) |
|
| (0.49) |
|
| (0.33) |
|
| (0.20) |
| |
|
|
|
|
|
|
|
| |
CAPITAL
SHARE TRANSACTIONS: |
|
|
|
|
|
|
| |
Transaction
fees |
0.00 |
|
(3) |
— |
|
| 0.00 |
|
(3) |
— |
| |
|
|
|
|
|
|
|
| |
Net
asset value, end of year/period |
$ |
29.88 |
|
| $ |
41.68 |
|
| $ |
33.60 |
|
| $ |
26.20 |
| |
|
|
|
|
|
|
|
| |
Total
return |
-27.20 |
% |
| 25.63 |
% |
| 29.77 |
% |
| 5.64 |
% |
(4) |
|
|
|
|
|
|
|
| |
SUPPLEMENTAL
DATA: |
|
|
|
|
|
|
| |
Net
assets at end of year/period (000’s) |
$ |
690,178 |
|
| $ |
1,383,735 |
|
| $ |
890,292 |
|
| $ |
162,461 |
| |
|
|
|
|
|
|
|
| |
RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
|
| |
Expenses
to average net assets |
0.30 |
% |
| 0.30 |
% |
| 0.30 |
% |
| 0.30 |
% |
(5) |
Net
investment income (loss) to average net assets |
1.36 |
% |
| 1.29 |
% |
| 1.35 |
% |
| 1.22 |
% |
(5) |
Portfolio
turnover rate
(6) |
25 |
% |
| 24 |
% |
| 28 |
% |
| 54 |
% |
(4) |
|
|
|
|
|
|
|
| |
(1)
Commencement of operations on March 4, 2019.
(2)
Calculated based on average shares outstanding during the year/period.
(3)
Less than $0.005.
(4)
Not
annualized.
(5)
Annualized.
(6)
Excludes the impact of in-kind transactions.
Defiance
Next Gen H2 ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| Year
Ended December 31, 2022 |
|
Period
Ended
December
31, 2021(1) |
|
Net
asset value, beginning of year/period |
|
|
|
| $ |
19.10 |
|
| $ |
27.16 |
| |
|
|
|
|
|
|
|
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
|
|
| |
Net
investment income (loss)(2) |
|
|
|
| (0.01) |
|
| (0.03) |
| |
Net
realized and unrealized gain (loss) on investments |
|
|
|
| (9.74) |
|
| (8.04) |
| |
Total
from investment operations |
|
|
|
| (9.75) |
|
| (8.07) |
| |
|
|
|
|
|
|
|
| |
DISTRIBUTIONS
TO SHAREHOLDERS: |
|
|
|
|
|
|
| |
Distributions
from: |
|
|
|
|
|
|
| |
Net
investment income |
|
|
|
|
(0.00) |
(3) |
— |
| |
Tax
return of capital to shareholders |
|
|
|
| — |
|
|
(0.00) |
(3) |
Total
distributions to shareholders |
|
|
|
|
(0.00) |
(3) |
(0.00) |
(3) |
|
|
|
|
|
|
|
| |
CAPITAL
SHARE TRANSACTIONS: |
|
|
|
|
|
|
| |
Transaction
fees |
|
|
|
| 0.01 |
|
| 0.01 |
| |
|
|
|
|
|
|
|
| |
Net
asset value, end of year/period |
|
|
|
| $ |
9.36 |
|
| $ |
19.10 |
| |
|
|
|
|
|
|
|
| |
Total
return |
|
|
|
| -50.98 |
% |
| -29.68 |
% |
(4) |
|
|
|
|
|
|
|
| |
SUPPLEMENTAL
DATA: |
|
|
|
|
|
|
| |
Net
assets at end of year/period (000’s) |
|
|
|
| $ |
37,909 |
|
| $ |
65,883 |
| |
|
|
|
|
|
|
|
| |
RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
|
| |
Expenses
to average net assets |
|
|
|
| 0.30 |
% |
| 0.30 |
% |
(5) |
Net
investment income (loss) to average net assets |
|
|
|
| -0.05 |
% |
| -0.15 |
% |
(5) |
Portfolio
turnover rate(6) |
|
|
|
| 81 |
% |
| 69 |
% |
(4) |
(1)
Commencement of operations on March 9, 2021.
(2)
Calculated based on average shares outstanding during the
year/period.
(3)
Less than $0.005.
(4)
Not annualized.
(5)
Annualized.
(6)
Excludes the impact of in-kind transactions.
Defiance
Hotel, Airline, and Cruise ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| Year
Ended December 31, 2022 |
|
Period
Ended
December
31, 2021(1) |
|
Net
asset value, beginning of year/period |
|
|
|
| $ |
21.16 |
|
| $ |
24.36 |
| |
|
|
|
|
|
|
|
| |
INCOME
(LOSS) FROM INVESTMENT OPERATIONS: |
|
|
|
|
|
|
| |
Net
investment income (loss)(2) |
|
|
|
| 0.02 |
|
| (0.05) |
| |
Net
realized and unrealized gain (loss) on investments |
|
|
|
| (5.05) |
|
| (3.15) |
| |
Total
from investment operations |
|
|
|
| (5.03) |
|
| (3.20) |
| |
|
|
|
|
|
|
|
| |
DISTRIBUTIONS
TO SHAREHOLDERS: |
|
|
|
|
|
|
| |
Distributions
from: |
|
|
|
|
|
|
| |
Net
investment income |
|
|
|
| (0.02) |
|
| — |
| |
Total
distributions to shareholders |
|
|
|
| (0.02) |
|
| — |
| |
|
|
|
|
|
|
|
| |
CAPITAL
SHARE TRANSACTIONS: |
|
|
|
|
|
|
| |
Transaction
fees |
|
|
|
| 0.00 |
|
(3) |
0.00 |
|
(3) |
|
|
|
|
|
|
|
| |
Net
asset value, end of year/period |
|
|
|
| $ |
16.11 |
|
| $ |
21.16 |
| |
|
|
|
|
|
|
|
| |
Total
return |
|
|
|
| -23.80 |
% |
| -13.12 |
% |
(4) |
|
|
|
|
|
|
|
| |
SUPPLEMENTAL
DATA: |
|
|
|
|
|
|
| |
Net
assets at end of year/period (000’s) |
|
|
|
| $ |
49,523 |
|
| $ |
22,751 |
| |
|
|
|
|
|
|
|
| |
RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
|
| |
Expenses
to average net assets |
|
|
|
| 0.45 |
% |
| 0.45 |
% |
(5) |
Net
investment income (loss) to average net assets |
|
|
|
| 0.10 |
% |
| -0.37 |
% |
(5) |
Portfolio
turnover rate(6) |
|
|
|
| 32 |
% |
| 26 |
% |
(4) |
(1)
Commencement of operations on June 3, 2021.
(2)
Calculated based on average shares outstanding during the year/period.
(3)
Less than $0.005.
(4)
Not annualized.
(5)
Annualized.
(6)
Excludes the impact of in-kind transactions.
DEFIANCE
ETFS
|
|
|
|
|
|
|
|
|
|
| |
Adviser |
Defiance
ETFs, LLC
78
SW 7th Street, 9th Floor
Miami,
Florida, 33130 |
Sub-Adviser |
Penserra
Capital Management LLC
4
Orinda Way, Suite 100-A
Orinda,
California 94563 |
Index
Providers |
BlueStar
Global Investors, LLC
d/b/a
BlueStar Indexes
1350
Avenue of the Americas, 4th Floor New York, New York 10019
MV
Index Solutions GmbH
Kreuznacher
St. 30
Frankfurt
am Main, Hessen 60486
Germany |
Transfer
Agent,
Index
Receipt
Agent,
and
Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Distributor |
Foreside
Fund Services, LLC
Three
Canal Plaza
Portland,
Maine 04101 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Independent
Registered
Public
Accounting
Firm |
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
DC 20004-2541 |
Investors
may find more information about the Funds in the following documents:
Statement
of Additional Information: The
Funds’ SAI provides additional details about the investments of the Funds and
certain other additional information. A current SAI dated April 30, 2023,
as supplemented from time to time, is on file with the SEC and is herein
incorporated by reference into this Prospectus. It is legally considered a part
of this Prospectus.
Annual/Semi-Annual
Reports: Additional
information about the investments for each Fund is available in the Funds’
annual report to shareholders. In the annual
report,
you will find a discussion of the market conditions and investment strategies
that significantly affected each Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Funds by contacting the Funds at Defiance ETFs, c/o
U.S. Bank Global Fund Services, P.O. Box 701, Milwaukee, Wisconsin 53201-0701 or
calling 1-833-333-9383.
Shareholder
reports and other information about the Funds are available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Funds’ Internet website at www.defianceetfs.com;
or
(SEC
Investment Company Act File No. 811-22668)