ck0001432353-20221031
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Global
X Social Media ETF
NASDAQ:
SOCL |
Global
X Nasdaq 100®
Covered Call & Growth ETF
NASDAQ:
QYLG |
Global
X Lithium & Battery Tech ETF
NYSE
Arca: LIT |
Global
X S&P 500®
Covered Call & Growth ETF
NYSE
Arca: XYLG |
Global
X Renewable Energy Producers ETF
NASDAQ:
RNRG |
Global
X Russell 2000 Covered Call & Growth ETF
NYSE
Arca: RYLG |
Global
X Disruptive Materials ETF
NASDAQ:
DMAT |
Global
X Financials Covered Call & Growth ETF
NYSE
Arca: FYLG |
Global
X E-commerce ETF
NASDAQ:
EBIZ |
Global
X Health Care Covered Call & Growth ETF
NYSE
Arca: HYLG |
Global
X Emerging Markets Internet & E-commerce ETF
NASDAQ:
EWEB |
Global
X Information Technology Covered Call & Growth ETF
NYSE
Arca: TYLG |
Global
X SuperDividend®
ETF
NYSE
Arca: SDIV |
Global
X S&P 500®
Tail Risk ETF
NYSE
Arca: XTR |
Global
X SuperDividend®
U.S. ETF
NYSE
Arca: DIV |
Global
X S&P 500®
Risk Managed Income ETF
NYSE
Arca: XRMI |
Global
X MSCI SuperDividend®
EAFE ETF
NASDAQ:
EFAS |
Global
X S&P 500®
Collar 95-110 ETF
NYSE
Arca: XCLR |
Global
X MSCI SuperDividend®
Emerging Markets ETF
NYSE
Arca: SDEM |
Global
X NASDAQ 100®
Tail Risk ETF
NASDAQ:
QTR |
Global
X SuperDividend®
REIT ETF
NASDAQ:
SRET |
Global
X NASDAQ 100®
Risk Managed Income ETF
NASDAQ:
QRMI |
Global
X SuperIncome™ Preferred ETF
NYSE
Arca: SPFF |
Global
X NASDAQ 100®
Collar 95-110 ETF
NASDAQ:
QCLR |
Global
X NASDAQ 100®
Covered Call ETF
NASDAQ:
QYLD |
Global
X S&P 500®
Catholic Values ETF
NASDAQ:
CATH |
Global
X S&P 500®
Covered Call ETF
NYSE
Arca: XYLD |
Global
X S&P Catholic Values Developed ex-U.S. ETF
NASDAQ:
CEFA |
Global
X Russell 2000 Covered Call ETF
NYSE
Arca: RYLD |
Global
X Guru®
Index ETF
NYSE
Arca: GURU |
Global
X Dow 30®
Covered
Call ETF
NYSE
Arca: DJIA |
Global
X S&P Catholic Values U.S. Aggregate Bond ETF*
NASDAQ:
CAGG |
Prospectus
March 1,
2023
*
Not open for investment.
The
Securities and Exchange Commission ("SEC") has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Shares
in a Fund (defined below) are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other agency of the U.S. Government, nor are shares
deposits or obligations of any bank. Such shares in a Fund involve investment
risks, including the loss of principal.
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As
permitted by regulations adopted by the SEC, paper copies of the Funds’
shareholder reports will no longer be sent by mail, unless you
specifically request paper copies of the reports from your financial
intermediary (such as a broker-dealer or bank). Instead, shareholder
reports will be available on the Funds’ website
(www.globalxetfs.com/explore), and you will be notified by mail each time
a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you
will not be affected by this change and you need not take any action. You
may elect to receive shareholder reports and other communications from the
Funds electronically anytime by contacting your financial intermediary.
You may elect to receive all future Fund shareholder reports in paper free
of charge. Please contact your financial intermediary to inform them that
you wish to continue receiving paper copies of Fund shareholder reports
and for details about whether your election to receive reports in paper
will apply to all funds held with your financial
intermediary. |
TABLE
OF CONTENTS
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FUND
SUMMARIES |
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ADDITIONAL
INFORMATION ABOUT THE FUNDS |
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A
FURTHER DISCUSSION OF PRINCIPAL RISKS |
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A
FURTHER DISCUSSION OF OTHER RISKS |
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PORTFOLIO
HOLDINGS INFORMATION |
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FUND
MANAGEMENT |
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DISTRIBUTOR |
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BUYING
AND SELLING FUND SHARES |
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FREQUENT
TRADING |
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DISTRIBUTION
AND SERVICE PLAN |
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DIVIDENDS
AND DISTRIBUTIONS |
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TAXES |
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DETERMINATION
OF NET ASSET VALUE |
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PREMIUM/DISCOUNT
AND SHARE INFORMATION |
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TOTAL
RETURN INFORMATION |
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INFORMATION
REGARDING THE INDICES AND THE INDEX PROVIDERS |
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OTHER
SERVICE PROVIDERS |
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ADDITIONAL
INFORMATION |
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FINANCIAL
HIGHLIGHTS |
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OTHER
INFORMATION |
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FUND
SUMMARIES
Global X Social Media
ETF
Ticker:
SOCL Exchange: NASDAQ
INVESTMENT OBJECTIVE
The Global X Social Media ETF
seeks to provide investment results that correspond generally to the price and
yield performance, before fees and expenses, of the Solactive Social Media Total
Return Index ("Underlying Index").
FEES AND EXPENSES
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares (“Shares”) of
the Fund. You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and examples
below.
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: |
0.65% |
Distribution
and Service (12b-1) Fees: |
None |
Other
Expenses: |
0.00% |
Total
Annual Fund Operating Expenses: |
0.65% |
Example:
The following example
is intended to help you compare the cost of investing in the Fund with the cost
of investing in other funds. This example does not take into account customary
brokerage commissions that you pay when purchasing or selling Shares of the Fund
in the secondary market. The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell 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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One
Year |
Three
Years |
Five
Years |
Ten
Years |
$66 |
$208 |
$362 |
$810 |
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. During the most recent fiscal year, the
Fund's portfolio turnover rate was 21.59% of the average value of the
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund will invest at least 80% of its total assets in the securities of the
Solactive Social Media Total Return Index ("Underlying Index") and in American
Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") based on
the securities in the Underlying Index. The Fund's 80% investment policy is
non-fundamental and requires 60 days prior written notice to shareholders before
it can be changed. The Fund may lend securities representing up to one-third of
the value of the Fund’s total assets (including the value of the collateral
received).
The
Underlying Index tracks the equity performance of the largest and most liquid
companies involved in the social media industry, including companies that
provide social networking, file sharing, and other web-based media applications,
as defined by Solactive AG, the provider of the Underlying Index ("Index
Provider"). As of December 31, 2022, the Underlying Index had 42
constituents, 16 of which are foreign companies. The Fund's investment objective
and Underlying Index may be changed without shareholder approval.
The
Underlying Index is sponsored by the Index Provider, which is an organization
that is independent of, and unaffiliated with, the Fund and Global X Management
Company LLC, the investment adviser for the Fund ("Adviser"). The Index Provider
determines
the relative weightings of the securities in the Underlying Index and publishes
information regarding the market value of the Underlying Index.
The
Adviser uses a "passive" or indexing approach to try to achieve the Fund's
investment objective. Unlike many investment companies, the Fund does not try to
outperform the Underlying Index and does not seek temporary defensive positions
when markets decline or appear overvalued.
The
Fund generally will use a replication strategy. A replication strategy is an
indexing strategy that involves investing in the securities of the Underlying
Index in approximately the same proportions as in the Underlying Index. However,
the Fund may utilize a representative sampling strategy with respect to the
Underlying Index when a replication strategy might be detrimental or
disadvantageous to shareholders, such as when there are practical difficulties
or substantial costs involved in compiling a portfolio of equity securities to
replicate the Underlying Index, in instances in which a security in the
Underlying Index becomes temporarily illiquid, unavailable or less liquid, or as
a result of legal restrictions or limitations (such as tax diversification
requirements) that apply to the Fund but not the Underlying Index.
The
Adviser expects that, over time, the correlation between the Fund's performance
and that of the Underlying Index, before fees and expenses, will exceed 95%. A
correlation percentage of 100% would indicate perfect correlation. If the Fund
uses a replication strategy, it can be expected to have greater correlation to
the Underlying Index than if it uses a representative sampling
strategy.
The Fund concentrates its investments
(i.e., holds 25% or more of its total assets) in a particular industry or group
of industries to approximately the same extent that the Underlying Index is
concentrated. As of December 31, 2022, the Underlying Index was
concentrated in the interactive media and services industry and had significant
exposure to the communication services
sector.
SUMMARY OF PRINCIPAL RISKS
As with any investment, you could lose all or part of
your investment in the Fund, and the Fund’s performance could trail that of
other investments. There is no guarantee that the Fund will
achieve its investment objective. An investment in the Fund is not a
bank deposit and it is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, the Adviser or any of its
affiliates. The Fund is subject to the principal risks noted
below, any of which may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and ability to meet its investment objective,
as well as other risks that are described in greater detail in the Additional
Information About the Funds
section of this Prospectus and in the Statement of Additional Information
(“SAI”). The order of the below risk factors does not indicate the significance
of any particular risk factor.
Asset
Class Risk:
Securities and other assets in the Underlying Index or otherwise held in the
Fund's portfolio may underperform in comparison to the general securities
markets, a particular securities market or other asset classes.
Equity
Securities Risk:
Equity securities are subject to changes in value, and their values may be more
volatile than other asset classes, as a result of such factors as a company’s
business performance, investor perceptions, stock market trends and general
economic conditions.
Associated
Risks Related to Investing in Social Media Companies:
The Fund invests in securities of social media companies, including companies
that provide social networking, file sharing, and other web-based media
applications. The risks related to investing in such companies include
disruption in service caused by hardware or software failure, interruptions or
delays in service by third-party data center hosting facilities and maintenance
providers, security breaches involving certain private, sensitive, proprietary
and confidential information managed and transmitted by social media companies,
and privacy concerns and laws, evolving Internet regulation and other foreign or
domestic regulations that may limit or otherwise affect the operations of such
companies. Additionally, the collection of data from consumers and other sources
could face increased scrutiny as regulators consider how the data is collected,
stored, safeguarded and used. Furthermore, the business models employed by the
companies in the social media industry may not prove to be successful. Through
its portfolio companies’ customers and suppliers, the Fund is exposed to
Asian
Economic Risk and
European
Economic Risk.
Capitalization
Risk:
Investing in issuers within the same market capitalization category carries the
risk that the category may be out of favor due to current market conditions or
investor sentiment.
Large-Capitalization
Companies Risk: Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk:
Mid-capitalization companies may have greater price volatility, lower trading
volume and less liquidity than large-capitalization companies. In addition,
mid-capitalization companies may have smaller revenues, narrower product lines,
less management depth and experience, smaller shares of their product or service
markets, fewer financial resources and less competitive strength than
large-capitalization companies.
Small-Capitalization
Companies Risk:
Compared to mid- and large-capitalization companies, small-capitalization
companies may be less stable and more susceptible to adverse developments, and
their securities may be more volatile and less liquid.
Currency
Risk:
The Fund may invest in securities denominated in foreign currencies. Because the
Fund's NAV is determined in U.S. dollars, the Fund's NAV could decline if
currencies of the underlying securities depreciate against the U.S. dollar or if
there are delays or limits on repatriation of such currencies. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the Fund's NAV may change quickly and without warning, which could have
a significant negative impact on the Fund.
Custody
Risk:
The Fund may hold foreign securities and cash with foreign banks, agents, and
securities depositories appointed by the Fund's custodian. Investments in
emerging markets may be subject to even greater custody risks than investments
in more developed markets. Less developed markets are more likely to experience
problems with the clearing and settling of trades and the holding of securities
by local banks, agents and depositories.
Focus
Risk:
To the extent that the Underlying Index focuses in investments related to a
particular industry or group of industries, the Fund will also focus its
investments to approximately the same extent. Similarly, if the Underlying Index
has significant exposure to one or more sectors, the Fund’s investments will
likely have significant exposure to such sectors. In such event, the Fund’s
performance will be particularly susceptible to adverse events impacting such
industry or sector, which may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively
affect supply and demand; competition for resources; adverse labor relations;
political or world events; obsolescence of technologies; and increased
competition or new product introductions that may affect the profitability or
viability of companies in a particular industry or sector. As a result, the
value of the Fund’s investments 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 or sectors.
Risks
Related to Investing in the Communication Services Sector: Companies
in the communication services sector may be affected by industry competition,
substantial capital requirements, government regulation, cyclicality of revenues
and earnings, obsolescence of communications products and services due to
technological advancement, a potential decrease in the discretionary income of
targeted individuals and changing consumer tastes and interests.
Risks
Related to Investing in the Interactive Media and Services Industry:
The
success of the interactive media and services industry may be tied closely to
the performance of the overall domestic and global economy, interest rates,
competition and consumer confidence. Success depends heavily on disposable
household income and consumer spending. Also, companies in the interactive media
and services industry may be subject to severe competition, which may have an
adverse impact on their respective profitability. Changes in demographics and
consumer tastes can also affect the demand for, and success of, interactive
media and services in the marketplace.
Foreign
Securities Risk:
The Fund may invest, within U.S. regulations, in foreign securities. The Fund's
investments in foreign securities can be riskier than U.S. securities
investments. Investments in the securities of foreign issuers (including
investments in ADRs and GDRs) are subject to the risks associated with investing
in those foreign markets, such as heightened risks of inflation or
nationalization. The prices of foreign securities and the prices of U.S.
securities have, at times, moved in opposite directions. In addition, securities
of foreign issuers may lose value due to political, economic and geographic
events affecting a foreign issuer or market. During periods of social, political
or economic instability in a country or region, the value of a foreign security
traded on U.S. exchanges could be affected by, among other things, increasing
price volatility, illiquidity, or the closure of the primary market on which the
security (or the security underlying the ADR or GDR) is traded. You may lose
money due to political, economic and geographic events affecting a foreign
issuer or market. Where all or a portion of the Fund's underlying securities
trade in a market that is closed when the market in which the Fund's shares are
listed and trading is open, there may be differences between the last quote from
the security’s closed foreign market and the value of the security during the
Fund’s domestic trading day. This in turn could lead to differences between the
market price of the Fund’s shares and the underlying value of those shares.
Geographic
Risk: A
natural, biological or other disaster could occur in a geographic region in
which the Fund invests, which could affect the economy or particular business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in the affected region or in a region
economically tied to the affected region. The securities in which the Fund
invests and, consequently, the Fund are also subject to specific risks as a
result of their business operations, including, but not limited to:
Risk
of Investing in China:
Investment exposure to China subjects the Fund to risks specific to China.
Economic,
Political and Social Risk
China
may be subject to considerable degrees of economic, political and social
instability. Concerns about the rising government and household debt levels
could impact the stability of the Chinese economy. China is an emerging market
and demonstrates significantly higher volatility from time to time in comparison
to developed markets. Over the last few decades, the Chinese government has
undertaken reform of economic and market practices, including recent reforms to
liberalize its capital markets and expand the sphere for private ownership of
property in China. However, Chinese markets generally continue to experience
inefficiency, volatility and pricing anomalies resulting from governmental
influence, a lack of publicly available information and/or political and social
instability. Chinese companies are also subject to the risk that Chinese
authorities can intervene in their operations and structure. Internal social
unrest or confrontations with other neighboring countries, including military
conflicts in response to such events, may also disrupt economic development in
China and result in a greater risk of currency fluctuations, currency
convertibility, interest rate fluctuations and higher rates of inflation.
China
has experienced major health crises. These health crises include, but are not
limited to, the rapid and pandemic spread of novel viruses commonly known as
SARS, MERS, and COVID-19 (Coronavirus). Such health crises could exacerbate
political, social, and economic risks previously mentioned.
Export
growth continues to be a major driver of China’s rapid economic growth. Elevated
trade tensions between China and its trading partners, including the imposition
of U.S. tariffs on certain Chinese goods and increased international pressure
related to Chinese trade policy and forced technology transfers and intellectual
property protections, may have a substantial impact on the Chinese economy.
Reduction in spending on Chinese products and services, institution of
additional tariffs or other trade barriers (including as a result of heightened
trade tensions between China and the U.S. or in response to actual or alleged
Chinese cyber activity), or a downturn in any of the economies of China’s key
trading partners may have an adverse impact on the Chinese economy. The
continuation or worsening of the current political climate between China and the
U.S. could result in additional regulatory restrictions being contemplated or
imposed in the U.S. or in China that could impact the Fund’s ability to invest
in certain companies.
Security
Risk
China
has experienced security concerns, such as terrorism and strained international
relations. Additionally, China is alleged to have participated in
state-sponsored cyberattacks against foreign companies and foreign governments.
Actual and threatened responses to such activity, including purchasing
restrictions, sanctions, tariffs or cyberattacks on the Chinese government or
Chinese companies, may impact China’s economy and Chinese issuers of securities
in which the Fund invests. Incidents involving China’s or the region’s security,
including the contagion of infectious viruses or diseases, may cause uncertainty
in Chinese markets and may adversely affect the Chinese economy and the Fund’s
investments.
Heavy
Government Control and Regulation
Chinese
companies, including Chinese companies that are listed on U.S. exchanges, are
not subject to the same degree of regulatory requirements, accounting standards
or auditor oversight as companies in more developed countries, and as a result,
information about the Chinese securities in which the Fund invests may be less
reliable or complete. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against Chinese
companies and shareholders may have limited legal remedies. Investments in China
may be subject to loss due to expropriation or nationalization of assets and
property or the imposition of restrictions on foreign investments and
repatriation of capital. Furthermore, government actions against leaders or
other key figures within companies, or speculation about such actions, may lead
to sudden and unpredictable falls in the value of securities within the
Fund.
Tax
Risk
China
has implemented a number of tax reforms in recent years and may amend or revise
its existing tax laws and/or procedures in the future, possibly with retroactive
effect. Changes in applicable Chinese tax law could reduce the after-tax profits
of the Fund, directly or indirectly, including by reducing the after-tax profits
of companies in China in which the Fund invests. Uncertainties in Chinese tax
rules could result in unexpected tax liabilities for the Fund.
Should
legislation limit U.S. investors’ ability to invest in specific Chinese
companies through A-shares or other share class listings that are part of the
underlying holdings, these shares may be excluded from Fund
holdings.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the Chinese government restricts foreign
ownership to raise capital from foreign investors. While the shell company has
no equity ownership of the VIE, these contractual arrangements permit the shell
company to consolidate the VIE’s financial statements with its own for
accounting purposes and provide for economic exposure to the performance of the
underlying Chinese operating company.
Therefore,
an investor in the listed shell company, such as the Fund, will have exposure to
the Chinese-based operating company only through contractual arrangements and
has no ownership in the Chinese-based operating company. Furthermore, because
the shell company only has specific rights provided for in these service
agreements with the VIE, its abilities to control the activities at the
Chinese-based operating company are limited and the operating company may engage
in activities that negatively impact investment value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without the Chinese-based
issuer’s authorization to enter into contractual arrangements in China. Chops
and seals, which are carved stamps used to sign documents, represent a legally
binding commitment by the company. Moreover, any future regulatory action may
prohibit the ability of the shell company to receive the economic benefits of
the Chinese-based operating company, which may cause the value of the Fund’s
investment in the listed shell company to suffer a significant loss. For
example, in 2021, the Chinese government prohibited use of the VIE structure for
investment in after-school tutoring companies. There is no guarantee that the
Chinese government will not place similar restrictions on other
industries.
Chinese
equities that utilize the VIE structure to list in the U.S. as ADRs face the
risk of regulatory action from U.S. authorities, including the risk of
delisting. This will depend in part on whether U.S. regulatory authorities are
satisfied with their access to Mainland China and Hong Kong for the purpose of
conducting inspections on the quality of audits for these companies. Although
the U.S. and China reached an agreement in September 2022 to grant the U.S.
access for such inspections, there is no guarantee that the agreement will hold
up or that U.S. regulatory authorities will continue to feel satisfied with
their access. As of December 31, 2022, the Fund had significant exposure to
VIEs, as defined above.
Risk
of Investing in Emerging Markets:
The Fund targets social media companies globally and is expected to invest in
securities in emerging market countries. Investments in emerging markets may be
subject to a greater risk of loss than investments in developed markets.
Securities markets of emerging market countries are less liquid, subject to
greater price volatility, have smaller market capitalizations, have less
government regulation, and are not subject to as extensive and frequent
accounting, financial, and other reporting requirements as the securities
markets of more developed countries, and there may be greater risk associated
with the custody of securities in emerging markets. It may be difficult or
impossible for the Fund to pursue claims against an emerging market issuer in
the courts of an emerging market country.
There
may be significant obstacles to obtaining information necessary for
investigations into or litigation against emerging market companies and
shareholders may have limited legal rights and remedies. Emerging markets may be
more likely to experience inflation, political turmoil and rapid changes in
economic conditions than more developed markets. Emerging market economies’
exposure to specific industries, such as tourism, and lack of efficient or
sufficient health care systems, could make these economies especially vulnerable
to global crises, including but not limited to, pandemics such as the global
COVID-19 pandemic. Certain emerging market countries may have privatized, or
have begun the process of privatizing, certain entities and industries.
Privatized entities may lose money or be re-nationalized.
Risk
of Investing in South Korea: Investments
in South Korean issuers may subject the Fund to legal, regulatory, political,
currency, security, and economic risks that are specific to South Korea. In
addition, economic and political
developments
of South Korea’s neighbors, including escalated tensions involving North Korea
and any outbreak of hostilities involving North Korea, or even the threat of an
outbreak of hostilities, may have a severe adverse effect on the South Korean
economy.
International
Closed Market Trading Risk: To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote from the closed foreign market).
These deviations could result in premiums or discounts to the Fund’s NAV that
may be greater than those experienced by other exchange-traded funds
("ETFs").
Investable
Universe of Companies Risk:
The investable universe of companies in which the Fund may invest may be
limited. If a company no longer meets the Index Provider’s criteria for
inclusion in the Underlying Index, the Fund may need to reduce or eliminate its
holdings in that company. The reduction or elimination of the Fund’s holdings in
the company may have an adverse impact on the liquidity of the Fund’s overall
portfolio holdings and on Fund performance.
Issuer
Risk:
Fund performance depends on the performance of individual companies in which the
Fund invests. Changes to the financial condition of any of those companies may
cause the value of such company's securities to decline.
Market
Risk:
Turbulence in the financial markets and reduced liquidity may negatively affect
issuers, which could have an adverse effect on the Fund. If the securities held
by the Fund experience poor liquidity, the Fund may be unable to transact at
advantageous times or prices, which may decrease the Fund’s returns. In
addition, there is a risk that policy changes by central governments and
governmental agencies, including the U.S. Federal Reserve or the European
Central Bank, which could include increasing interest rates, could cause
increased volatility in financial markets and lead to higher levels of Fund
redemptions from Authorized Participants, which could have a negative impact on
the Fund. Furthermore, local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health issues,
recessions, or other events could have a significant impact on the Fund and its
investments and trading of its Shares. For example, at the start of 2023,
central banks had already increased interest rates at the fastest rate on
record, and it is unknown how long this trend will continue and when inflation
will return to target levels. This increases the risk that monetary policy may
provide less support should economic growth slow. Additionally, China’s shift
away from a zero-COVID policy creates both opportunities and risks, causing
uncertainty for global economic growth. Market risk factors may result in
increased volatility and/or decreased liquidity in the securities markets. The
Fund’s NAV could decline over short periods due to short-term market movements
and over longer periods during market downturns.
Non-Diversification
Risk:
The Fund is classified as a “non-diversified” investment company under the
Investment Company Act of 1940 ("1940 Act"). As a result, the Fund is subject to
the risk that it may be more volatile than a diversified fund because the Fund
may invest its assets in a smaller number of issuers or may invest a larger
proportion of its assets in a single issuer. As a result, the gains and losses
on a single investment may have a greater impact on the Fund’s NAV and may make
the Fund more volatile than more diversified funds.
Operational
Risk:
The Fund is exposed to operational risk arising from a number of factors,
including but not limited to human error, processing and communication errors,
errors of the Fund's service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. Additionally,
cyber security failures or breaches of the electronic systems of the Fund, the
Adviser, and the Fund's other service providers, market makers, Authorized
Participants or the issuers of securities in which the Fund invests have the
ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. The Fund and the Adviser seek to reduce these operational risks
through controls and procedures. However, these measures do not address every
possible risk and may be inadequate for those risks that they are intended to
address.
Passive
Investment Risk:
The Fund is not actively managed, and the Adviser does not attempt to take
defensive positions in declining markets. Unlike many investment companies, the
Fund does not seek to outperform its Underlying Index. Therefore, it would not
necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is
underperforming. Additionally, if a constituent of the Underlying Index were
removed, even outside of a regular rebalance of the Underlying Index, the
Adviser anticipates that the Fund would sell such security. Maintaining
investments in securities regardless of market conditions or the performance of
individual securities could cause the Fund’s return to be lower than if the Fund
employed an active strategy.
Index-Related
Risk:
There is no guarantee that the Fund will achieve a high degree of correlation to
the Underlying Index and therefore achieve its investment objective. Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Underlying Index.
Errors
in index data, index computations and/or the construction of the Underlying
Index in accordance with its methodology 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, which may have an adverse impact on the Fund and its shareholders.
Management
Risk:
The Fund may not fully replicate its Underlying Index and may hold securities
not included in its Underlying Index. The Adviser’s investment strategy, the
implementation of which is subject to a number of constraints, may cause the
Fund to underperform the market or its relevant benchmark or adversely affect
the ability of the Fund to achieve its investment objective.
Tracking
Error Risk:
Tracking error may occur because of differences between the instruments held in
the Fund's portfolio and those included in the Underlying Index, pricing
differences, transaction costs incurred by the Fund, the Fund's holding of
uninvested cash, size of the Fund, differences in timing of the accrual of or
the valuation of dividends or interest, tax gains or losses, changes to the
Underlying Index or the costs to the Fund of complying with various new or
existing regulatory requirements. This risk may be heightened during times of
increased market volatility or other unusual market conditions. Tracking error
also may result because the Fund incurs fees and expenses, while the Underlying
Index does not.
Risks
Associated with Exchange-Traded Funds:
As an ETF, the Fund is subject to the following risks:
Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants and engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. To the extent that those
Authorized Participants exit the business or are unable to process creation
and/or redemption orders, such as in times of market stress, Shares may be more
likely to trade at a premium or discount to NAV and/or at wider intraday bid-ask
spreads, and possibly face trading halts and/or delisting from an exchange.
Authorized Participants Concentration Risk may be heightened because the Fund
invests in non-U.S. securities.
Large
Shareholder Risk: Redemptions
by large shareholders could have a significant negative impact on the Fund. If a
large shareholder were to redeem all, or a large portion, of its Shares, there
is no guarantee that the Fund will be able to maintain sufficient assets to
continue operations in which case the Board of Trustees may determine to
liquidate the Fund. In addition, transactions by large shareholders may account
for a large percentage of the trading volume on a national securities exchange
and may, therefore, have a material upward or downward effect on the market
price of the Shares.
Listing
Standards Risk: The
Fund is required to comply with listing requirements adopted by the listing
exchange. Non-compliance with such requirements may result in the Fund's shares
being delisted by the listing exchange. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs and could result in
negative tax consequences for its shareholders.
Market
Trading Risks and Premium/Discount Risks:
Shares of the Fund are publicly traded on a national securities exchange, which
may subject shareholders to numerous market trading risks. In stressed market
conditions, the market for the Shares may become less liquid in response to the
deteriorating liquidity of the Fund’s portfolio. This adverse effect on the
liquidity of the Shares, as well as disruptions to creations and redemptions,
the existence of extreme market volatility or potential lack of assets in the
Fund or an active trading market for Shares may result in Shares trading at a
significant premium or discount to NAV. If a shareholder purchases Shares at a
time when the market price is at a premium to the NAV or sells Shares at a time
when the market price is at a discount to the NAV, the shareholder may sustain
losses. The NAV of the Fund is calculated at the end of each business day and
fluctuates with changes in the market value of the Fund’s holdings. The trading
price of the Fund’s shares fluctuates, in some cases materially, throughout
trading hours in response to changes in the Fund’s NAV.
Securities
Lending Risk:
Securities lending involves a risk of loss because the borrower may fail to
return the securities in a timely manner or at all. If the Fund is not able to
recover the securities loaned, it may sell the collateral and purchase a
replacement security in the market. Lending securities entails a risk of loss to
the Fund if and to the extent that the market value of the loaned securities
increases and the collateral is not increased accordingly. Additionally, the
Fund will bear any loss on the investment of cash collateral it receives. These
events could also trigger adverse tax consequences for the Fund. As securities
on loan may not be voted by the Fund, there is a risk that the Fund may not be
able to recall the securities in sufficient time to vote on material proxy
matters.
Trading
Halt Risk:
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading
losses.
Valuation
Risk: The sales price the Fund could receive for
a security may differ from the Fund’s valuation of the security and may differ
from the value used by the Underlying Index, particularly for securities that
trade in low value or volatile markets or that are valued using a fair value
methodology (such as during trading halts). 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 Fund's Shares.
PERFORMANCE
INFORMATION
The bar chart
and table that follow show how the Fund performed on a calendar year basis and
provide an indication of the risks of investing in the Fund by showing changes
in the Fund's performance from year to year and by showing how the Fund's
average annual returns for the indicated periods compare with the Fund's
benchmark index and a broad measure of market performance.
The Fund's past performance
(before and after taxes) is not necessarily indicative of how the Fund will
perform in the future. Updated performance information is
available online at www.globalxetfs.com.
Annual Total Returns (Years Ended December
31)
|
|
|
|
|
|
|
|
|
Best
Quarter: |
6/30/2020 |
44.80% |
Worst
Quarter: |
6/30/2022 |
-22.23% |
Average Annual Total Returns (for the Periods
Ended December 31, 2022)
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Year Ended December 31, 2022 |
Five
Years Ended December 31, 2022 |
Ten
Years Ended December 31, 2022 |
Global
X Social Media ETF: |
|
|
|
·Return before
taxes |
-42.27% |
-1.16% |
9.41% |
·Return
after taxes on distributions1 |
-42.27% |
-1.16% |
9.34% |
·Return
after taxes on distributions and sale of Fund Shares1 |
-25.03% |
-0.88% |
7.73% |
Solactive
Social Media Total Return Index
(net)
(Index returns reflect
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
-42.13% |
-0.64% |
9.94% |
MSCI
ACWI Index (net)
(Index returns reflect
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
-18.36% |
5.23% |
7.98% |
1 After-tax returns are
calculated using the historical highest individual U.S. federal marginal income
tax rates and do not reflect the impact of state and local
taxes. Your actual after-tax returns
will depend on your specific tax situation and may differ from those shown
above. After-tax returns are not relevant to investors who hold Shares of the
Fund through tax-advantaged arrangements, such as 401(k) plans or individual
retirement accounts (IRAs).
FUND
MANAGEMENT
Investment
Adviser:
Global X Management Company LLC.
Portfolio
Managers:
The professionals primarily responsible for the day-to-day management of the
Fund are Nam To, CFA; Wayne Xie; Kimberly Chan; Vanessa Yang; and Sandy Lu, CFA
(“Portfolio Managers”). Mr. To has been a Portfolio Manager of the Fund since
March 1, 2018. Mr. Xie has been a Portfolio Manager of the Fund since March 1,
2019. Ms. Chan has been a Portfolio Manager of the Fund since June 10, 2019. Ms.
Yang has been a Portfolio Manager of the Fund since December 2020. Mr. Lu has
been a Portfolio Manager of the Fund since March 2022.
PURCHASE
AND SALE OF FUND SHARES
Shares
of the Fund are or will be listed and traded at market prices on a national
securities exchange. Shares may only be purchased and sold on the exchange
through a broker-dealer. The price of Shares is based on market price, and
because ETF shares trade at market prices rather than at NAV, Shares may trade
at a price greater than NAV (a premium) or less than NAV (a discount). Only
“Authorized Participants” (as defined in the SAI) who have entered into
agreements with the Fund’s distributor, SEI Investments Distribution Co.
(“Distributor”), may engage in creation or redemption transactions directly with
the Fund. The Fund will only issue or redeem Shares that have been aggregated
into blocks called Creation Units. The Fund will issue or redeem Creation Units
in return for a basket of cash and/or securities that the Fund specifies any day
that the national securities exchanges are open for business (“Business Day”).
An investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase shares of the Fund (bid) and the
lowest price a seller is willing to accept for shares of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”). To
access information regarding the Fund’s net asset value, market price, premiums
and discounts, and bid-ask spreads, please go to https://www.globalxetfs.com.
TAX
INFORMATION
The
Fund intends to make distributions that may be taxable to you as ordinary income
or capital gains, unless you are investing through a tax-advantaged arrangement,
such as a 401(k) plan or an individual retirement account ("IRA"), in which case
distributions from such tax-advantaged arrangement may be taxable to you.
PAYMENTS
TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
The
Adviser and its related companies may pay broker-dealers or other financial
intermediaries (such as a bank) for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer, sales persons or other intermediary or its employees or
associated persons to recommend the Fund over another investment. Ask your
financial adviser or visit your financial intermediary’s website for more
information.
Global X Lithium & Battery Tech
ETF
Ticker:
LIT Exchange: NYSE Arca
INVESTMENT OBJECTIVE
The Global X Lithium &
Battery Tech ETF ("Fund") seeks to provide investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
Solactive Global Lithium Index ("Underlying
Index").
FEES AND EXPENSES
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares (“Shares”) of
the Fund. You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and examples
below.
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment):
|
|
|
|
|
|
Management
Fees: |
0.75% |
Distribution
and Service (12b-1) Fees: |
None |
Other
Expenses: |
0.00% |
Total
Annual Fund Operating Expenses: |
0.75% |
Example:
The following example
is intended to help you compare the cost of investing in the Fund with the cost
of investing in other funds. This example does not take into account customary
brokerage commissions that you pay when purchasing or selling Shares of the Fund
in the secondary market. The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell 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:
|
|
|
|
|
|
|
|
|
|
|
|
One
Year |
Three
Years |
Five
Years |
Ten
Years |
$77 |
$240 |
$417 |
$930 |
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. During the most recent fiscal year, the
Fund's portfolio turnover rate was 38.73% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund invests at least 80% of its total assets in the securities of the Solactive
Global Lithium Index ("Underlying Index") and in American Depositary Receipts
("ADRs") and Global Depositary Receipts ("GDRs") based on the securities in the
Underlying Index. The Fund also invests at least 80% of its total assets in
securities of companies that are economically tied to the lithium industry.
Companies economically tied to the lithium industry include those engaged in
lithium mining and lithium battery production. The Fund's 80% investment
policies are non-fundamental and require 60 days prior written notice to
shareholders before they can be changed. The Fund may lend securities
representing up to one-third of the value of the Fund’s total assets (including
the value of the collateral received).
The
Underlying Index is designed to measure broad-based equity market performance of
global companies involved in the lithium industry, as defined by Solactive AG,
the provider of the Underlying Index ("Index Provider"). As of December 31,
2022, the Underlying Index had 40 constituents, 33 of which are foreign
companies. The Fund's investment objective and Underlying Index may be changed
without shareholder approval.
The
Underlying Index is sponsored by the Index Provider, which is an organization
that is independent of, and unaffiliated with, the Fund and Global X Management
Company LLC, the investment adviser for the Fund ("Adviser"). The Index Provider
determines
the relative weightings of the securities in the Underlying Index and publishes
information regarding the market value of the Underlying Index.
The
Adviser uses a "passive" or indexing approach to try to achieve the Fund's
investment objective. Unlike many investment companies, the Fund does not try to
outperform the Underlying Index and does not seek temporary defensive positions
when markets decline or appear overvalued.
The
Fund generally will use a replication strategy. A replication strategy is an
indexing strategy that involves investing in the securities of the Underlying
Index in approximately the same proportions as in the Underlying Index. However,
the Fund may utilize a representative sampling strategy with respect to the
Underlying Index when a replication strategy might be detrimental or
disadvantageous to shareholders, such as when there are practical difficulties
or substantial costs involved in compiling a portfolio of equity securities to
replicate the Underlying Index, in instances in which a security in the
Underlying Index becomes temporarily illiquid, unavailable or less liquid, or as
a result of legal restrictions or limitations (such as tax diversification
requirements) that apply to the Fund but not the Underlying Index.
The
Adviser expects that, over time, the correlation between the Fund's performance
and that of the Underlying Index, before fees and expenses, will exceed 95%. A
correlation percentage of 100% would indicate perfect correlation. If the Fund
uses a replication strategy, it can be expected to have greater correlation to
the Underlying Index than if it uses a representative sampling
strategy.
The Fund concentrates its investments
(i.e., holds 25% or more of its total assets) in a particular industry or group
of industries to approximately the same extent that the Underlying Index is
concentrated. As of December 31, 2022, the Underlying Index was
concentrated in the chemicals industry and had significant exposure to the
materials sector.
SUMMARY OF PRINCIPAL RISKS
As with any investment, you could lose all or part of
your investment in the Fund, and the Fund’s performance could trail that of
other investments. There is no guarantee that the Fund will
achieve its investment objective. An investment in the Fund is not a
bank deposit and it is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, the Adviser or any of its
affiliates. The Fund is subject to the principal risks noted
below, any of which may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and ability to meet its investment objective,
as well as other risks that are described in greater detail in the Additional
Information About the Funds
section of this Prospectus and in the Statement of Additional Information
(“SAI”). The order of the below risk factors does not indicate the significance
of any particular risk factor.
Asset
Class Risk:
Securities and other assets in the Underlying Index or otherwise held in the
Fund's portfolio may underperform in comparison to the general securities
markets, a particular securities market or other asset classes.
China
A-Shares Risk:
A-Shares are issued by companies incorporated in mainland China and are traded
on Chinese exchanges. Foreign investors can access A-Shares by obtaining a
Qualified Foreign Institutional Investor ("QFII") or a Renminbi Qualified
Foreign Institutional Investor ("RQFII") license, as well as through the Stock
Connect Program, which is a securities trading and clearing program with an aim
to achieve mutual stock market access between the China and Hong Kong markets.
Stock Connect was developed by Hong Kong Exchanges and Clearing Limited, the
Shanghai Stock Exchange ("SSE") (in the case of Shanghai Connect) or the
Shenzhen Stock Exchange ("SZSE") (in the case of Shenzhen Connect), and the
China Securities Depository and Clearing Corporation Limited (“CSDCC”). The Fund
currently intends to gain exposure to A-Shares through the Stock Connect
Programs. Investments in A-Shares are subject to various regulations and limits,
and the recoupment or repatriation of assets invested in A-Shares is subject to
restrictions by the Chinese government. In addition, investors from outside
mainland China may face difficulties or prohibitions accessing certain A-Shares
that are part of a restricted list in countries such as the U.S. A-Shares may be
subject to frequent and widespread trading halts and may become illiquid.
Trading suspensions in certain stock could lead to greater market execution risk
and costs for the Fund, and the creation and redemption of Creation Units (as
defined below) may also be disrupted. These risks, among others, could adversely
affect the value of the Fund’s investments.
Equity
Securities Risk:
Equity securities are subject to changes in value, and their values may be more
volatile than other asset classes, as a result of such factors as a company’s
business performance, investor perceptions, stock market trends and general
economic conditions.
Capitalization
Risk:
Investing in issuers within the same market capitalization category carries the
risk that the category may be out of favor due to current market conditions or
investor sentiment.
Large-Capitalization
Companies Risk: Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk: Mid-capitalization
companies may have greater price volatility, lower trading volume and less
liquidity than large-capitalization companies. In addition, mid-capitalization
companies may have smaller revenues, narrower product lines, less management
depth and experience, smaller shares of their product or service markets, fewer
financial resources and less competitive strength than large-capitalization
companies.
Cash
Transaction Risk:
Unlike most exchange-traded funds ("ETFs"), the Fund intends to effect a
significant portion of creations and redemptions for cash, rather than in-kind
securities. As a result, an investment in the Fund may be less tax-efficient
than an investment in a more conventional ETF. Moreover, cash transactions may
have to be carried out over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and taxes. These factors
may result in wider spreads between the bid and the offered prices of the Fund’s
Shares than for more conventional ETFs.
Commodity
Exposure Risk: The
Fund invests in companies that are economically tied to the lithium industry,
which may be susceptible to fluctuations in the underlying commodities market.
Commodity prices may be influenced or characterized by unpredictable factors,
including, where applicable, high volatility, changes in supply and demand
relationships, weather, agriculture, trade, changes in interest rates and
monetary and other governmental policies, action and inaction. Securities of
companies held by the Fund that are dependent on a single commodity, or are
concentrated on a single commodity sector, may typically exhibit even higher
volatility attributable to commodity prices.
Commodity
Price Relationship Risk:
The Underlying Index measures the performance of companies involved in the
lithium mining and lithium-ion battery industries and not the performance of the
price of lithium itself. The securities of companies involved in the lithium
industry may under- or over-perform the price of lithium over the short-term or
the long-term.
Currency
Risk:
The Fund may invest in securities denominated in foreign currencies. Because the
Fund's NAV is determined in U.S. dollars, the Fund's NAV could decline if
currencies of the underlying securities depreciate against the U.S. dollar or if
there are delays or limits on repatriation of such currencies. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the Fund's NAV may change quickly and without warning, which could have
a significant negative impact on the Fund.
Custody
Risk:
The Fund may hold foreign securities and cash with foreign banks, agents, and
securities depositories appointed by the Fund's custodian. Investments in
emerging markets may be subject to even greater custody risks than investments
in more developed markets. Less developed markets are more likely to experience
problems with the clearing and settling of trades and the holding of securities
by local banks, agents and depositories.
Exposure
to Non-Lithium Markets Risk:
Although the Fund invests a large percentage of its assets in the securities of
companies that are active in the exploration and/or mining of lithium,
these companies may derive a significant percentage of their profits from other
business activities including, for example, the production of fertilizers
and/or specialty and industrial chemicals. As a result, the performance of these
markets and the profits of these companies from such activities may
significantly impact the Fund’s performance.
Focus
Risk:
To the extent that the Underlying Index focuses in investments related to a
particular industry or group of industries, the Fund will also focus its
investments to approximately the same extent. Similarly, if the Underlying Index
has significant exposure to one or more sectors, the Fund’s investments will
likely have significant exposure to such sectors. In such event, the Fund’s
performance will be particularly susceptible to adverse events impacting such
industry or sector, which may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively
affect supply and demand; competition for resources; adverse labor relations;
political or world events; obsolescence of technologies; and increased
competition or new product introductions that may affect the profitability or
viability of companies in a particular industry or sector. As a result, the
value of the Fund’s investments 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 or sectors.
Risks
Related to Investing in the Chemicals Industry:
The chemicals industry can be significantly affected by intense competition,
product obsolescence, raw materials prices, and government regulation, and can
be subject to
risks
associated with the production, handling and disposal of hazardous components,
and litigation arising out of environmental contamination.
Risks
Related to Investing in the Exploration Industry:
The exploration and development of mineral deposits involve significant
financial risks over a significant period of time, which even a combination of
careful evaluation, experience and knowledge may not eliminate. Few properties
which are explored are ultimately developed into producing mines. Major
expenditures may be required to establish reserves by drilling and to construct
mining and processing facilities at a site. In addition, mineral exploration
companies typically operate at a loss and are dependent on securing equity
and/or debt financing, which might be more difficult to secure for an
exploration company than for a more established counterpart.
Risks
Related to Investing in the Lithium-Ion Battery Industry:
Securities in the Fund’s portfolio involved in the manufacturing of lithium-ion
batteries are subject to the effects of price fluctuations of traditional and
alternative sources of energy, developments in battery and alternative energy
technology, the possibility that government subsidies for alternative energy
will be eliminated and the possibility that lithium-ion technology is not
suitable for widespread adoption.
Risks
Related to Investing in the Materials Sector:
Companies in the materials sector are affected by commodity price volatility,
exchange rates, import controls and worldwide competition. At times, worldwide
production of industrial materials has exceeded demand, leading to poor
investment returns or outright losses. Issuers in the materials sector are at
risk of depletion of resources, technological progress, labor relations,
governmental regulations and environmental damage and product liability
claims.
Foreign
Securities Risk:
The Fund may invest, within U.S. regulations, in foreign securities. The Fund's
investments in foreign securities can be riskier than U.S. securities
investments. Investments in the securities of foreign issuers (including
investments in ADRs and GDRs) are subject to the risks associated with investing
in those foreign markets, such as heightened risks of inflation or
nationalization. The prices of foreign securities and the prices of U.S.
securities have, at times, moved in opposite directions. In addition, securities
of foreign issuers may lose value due to political, economic and geographic
events affecting a foreign issuer or market. During periods of social, political
or economic instability in a country or region, the value of a foreign security
traded on U.S. exchanges could be affected by, among other things, increasing
price volatility, illiquidity, or the closure of the primary market on which the
security (or the security underlying the ADR or GDR) is traded. You may lose
money due to political, economic and geographic events affecting a foreign
issuer or market. Where all or a portion of the Fund's underlying securities
trade in a market that is closed when the market in which the Fund's shares are
listed and trading is open, there may be differences between the last quote from
the security’s closed foreign market and the value of the security during the
Fund’s domestic trading day. This in turn could lead to differences between the
market price of the Fund’s shares and the underlying value of those shares.
Geographic
Risk: A
natural, biological or other disaster could occur in a geographic region in
which the Fund invests, which could affect the economy or particular business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in the affected region or in a region
economically tied to the affected region. The securities in which the Fund
invests and, consequently, the Fund are also subject to specific risks as a
result of their business operations, including, but not limited to:
Risk
of Investing in Australia: Investments
in Australian issuers may subject the Fund to regulatory, political, currency,
security, and economic risk specific to Australia. The Australian economy is
heavily dependent on exports from the energy, agricultural and mining sectors.
This makes the Australian economy susceptible to fluctuations in the commodity
markets. Australia is also dependent on trading with key trading
partners.
Risk
of Investing in Chile: Investments
in Chilean issuers involve risks that are specific to Chile, including legal,
regulatory, political, currency, environmental and economic risks. Among other
things, the Chilean economy is heavily dependent on the export of certain
commodities.
Risk
of Investing in China:
Investment exposure to China subjects the Fund to risks specific to China.
Economic,
Political and Social Risk
China
may be subject to considerable degrees of economic, political and social
instability. Concerns about the rising government and household debt levels
could impact the stability of the Chinese economy. China is an emerging market
and demonstrates significantly higher volatility from time to time in comparison
to developed markets. Over the last few decades, the Chinese government has
undertaken reform of economic and market practices, including
recent
reforms to liberalize its capital markets and expand the sphere for private
ownership of property in China. However, Chinese markets generally continue to
experience inefficiency, volatility and pricing anomalies resulting from
governmental influence, a lack of publicly available information and/or
political and social instability. Chinese companies are also subject to the risk
that Chinese authorities can intervene in their operations and structure.
Internal social unrest or confrontations with other neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of currency
fluctuations, currency convertibility, interest rate fluctuations and higher
rates of inflation.
China
has experienced major health crises. These health crises include, but are not
limited to, the rapid and pandemic spread of novel viruses commonly known as
SARS, MERS, and COVID-19 (Coronavirus). Such health crises could exacerbate
political, social, and economic risks previously mentioned.
Export
growth continues to be a major driver of China’s rapid economic growth. Elevated
trade tensions between China and its trading partners, including the imposition
of U.S. tariffs on certain Chinese goods and increased international pressure
related to Chinese trade policy and forced technology transfers and intellectual
property protections, may have a substantial impact on the Chinese economy.
Reduction in spending on Chinese products and services, institution of
additional tariffs or other trade barriers (including as a result of heightened
trade tensions between China and the U.S. or in response to actual or alleged
Chinese cyber activity), or a downturn in any of the economies of China’s key
trading partners may have an adverse impact on the Chinese economy. The
continuation or worsening of the current political climate between China and the
U.S. could result in additional regulatory restrictions being contemplated or
imposed in the U.S. or in China that could impact the Fund’s ability to invest
in certain companies.
Security
Risk
China
has experienced security concerns, such as terrorism and strained international
relations. Additionally, China is alleged to have participated in
state-sponsored cyberattacks against foreign companies and foreign governments.
Actual and threatened responses to such activity, including purchasing
restrictions, sanctions, tariffs or cyberattacks on the Chinese government or
Chinese companies, may impact China’s economy and Chinese issuers of securities
in which the Fund invests. Incidents involving China’s or the region’s security,
including the contagion of infectious viruses or diseases, may cause uncertainty
in Chinese markets and may adversely affect the Chinese economy and the Fund’s
investments.
Heavy
Government Control and Regulation
Chinese
companies, including Chinese companies that are listed on U.S. exchanges, are
not subject to the same degree of regulatory requirements, accounting standards
or auditor oversight as companies in more developed countries, and as a result,
information about the Chinese securities in which the Fund invests may be less
reliable or complete. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against Chinese
companies and shareholders may have limited legal remedies. Investments in China
may be subject to loss due to expropriation or nationalization of assets and
property or the imposition of restrictions on foreign investments and
repatriation of capital. Furthermore, government actions against leaders or
other key figures within companies, or speculation about such actions, may lead
to sudden and unpredictable falls in the value of securities within the
Fund.
Tax
Risk
China
has implemented a number of tax reforms in recent years and may amend or revise
its existing tax laws and/or procedures in the future, possibly with retroactive
effect. Changes in applicable Chinese tax law could reduce the after-tax profits
of the Fund, directly or indirectly, including by reducing the after-tax profits
of companies in China in which the Fund invests. Uncertainties in Chinese tax
rules could result in unexpected tax liabilities for the Fund. Should
legislation limit U.S. investors’ ability to invest in specific Chinese
companies through A-shares or other share class listings that are part of the
underlying holdings, these shares may be excluded from Fund
holdings.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the Chinese government restricts foreign
ownership to raise capital from foreign investors. While the shell company has
no equity ownership of the VIE, these contractual arrangements permit the shell
company to consolidate the VIE’s financial statements with its own for
accounting purposes and provide for economic exposure to the performance of the
underlying Chinese operating company.
Therefore,
an investor in the listed shell company, such as the Fund, will have exposure to
the Chinese-based operating company only through contractual arrangements and
has no ownership in the Chinese-based operating company. Furthermore, because
the shell company only has specific rights provided for in these service
agreements with the VIE, its abilities to control the
activities
at the Chinese-based operating company are limited and the operating company may
engage in activities that negatively impact investment value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without the Chinese-based
issuer’s authorization to enter into contractual arrangements in China. Chops
and seals, which are carved stamps used to sign documents, represent a legally
binding commitment by the company. Moreover, any future regulatory action may
prohibit the ability of the shell company to receive the economic benefits of
the Chinese-based operating company, which may cause the value of the Fund’s
investment in the listed shell company to suffer a significant loss. For
example, in 2021, the Chinese government prohibited use of the VIE structure for
investment in after-school tutoring companies. There is no guarantee that the
Chinese government will not place similar restrictions on other
industries.
Chinese
equities that utilize the VIE structure to list in the U.S. as ADRs face the
risk of regulatory action from U.S. authorities, including the risk of
delisting. This will depend in part on whether U.S. regulatory authorities are
satisfied with their access to Mainland China and Hong Kong for the purpose of
conducting inspections on the quality of audits for these companies. Although
the U.S. and China reached an agreement in September 2022 to grant the U.S.
access for such inspections, there is no guarantee that the agreement will hold
up or that U.S. regulatory authorities will continue to feel satisfied with
their access.
Risk
of Investing in Emerging Markets:
The Fund targets lithium companies globally and is expected to invest in
securities in emerging market countries. Investments in emerging markets may be
subject to a greater risk of loss than investments in developed markets.
Securities markets of emerging market countries are less liquid, subject to
greater price volatility, have smaller market capitalizations, have less
government regulation, and are not subject to as extensive and frequent
accounting, financial, and other reporting requirements as the securities
markets of more developed countries, and there may be greater risk associated
with the custody of securities in emerging markets. It may be difficult or
impossible for the Fund to pursue claims against an emerging market issuer in
the courts of an emerging market country.
There
may be significant obstacles to obtaining information necessary for
investigations into or litigation against emerging market companies and
shareholders may have limited legal rights and remedies. Emerging markets may be
more likely to experience inflation, political turmoil and rapid changes in
economic conditions than more developed markets. Emerging market economies’
exposure to specific industries, such as tourism, and lack of efficient or
sufficient health care systems, could make these economies especially vulnerable
to global crises, including but not limited to, pandemics such as the global
COVID-19 pandemic. Certain emerging market countries may have privatized, or
have begun the process of privatizing, certain entities and industries.
Privatized entities may lose money or be re-nationalized.
Risk
of Investing in Japan: The
Japanese economy may be subject to considerable degrees of economic, political
and social instability, which could have a negative impact on Japanese
securities. Japan’s economy has suffered from low growth and low inflation for a
prolonged period of time since the collapse of its bubble economy, and that may
continue despite the efforts of the Bank of Japan and policymakers. In addition,
Japan is subject to the risk of natural disasters, such as earthquakes,
volcanoes, typhoons and tsunamis, which could negatively affect the Fund.
Japan’s relations with its neighbors have at times been strained, and strained
relations with its neighbors or trading partners may cause uncertainty in the
Japanese markets and adversely affect the overall Japanese economy.
Risk
of Investing in South Korea: Investments
in South Korean issuers may subject the Fund to legal, regulatory, political,
currency, security, and economic risks that are specific to South Korea. In
addition, economic and political developments of South Korea’s neighbors,
including escalated tensions involving North Korea and any outbreak of
hostilities involving North Korea, or even the threat of an outbreak of
hostilities, may have a severe adverse effect on the South Korean
economy.
International
Closed Market Trading Risk: To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the
Fund’s
quote from the closed foreign market). These deviations could result in premiums
or discounts to the Fund’s NAV that may be greater than those experienced by
other exchange-traded funds ("ETFs").
Investable
Universe of Companies Risk:
The investable universe of companies in which the Fund may invest may be
limited. If a company no longer meets the Index Provider’s criteria for
inclusion in the Underlying Index, the Fund may need to reduce or eliminate its
holdings in that company. The reduction or elimination of the Fund’s holdings in
the company may have an adverse impact on the liquidity of the Fund’s overall
portfolio holdings and on Fund performance.
Issuer
Risk:
Fund performance depends on the performance of individual companies in which the
Fund invests. Changes to the financial condition of any of those companies may
cause the value of such company's securities to decline.
Market
Risk:
Turbulence in the financial markets and reduced liquidity may negatively affect
issuers, which could have an adverse effect on the Fund. If the securities held
by the Fund experience poor liquidity, the Fund may be unable to transact at
advantageous times or prices, which may decrease the Fund’s returns. In
addition, there is a risk that policy changes by central governments and
governmental agencies, including the U.S. Federal Reserve or the European
Central Bank, which could include increasing interest rates, could cause
increased volatility in financial markets and lead to higher levels of Fund
redemptions from Authorized Participants, which could have a negative impact on
the Fund. Furthermore, local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health issues,
recessions, or other events could have a significant impact on the Fund and its
investments and trading of its Shares. For example, at the start of 2023,
central banks had already increased interest rates at the fastest rate on
record, and it is unknown how long this trend will continue and when inflation
will return to target levels. This increases the risk that monetary policy may
provide less support should economic growth slow. Additionally, China’s shift
away from a zero-COVID policy creates both opportunities and risks, causing
uncertainty for global economic growth. Market risk factors may result in
increased volatility and/or decreased liquidity in the securities markets. The
Fund’s NAV could decline over short periods due to short-term market movements
and over longer periods during market downturns.
Non-Diversification
Risk:
The Fund is classified as a “non-diversified” investment company under the
Investment Company Act of 1940 ("1940 Act"). As a result, the Fund is subject to
the risk that it may be more volatile than a diversified fund because the Fund
may invest its assets in a smaller number of issuers or may invest a larger
proportion of its assets in a single issuer. As a result, the gains and losses
on a single investment may have a greater impact on the Fund’s NAV and may make
the Fund more volatile than more diversified funds.
Operational
Risk:
The Fund is exposed to operational risk arising from a number of factors,
including but not limited to human error, processing and communication errors,
errors of the Fund's service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. Additionally,
cyber security failures or breaches of the electronic systems of the Fund, the
Adviser, and the Fund's other service providers, market makers, Authorized
Participants or the issuers of securities in which the Fund invests have the
ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. The Fund and the Adviser seek to reduce these operational risks
through controls and procedures. However, these measures do not address every
possible risk and may be inadequate for those risks that they are intended to
address.
Passive
Investment Risk:
The Fund is not actively managed, and the Adviser does not attempt to take
defensive positions in declining markets. Unlike many investment companies, the
Fund does not seek to outperform its Underlying Index. Therefore, it would not
necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is
underperforming. Additionally, if a constituent of the Underlying Index were
removed, even outside of a regular rebalance of the Underlying Index, the
Adviser anticipates that the Fund would sell such security. Maintaining
investments in securities regardless of market conditions or the performance of
individual securities could cause the Fund’s return to be lower than if the Fund
employed an active strategy.
Index-Related
Risk:
There is no guarantee that the Fund will achieve a high degree of correlation to
the Underlying Index and therefore achieve its investment objective. Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Underlying Index. Errors in index data, index computations and/or the
construction of the Underlying Index in accordance with its methodology 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, which may have an adverse impact on the
Fund and its shareholders.
Management
Risk:
The Fund may not fully replicate its Underlying Index and may hold securities
not included in its Underlying Index. The Adviser’s investment strategy, the
implementation of which is subject to a number of
constraints,
may cause the Fund to underperform the market or its relevant benchmark or
adversely affect the ability of the Fund to achieve its investment objective.
Tracking
Error Risk:
Tracking error may occur because of differences between the instruments held in
the Fund's portfolio and those included in the Underlying Index, pricing
differences, transaction costs incurred by the Fund, the Fund's holding of
uninvested cash, size of the Fund, differences in timing of the accrual of or
the valuation of dividends or interest, tax gains or losses, changes to the
Underlying Index or the costs to the Fund of complying with various new or
existing regulatory requirements. This risk may be heightened during times of
increased market volatility or other unusual market conditions. Tracking error
also may result because the Fund incurs fees and expenses, while the Underlying
Index does not. ETFs that track indices with significant weight in emerging
markets issuers may experience higher tracking error than other ETFs that do not
track such indices.
Risks
Associated with Exchange-Traded Funds:
As an ETF, the Fund is subject to the following risks:
Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants and engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. To the extent that those
Authorized Participants exit the business or are unable to process creation
and/or redemption orders, such as in times of market stress, Shares may be more
likely to trade at a premium or discount to NAV and/or at wider intraday bid-ask
spreads, and possibly face trading halts and/or delisting from an exchange.
Authorized Participants Concentration Risk may be heightened because the Fund
invests in non-U.S. securities.
Large
Shareholder Risk: Redemptions
by large shareholders could have a significant negative impact on the Fund. If a
large shareholder were to redeem all, or a large portion, of its Shares, there
is no guarantee that the Fund will be able to maintain sufficient assets to
continue operations in which case the Board of Trustees may determine to
liquidate the Fund. In addition, transactions by large shareholders may account
for a large percentage of the trading volume on a national securities exchange
and may, therefore, have a material upward or downward effect on the market
price of the Shares.
Listing
Standards Risk: The
Fund is required to comply with listing requirements adopted by the listing
exchange. Non-compliance with such requirements may result in the Fund's shares
being delisted by the listing exchange. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs and could result in
negative tax consequences for its shareholders.
Market
Trading Risks and Premium/Discount Risks:
Shares of the Fund are publicly traded on a national securities exchange, which
may subject shareholders to numerous market trading risks. In stressed market
conditions, the market for the Shares may become less liquid in response to the
deteriorating liquidity of the Fund’s portfolio. This adverse effect on the
liquidity of the Shares, as well as disruptions to creations and redemptions,
the existence of extreme market volatility or potential lack of assets in the
Fund or an active trading market for Shares may result in Shares trading at a
significant premium or discount to NAV. If a shareholder purchases Shares at a
time when the market price is at a premium to the NAV or sells Shares at a time
when the market price is at a discount to the NAV, the shareholder may sustain
losses. The NAV of the Fund is calculated at the end of each business day and
fluctuates with changes in the market value of the Fund’s holdings. The trading
price of the Fund’s shares fluctuates, in some cases materially, throughout
trading hours in response to changes in the Fund’s NAV.
Risks
Related to Stock Connect Programs:
The Stock Connect Programs are subject to daily and aggregate quota limitations,
which could affect the Fund’s ability to enter into and exit Stock Connect
positions on a timely basis. The Shenzen and Shanghai markets may operate when
the Stock Connect Programs are not active, and consequently the prices of shares
held via Stock Connect Programs may fluctuate at times when the Fund is unable
to add to or exit its positions. The Stock Connect Programs are new, and the
effect of the introduction of large numbers of foreign investors on the market
for trading Chinese-listed securities is not well understood. Regulations, such
as limitations on redemptions or suspension of trading, may adversely impact the
value of the Fund’s investments. The Fund's investments in A-Shares though the
Stock Connect Program are held by its custodian in accounts in Central Clearing
and Settlement System ("CCASS") maintained by the Hong Kong Securities Clearing
Company Limited ("HKSCC"), which in turn holds the A-Shares, as the nominee
holder, through an omnibus securities account in its name registered with the
CSDCC. The precise nature and rights of the Fund as the beneficial owner of the
SSE Securities or SZSE Securities through HKSCC as nominee is not well defined
under Chinese law. There is no guarantee that the Shenzen, Shanghai, and Hong
Kong Stock Exchanges will continue to support the Stock Connect Programs in the
future.
Securities
Lending Risk:
Securities lending involves a risk of loss because the borrower may fail to
return the securities in a timely manner or at all. If the Fund is not able to
recover the securities loaned, it may sell the collateral and purchase a
replacement security in the market. Lending securities entails a risk of loss to
the Fund if and to the extent that the market value of the loaned securities
increases and the collateral is not increased accordingly. Additionally, the
Fund will bear any loss on the investment of cash collateral it receives. These
events could also trigger adverse tax consequences for the Fund. As securities
on loan may not be voted by the Fund, there is a risk that the Fund may not be
able to recall the securities in sufficient time to vote on material proxy
matters.
Tax
Status Risk: The
Fund intends to pay dividends each taxable year to enable it to continue to
satisfy the distribution requirements necessary to qualify for treatment as a
regulated investment company ("RIC"). If the Fund were to distribute to its
shareholders less than the minimum amount required for any year, the Fund would
become subject to federal income tax for that year on all of its taxable income
and recognized gains, even those distributed to its shareholders. In addition,
under the Internal Revenue Code of 1986, as amended (the "Code"), the Fund may
not earn more than 10% of its annual gross income from gains resulting from the
sale of commodities and precious metals. This could make it more difficult for
the Fund to pursue its investment strategy and maintain qualification as a RIC.
In lieu of potential disqualification as a RIC, the Fund is permitted to pay a
tax for certain failures to satisfy this income requirement, which, in general,
are limited to those due to reasonable cause and not willful
neglect.
Trading
Halt Risk:
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading
losses.
Valuation
Risk: The sales price the Fund could receive for
a security may differ from the Fund’s valuation of the security and may differ
from the value used by the Underlying Index, particularly for securities that
trade in low value or volatile markets or that are valued using a fair value
methodology (such as during trading halts). 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 Fund's Shares.
PERFORMANCE
INFORMATION
The bar chart
and table that follow show how the Fund performed on a calendar year basis and
provide an indication of the risks of investing in the Fund by showing changes
in the Fund's performance from year to year and by showing how the Fund's
average annual returns for the indicated periods compare with the Fund's
benchmark index and a broad measure of market performance.
The Fund's past performance
(before and after taxes) is not necessarily indicative of how the Fund will
perform in the future. Updated performance information is
available online at www.globalxetfs.com.
Annual Total Returns (Years Ended December
31)
|
|
|
|
|
|
|
|
|
Best
Quarter: |
12/31/2020 |
55.63% |
Worst
Quarter: |
3/31/2020 |
-20.32% |
Average Annual Total Returns (for the Periods
Ended December 31, 2022)
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Year Ended December 31, 2022 |
Five
Years Ended December 31, 2022 |
Ten
Years Ended December 31, 2022 |
Global
X Lithium & Battery Tech ETF: |
|
|
|
·Return before
taxes |
-29.69% |
10.10% |
8.81% |
·Return
after taxes on distributions1 |
-29.85% |
9.73% |
8.40% |
·Return
after taxes on distributions and sale of Fund
Shares1 |
-17.46% |
7.87% |
7.02% |
Solactive
Global Lithium Index (net)
(Index returns reflect
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
-29.28% |
10.28% |
9.32% |
MSCI
ACWI Index (net)
(Index returns reflect
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
-18.36% |
5.23% |
7.98% |
1 After-tax returns are
calculated using the historical highest individual U.S. federal marginal income
tax rates and do not reflect the impact of state and local
taxes. Your actual after-tax returns
will depend on your specific tax situation and may differ from those shown
above. After-tax returns are not relevant to investors who hold Shares of the
Fund through tax-advantaged arrangements, such as 401(k) plans or individual
retirement accounts (IRAs).
FUND
MANAGEMENT
Investment
Adviser:
Global X Management Company LLC.
Portfolio
Managers:
The professionals primarily responsible for the day-to-day management of the
Fund are Nam To, CFA; Wayne Xie; Kimberly Chan; Vanessa Yang; and Sandy Lu, CFA
(“Portfolio Managers”). Mr. To has been a Portfolio Manager of the Fund since
March 1, 2018. Mr. Xie has been a Portfolio Manager of the Fund since March 1,
2019. Ms. Chan has been a Portfolio Manager of the Fund since June 10, 2019. Ms.
Yang has been a Portfolio Manager of the Fund since December 2020. Mr. Lu has
been a Portfolio Manager of the Fund since March 2022.
PURCHASE
AND SALE OF FUND SHARES
Shares
of the Fund are or will be listed and traded at market prices on a national
securities exchange. Shares may only be purchased and sold on the exchange
through a broker-dealer. The price of Shares is based on market price, and
because ETF shares trade at market prices rather than at NAV, Shares may trade
at a price greater than NAV (a premium) or less than NAV (a discount). Only
“Authorized Participants” (as defined in the SAI) who have entered into
agreements with the Fund’s distributor, SEI Investments Distribution Co.
(“Distributor”), may engage in creation or redemption transactions directly with
the Fund. The Fund will only issue or redeem Shares that have been aggregated
into blocks called Creation Units. The Fund will issue or redeem Creation Units
in return for a basket of cash and/or securities that the Fund specifies any day
that the national securities exchanges are open for business (“Business Day”).
An investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase shares of the Fund (bid) and the
lowest price a seller is willing to accept for shares of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”). To
access information regarding the Fund’s net asset value, market price, premiums
and discounts, and bid-ask spreads, please go to https://www.globalxetfs.com.
TAX
INFORMATION
The
Fund intends to make distributions that may be taxable to you as ordinary income
or capital gains, unless you are investing through a tax-advantaged arrangement,
such as a 401(k) plan or an individual retirement account ("IRA"), in which case
distributions from such tax-advantaged arrangement may be taxable to you.
PAYMENTS
TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
The
Adviser and its related companies may pay broker-dealers or other financial
intermediaries (such as a bank) for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer, sales persons or other intermediary or its employees or
associated persons to recommend the Fund over another investment. Ask your
financial adviser or visit your financial intermediary’s website for more
information.
Global X Renewable Energy Producers
ETF
Ticker:
RNRG Exchange: NASDAQ
INVESTMENT OBJECTIVE
The Global X Renewable Energy
Producers ETF ("Fund") seeks to track, before fees and expenses, the price and
yield performance of the Indxx Renewable Energy Producers Index ("Underlying
Index").
FEES AND EXPENSES
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares (“Shares”) of
the Fund. You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and examples
below.
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment):
|
|
|
|
|
|
Management
Fees: |
0.65% |
Distribution
and Service (12b-1) Fees: |
None |
Other
Expenses: |
0.01% |
Total
Annual Fund Operating Expenses: |
0.66% |
Example:
The following example
is intended to help you compare the cost of investing in the Fund with the cost
of investing in other funds. This example does not take into account customary
brokerage commissions that you pay when purchasing or selling Shares of the Fund
in the secondary market. The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell 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:
|
|
|
|
|
|
|
|
|
|
|
|
One
Year |
Three
Years |
Five
Years |
Ten
Years |
$67 |
$211 |
$368 |
$822 |
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. During the most recent fiscal year, the
Fund's portfolio turnover rate was 18.33% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund invests at least 80% of its total assets in the securities of the Indxx
Renewable Energy Producers Index ("Underlying Index") and in American Depositary
Receipts ("ADRs") and Global Depositary Receipts ("GDRs") based on the
securities in the Underlying Index. The Fund's 80% investment policy is
non-fundamental and requires 60 days prior written notice to shareholders before
it can be changed. The Fund may lend securities representing up to one-third of
the value of the Fund’s total assets (including the value of the collateral
received).
The
Underlying Index is designed to provide exposure to publicly traded companies
that produce energy from renewable sources including wind, solar, hydroelectric,
geothermal, and biofuels (including publicly traded companies that are formed to
own operating assets that produce defined cash flows (“YieldCos”))
(collectively, "Renewable Energy Companies"), as defined by Indxx LLC, the
provider of the Underlying Index ("Index Provider").
In
constructing the Underlying Index, the Index Provider first identifies FactSet
Industries related to renewable energy production. Companies within these
industries, as of the selection date, are further reviewed by the Index Provider
on the basis of revenue related to renewable energy production. To be eligible
for the Underlying Index, a company is considered by the Index Provider to be a
Renewable Energy Company if the company generates at least 50% of its revenues
from renewable energy production, as determined by the Index Provider. The Index
Provider classifies Renewable Energy Companies as those companies that produce
energy from renewable sources, including: wind, solar, hydroelectric,
geothermal, and biofuels (including YieldCos), as determined by the Index
Provider.
The
Underlying Index is weighted according to a modified capitalization weighting
methodology and is reconstituted and re-weighted semi-annually. Modified
capitalization weighting seeks to weight constituents primarily based on market
capitalization, but subject to caps on the weights of the individual securities.
Generally speaking, this approach will limit the amount of concentration in the
largest market capitalization companies and increase company-level
diversification. The Underlying Index may include large-, mid- or
small-capitalization companies, and components may include, but are not limited
to, utilities, industrials and energy companies. The Fund's investment objective
and Underlying Index may be changed without shareholder approval.
The
Underlying Index is sponsored by the Index Provider, which is an organization
that is independent of, and unaffiliated with, the Fund and Global X Management
Company LLC, the investment adviser for the Fund ("Adviser"). The Index Provider
determines the relative weightings of the securities in the Underlying Index and
publishes information regarding the market value of the Underlying
Index.
The
Adviser uses a "passive" or indexing approach to try to achieve the Fund's
investment objective. Unlike many investment companies, the Fund does not try to
"outperform" the Underlying Index and does not seek temporary defensive
positions when markets decline or appear overvalued.
The
Fund generally will use a replication strategy. A replication strategy is an
indexing strategy that involves investing in the securities of the Underlying
Index in approximately the same proportions as in the Underlying Index. However,
the Fund may utilize a representative sampling strategy with respect to the
Underlying Index when a replication strategy might be detrimental or
disadvantageous to shareholders, such as when there are practical difficulties
or substantial costs involved in compiling a portfolio of equity securities to
replicate the Underlying Index, in instances in which a security in the
Underlying Index becomes temporarily illiquid, unavailable or less liquid, or as
a result of legal restrictions or limitations (such as tax diversification
requirements) that apply to the Fund but not the Underlying Index.
The
Adviser expects that, over time, the correlation between the Fund's performance
and that of the Underlying Index, before fees and expenses, will exceed 95%. A
correlation percentage of 100% would indicate perfect correlation. If the Fund
uses a replication strategy, it can be expected to have greater correlation to
the Underlying Index than if it uses a representative sampling
strategy.
The
Fund concentrates its investments (i.e., holds 25% or more of its total assets) in
a particular industry or group of industries to approximately the same extent
that the Underlying Index is concentrated. As of December 31, 2022, the
Underlying Index was concentrated in the independent power and renewable energy
industry and had significant exposure to the utilities
sector.
SUMMARY OF PRINCIPAL RISKS
As with any investment, you could lose all or part of
your investment in the Fund, and the Fund’s performance could trail that of
other investments. There is no guarantee that the Fund will
achieve its investment objective. An investment in the Fund is not a
bank deposit and it is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, the Adviser or any of its
affiliates. The Fund is subject to the principal risks noted
below, any of which may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and ability to meet its investment objective,
as well as other risks that are described in greater detail in the Additional
Information About the Funds
section of this Prospectus and in the Statement of Additional Information
(“SAI”). The order of the below risk factors does not indicate the significance
of any particular risk factor.
Asset
Class Risk:
Securities and other assets in the Underlying Index or otherwise held in the
Fund's portfolio may underperform in comparison to the general securities
markets, a particular securities market or other asset classes.
Equity
Securities Risk:
Equity securities are subject to changes in value, and their values may be more
volatile than other asset classes, as a result of such factors as a company’s
business performance, investor perceptions, stock market trends and general
economic conditions.
Associated
Risks Related to Investing in Renewable Energy Companies: Renewable
Energy Companies typically face intense competition, short product lifecycles
and potentially rapid product obsolescence. These companies may be significantly
affected by fluctuations in energy prices and in the supply and demand of
renewable energy, tax incentives, subsidies and other governmental regulations
and policies. These companies are also heavily dependent on intellectual
property rights and may be adversely affected by loss or impairment of those
rights. Renewable Energy Companies may be adversely affected by commodity price
volatility, changes in exchange rates, imposition of import controls,
availability of certain inputs and materials
required
for production, depletion of resources, technological developments and labor
relations. A decline in the price of conventional energy such as oil and natural
gas could have a materially adverse impact on Renewable Energy Companies.
Renewable energy resources may be highly dependent upon government policies that
support renewable generation and enhance the economic viability of owning
renewable electric generation assets. Investors should additionally take notice
of the distinction between implemented government policy based on legislation
and less guaranteed commitments which may be aspirational, subject to political
risk, and difficult to enforce. Additionally, adverse environmental conditions
may cause fluctuations in renewable electric generation and adversely affect the
cash flows associated with Renewable Energy Companies.
Associated
Risks Related to Investing in YieldCos: Investments
in securities of YieldCos involve risks that differ from investments in
traditional operating companies, including risks related to the relationship
between the YieldCo and the company responsible for the formation of the YieldCo
(the "YieldCo Sponsor”). YieldCos typically remain dependent on the management
and administration services provided by or under the direction of the YieldCo
Sponsor and on the ability of the YieldCo Sponsor to identify and present the
YieldCo with acquisition opportunities, which may often be assets of the YieldCo
Sponsor itself. To the extent that the YieldCo relies on the YieldCo Sponsor for
developing new assets for potential future acquisitions, the YieldCo may be
dependent on the development capabilities and financial health of the YieldCo
Sponsor. YieldCo Sponsors may have interests that conflict with the interests of
the YieldCo, and may retain control of the YieldCo via classes of stock held by
the Yieldco Sponsor. Congress voted not to extend bonus depreciation in
2015 for qualifying capital equipment, meaning new YieldCo assets could be
subject to slower depreciation schedules and less ability to minimize tax
liabilities. Additionally, Congress could vote to eliminate production tax
credits (“PTCs”) for green energy projects, which could reduce the profitability
of companies, including YieldCos that operate in the renewable energy
space. YieldCo securities can be affected by macro-economic and other
factors affecting the stock market in general, expectations of interest rates,
investor sentiment towards YieldCos or the energy sector, changes in a
particular issuer’s financial condition, or unfavorable or unanticipated poor
performance of a particular issuer (in the case of YieldCos, generally measured
in terms of distributable cash flow). A YieldCo’s share price is typically a
multiple of its distributable cash flow. Therefore any event that limits
the YieldCo’s ability to maintain or grow its distributable cash flow would
likely have a negative impact on the YieldCo’s share price. Prices of YieldCo
securities also can be affected by fundamentals unique to the company, including
the robustness and consistency of its earnings and its ability to meet debt
obligations including the payment of interest and principle to creditors.
YieldCos may distribute all or substantially all of the cash available for
distribution, which may limit new acquisitions and future growth. YieldCos may
finance its growth strategy with debt, which may increase the YieldCo’s leverage
and the risks associated with the YieldCo. The ability of a YieldCo to maintain
or grow its dividend distributions may depend on the entity’s ability to
minimize its tax liabilities through the use of accelerated depreciation
schedules, tax loss carryforwards, and tax incentives. Changes to the current
tax code could result in greater tax liabilities, which would reduce the
YieldCo’s distributable cash flow.
Capitalization
Risk:
Investing in issuers within the same market capitalization category carries the
risk that the category may be out of favor due to current market conditions or
investor sentiment.
Large-Capitalization
Companies Risk: Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk: Mid-capitalization
companies may have greater price volatility, lower trading volume and less
liquidity than large-capitalization companies. In addition, mid-capitalization
companies may have smaller revenues, narrower product lines, less management
depth and experience, smaller shares of their product or service markets, fewer
financial resources and less competitive strength than large-capitalization
companies.
Small-Capitalization
Companies Risk: Compared
to mid- and large-capitalization companies, small-capitalization companies may
be less stable and more susceptible to adverse developments, and their
securities may be more volatile and less liquid.
Cash
Transaction Risk:
Unlike most exchange-traded funds ("ETFs"), the Fund intends to effect a
significant portion of creations and redemptions for cash, rather than in-kind
securities. As a result, an investment in the Fund may be less tax-efficient
than an investment in a more conventional ETF. Moreover, cash transactions may
have to be carried out over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and taxes. These factors
may result in wider spreads between the bid and the offered prices of the Fund’s
Shares than for more conventional ETFs.
Currency
Risk:
The Fund may invest in securities denominated in foreign currencies. Because the
Fund's NAV is determined in U.S. dollars, the Fund's NAV could decline if
currencies of the underlying securities depreciate against the U.S. dollar or if
there
are delays or limits on repatriation of such currencies. Currency exchange rates
can be very volatile and can change quickly and unpredictably. As a result, the
Fund's NAV may change quickly and without warning, which could have a
significant negative impact on the Fund.
Custody
Risk:
The Fund may hold foreign securities and cash with foreign banks, agents, and
securities depositories appointed by the Fund's custodian. Investments in
emerging markets may be subject to even greater custody risks than investments
in more developed markets. Less developed markets are more likely to experience
problems with the clearing and settling of trades and the holding of securities
by local banks, agents and depositories.
Focus
Risk:
To the extent that the Underlying Index focuses in investments related to a
particular industry or group of industries, the Fund will also focus its
investments to approximately the same extent. Similarly, if the Underlying Index
has significant exposure to one or more sectors, the Fund’s investments will
likely have significant exposure to such sectors. In such event, the Fund’s
performance will be particularly susceptible to adverse events impacting such
industry or sector, which may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively
affect supply and demand; competition for resources; adverse labor relations;
political or world events; obsolescence of technologies; and increased
competition or new product introductions that may affect the profitability or
viability of companies in a particular industry or sector. As a result, the
value of the Fund’s investments 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 or sectors.
Risks
Related to Investing in the Independent Power and Renewable Electricity
Producers Industry:
Companies in the independent power and renewable electricity producers industry
may be highly dependent upon government subsidies, contracts with government
entities, and the successful development of new and proprietary technologies. In
addition, seasonal weather conditions, fluctuations in the supply of and demand
for energy products, changes in energy prices, and international political
events may cause fluctuations in the performance of independent power and
renewable electricity producers companies and the prices of their securities.
Risks
Related to Investing in the Utilities Sector:
Companies in the utilities sector may be adversely affected by changes in
exchange rates, domestic and international competition and governmental
regulations on rates charged to customers. Privatization and deregulation in the
utilities sector may subject companies to greater competition and losses in
profitability. Companies in the utilities sector may have difficulty obtaining
an adequate return on invested capital, raising capital, or financing large
construction programs during periods of inflation or unsettled capital markets.
In addition, companies in the utilities sector may be adversely affected due to
increase in fuel and operating costs and the costs of complying with
regulations.
Foreign
Securities Risk:
The Fund may invest, within U.S. regulations, in foreign securities. The Fund's
investments in foreign securities can be riskier than U.S. securities
investments. Investments in the securities of foreign issuers (including
investments in ADRs and GDRs) are subject to the risks associated with investing
in those foreign markets, such as heightened risks of inflation or
nationalization. The prices of foreign securities and the prices of U.S.
securities have, at times, moved in opposite directions. In addition, securities
of foreign issuers may lose value due to political, economic and geographic
events affecting a foreign issuer or market. During periods of social, political
or economic instability in a country or region, the value of a foreign security
traded on U.S. exchanges could be affected by, among other things, increasing
price volatility, illiquidity, or the closure of the primary market on which the
security (or the security underlying the ADR or GDR) is traded. You may lose
money due to political, economic and geographic events affecting a foreign
issuer or market. Where all or a portion of the Fund's underlying securities
trade in a market that is closed when the market in which the Fund's shares are
listed and trading is open, there may be differences between the last quote from
the security’s closed foreign market and the value of the security during the
Fund’s domestic trading day. This in turn could lead to differences between the
market price of the Fund’s shares and the underlying value of those shares.
Geographic
Risk: A
natural, biological or other disaster could occur in a geographic region in
which the Fund invests, which could affect the economy or particular business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in the affected region or in a region
economically tied to the affected region. The securities in which the Fund
invests and, consequently, the Fund are also subject to specific risks as a
result of their business operations, including, but not limited to:
Risk
of Investing in Brazil: Investment
in Brazilian issuers involves risks that are specific to Brazil, including
legal, regulatory, political and economic risks. The Brazilian economy has
historically been exposed to high rates of inflation, debt, corruption, and
violence, each of which may reduce and/or prevent economic growth.
Risk
of Investing in Canada:
The Canadian economy is highly dependent on the demand for and price of natural
resources. As a result, the Canadian market is relatively concentrated in
issuers involved in the production and distribution of natural resources and any
changes in these sectors could have an adverse impact on the Canadian economy.
The Canadian economy is heavily dependent on relationships with certain key
trading partners, including the United States and China. Developments in the
United States, including renegotiation of the North American Free Trade
Agreement (“NAFTA”) and ratification of the successor United
States-Mexico-Canada Agreement (“USMCA”), which went into effect on July 1,
2020, as well as the imposition of additional tariffs by the United States, may
have implications for the trade arrangements between the United States and
Canada, which could negatively affect the value of securities held by the Fund.
Risk
of Investing in China:
Investment exposure to China subjects the Fund to risks specific to China.
Economic,
Political and Social Risk
China
may be subject to considerable degrees of economic, political and social
instability. Concerns about the rising government and household debt levels
could impact the stability of the Chinese economy. China is an emerging market
and demonstrates significantly higher volatility from time to time in comparison
to developed markets. Over the last few decades, the Chinese government has
undertaken reform of economic and market practices, including recent reforms to
liberalize its capital markets and expand the sphere for private ownership of
property in China. However, Chinese markets generally continue to experience
inefficiency, volatility and pricing anomalies resulting from governmental
influence, a lack of publicly available information and/or political and social
instability. Chinese companies are also subject to the risk that Chinese
authorities can intervene in their operations and structure. Internal social
unrest or confrontations with other neighboring countries, including military
conflicts in response to such events, may also disrupt economic development in
China and result in a greater risk of currency fluctuations, currency
convertibility, interest rate fluctuations and higher rates of inflation.
China
has experienced major health crises. These health crises include, but are not
limited to, the rapid and pandemic spread of novel viruses commonly known as
SARS, MERS, and COVID-19 (Coronavirus). Such health crises could exacerbate
political, social, and economic risks previously mentioned.
Export
growth continues to be a major driver of China’s rapid economic growth. Elevated
trade tensions between China and its trading partners, including the imposition
of U.S. tariffs on certain Chinese goods and increased international pressure
related to Chinese trade policy and forced technology transfers and intellectual
property protections, may have a substantial impact on the Chinese economy.
Reduction in spending on Chinese products and services, institution of
additional tariffs or other trade barriers (including as a result of heightened
trade tensions between China and the U.S. or in response to actual or alleged
Chinese cyber activity), or a downturn in any of the economies of China’s key
trading partners may have an adverse impact on the Chinese economy. The
continuation or worsening of the current political climate between China and the
U.S. could result in additional regulatory restrictions being contemplated or
imposed in the U.S. or in China that could impact the Fund’s ability to invest
in certain companies.
Security
Risk
China
has experienced security concerns, such as terrorism and strained international
relations. Additionally, China is alleged to have participated in
state-sponsored cyberattacks against foreign companies and foreign governments.
Actual and threatened responses to such activity, including purchasing
restrictions, sanctions, tariffs or cyberattacks on the Chinese government or
Chinese companies, may impact China’s economy and Chinese issuers of securities
in which the Fund invests. Incidents involving China’s or the region’s security,
including the contagion of infectious viruses or diseases, may cause uncertainty
in Chinese markets and may adversely affect the Chinese economy and the Fund’s
investments.
Heavy
Government Control and Regulation
Chinese
companies, including Chinese companies that are listed on U.S. exchanges, are
not subject to the same degree of regulatory requirements, accounting standards
or auditor oversight as companies in more developed countries, and as a result,
information about the Chinese securities in which the Fund invests may be less
reliable or complete. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against Chinese
companies and shareholders may have limited legal remedies. Investments in China
may be subject to loss due to expropriation or nationalization of assets and
property or the imposition of restrictions on foreign investments and
repatriation of capital. Furthermore, government actions against leaders or
other key figures within companies, or speculation about such actions, may lead
to sudden and unpredictable falls in the value of securities within the
Fund.
Tax
Risk
China
has implemented a number of tax reforms in recent years and may amend or revise
its existing tax laws and/or procedures in the future, possibly with retroactive
effect. Changes in applicable Chinese tax law could reduce the
after-
tax
profits of the Fund, directly or indirectly, including by reducing the after-tax
profits of companies in China in which the Fund invests. Uncertainties in
Chinese tax rules could result in unexpected tax liabilities for the Fund.
Should legislation limit U.S. investors’ ability to invest in specific Chinese
companies through A-shares or other share class listings that are part of the
underlying holdings, these shares may be excluded from Fund
holdings.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the Chinese government restricts foreign
ownership to raise capital from foreign investors. While the shell company has
no equity ownership of the VIE, these contractual arrangements permit the shell
company to consolidate the VIE’s financial statements with its own for
accounting purposes and provide for economic exposure to the performance of the
underlying Chinese operating company.
Therefore,
an investor in the listed shell company, such as the Fund, will have exposure to
the Chinese-based operating company only through contractual arrangements and
has no ownership in the Chinese-based operating company. Furthermore, because
the shell company only has specific rights provided for in these service
agreements with the VIE, its abilities to control the activities at the
Chinese-based operating company are limited and the operating company may engage
in activities that negatively impact investment value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without the Chinese-based
issuer’s authorization to enter into contractual arrangements in China. Chops
and seals, which are carved stamps used to sign documents, represent a legally
binding commitment by the company. Moreover, any future regulatory action may
prohibit the ability of the shell company to receive the economic benefits of
the Chinese-based operating company, which may cause the value of the Fund’s
investment in the listed shell company to suffer a significant loss. For
example, in 2021, the Chinese government prohibited use of the VIE structure for
investment in after-school tutoring companies. There is no guarantee that the
Chinese government will not place similar restrictions on other
industries.
Chinese
equities that utilize the VIE structure to list in the U.S. as ADRs face the
risk of regulatory action from U.S. authorities, including the risk of
delisting. This will depend in part on whether U.S. regulatory authorities are
satisfied with their access to Mainland China and Hong Kong for the purpose of
conducting inspections on the quality of audits for these companies. Although
the U.S. and China reached an agreement in September 2022 to grant the U.S.
access for such inspections, there is no guarantee that the agreement will hold
up or that U.S. regulatory authorities will continue to feel satisfied with
their access.
Risk
of Investing in Developed Markets:
The Fund’s investment in a developed country issuer may subject the Fund to
regulatory, political, currency, security, economic and other risks associated
with developed countries. Developed countries tend to represent a significant
portion of the global economy and have generally experienced slower economic
growth than some less developed countries. Certain developed countries have
experienced security concerns, such as terrorism and strained international
relations. Incidents involving a country’s or region’s security may cause
uncertainty in its markets and may adversely affect its economy and the Fund’s
investments. In addition, developed countries may be impacted by changes to the
economic conditions of certain key trading partners, regulatory burdens, debt
burdens and the price or availability of certain commodities.
Risk
of Investing in Emerging Markets:
The Fund targets Yieldco and Renewable Energy Companies globally and is expected
to invest in securities in emerging market countries. Investments in emerging
markets may be subject to a greater risk of loss than investments in developed
markets. Securities markets of emerging market countries are less liquid,
subject to greater price volatility, have smaller market capitalizations, have
less government regulation, and are not subject to as extensive and frequent
accounting, financial, and other reporting requirements as the securities
markets of more developed countries, and there may be greater risk associated
with the custody of securities in emerging markets. It may be difficult or
impossible for the Fund to pursue claims against an emerging market issuer in
the courts of an emerging market country.
There
may be significant obstacles to obtaining information necessary for
investigations
into or litigation against emerging market companies and shareholders may have
limited legal rights and remedies. Emerging markets may be more likely to
experience inflation, political turmoil and rapid changes in economic conditions
than more developed markets. Emerging market economies’ exposure to specific
industries, such as tourism, and lack of efficient or sufficient health care
systems, could make these economies especially vulnerable to global crises,
including but not limited to, pandemics such as the global COVID-19 pandemic.
Certain emerging market countries may have privatized, or have begun the process
of privatizing, certain entities and industries. Privatized entities may lose
money or be re-nationalized.
Risk
of Investing in New Zealand: The
New Zealand economy is heavily dependent on agricultural exports, and as a
result, is susceptible to fluctuations in demand for agricultural products. New
Zealand is also dependent on trade with key trading partners; a reduction in
such trade may cause an adverse impact on its economy.
Risk
of Investing in Thailand: Investments
in Thai issuers may subject the Fund to legal, regulatory, political, currency,
security, and economic risks specific to Thailand. Among other things,
Thailand’s economy is heavily dependent on trading relationships with certain
key trading partners, including the United States, China, Japan and other Asian
countries.
International
Closed Market Trading Risk: To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote from the closed foreign market).
These deviations could result in premiums or discounts to the Fund’s NAV that
may be greater than those experienced by other exchange-traded funds
("ETFs").
Investable
Universe of Companies Risk:
The investable universe of companies in which the Fund may invest may be
limited. If a company no longer meets the Index Provider’s criteria for
inclusion in the Underlying Index, the Fund may need to reduce or eliminate its
holdings in that company. The reduction or elimination of the Fund’s holdings in
the company may have an adverse impact on the liquidity of the Fund’s overall
portfolio holdings and on Fund performance.
Issuer
Risk:
Fund performance depends on the performance of individual companies in which the
Fund invests. Changes to the financial condition of any of those companies may
cause the value of such company's securities to decline.
Market
Risk:
Turbulence in the financial markets and reduced liquidity may negatively affect
issuers, which could have an adverse effect on the Fund. If the securities held
by the Fund experience poor liquidity, the Fund may be unable to transact at
advantageous times or prices, which may decrease the Fund’s returns. In
addition, there is a risk that policy changes by central governments and
governmental agencies, including the U.S. Federal Reserve or the European
Central Bank, which could include increasing interest rates, could cause
increased volatility in financial markets and lead to higher levels of Fund
redemptions from Authorized Participants, which could have a negative impact on
the Fund. Furthermore, local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health issues,
recessions, or other events could have a significant impact on the Fund and its
investments and trading of its Shares. For example, at the start of 2023,
central banks had already increased interest rates at the fastest rate on
record, and it is unknown how long this trend will continue and when inflation
will return to target levels. This increases the risk that monetary policy may
provide less support should economic growth slow. Additionally, China’s shift
away from a zero-COVID policy creates both opportunities and risks, causing
uncertainty for global economic growth. Market risk factors may result in
increased volatility and/or decreased liquidity in the securities markets. The
Fund’s NAV could decline over short periods due to short-term market movements
and over longer periods during market downturns.
Non-Diversification
Risk:
The Fund is classified as a “non-diversified” investment company under the
Investment Company Act of 1940 ("1940 Act"). As a result, the Fund is subject to
the risk that it may be more volatile than a diversified fund because the Fund
may invest its assets in a smaller number of issuers or may invest a larger
proportion of its assets in a single issuer. As a result, the gains and losses
on a single investment may have a greater impact on the Fund’s NAV and may make
the Fund more volatile than more diversified funds.
Operational
Risk:
The Fund is exposed to operational risk arising from a number of factors,
including but not limited to human error, processing and communication errors,
errors of the Fund's service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. Additionally,
cyber security failures or breaches of the electronic systems of the Fund, the
Adviser, and the Fund's other service providers, market makers, Authorized
Participants or the issuers of securities in which the Fund invests have the
ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. The Fund and the Adviser seek to
reduce
these operational risks through controls and procedures. However, these measures
do not address every possible risk and may be inadequate for those risks that
they are intended to address.
Passive
Investment Risk:
The Fund is not actively managed, and the Adviser does not attempt to take
defensive positions in declining markets. Unlike many investment companies, the
Fund does not seek to outperform its Underlying Index. Therefore, it would not
necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is
underperforming. Additionally, if a constituent of the Underlying Index were
removed, even outside of a regular rebalance of the Underlying Index, the
Adviser anticipates that the Fund would sell such security. Maintaining
investments in securities regardless of market conditions or the performance of
individual securities could cause the Fund’s return to be lower than if the Fund
employed an active strategy.
Index-Related
Risk:
There is no guarantee that the Fund will achieve a high degree of correlation to
the Underlying Index and therefore achieve its investment objective. Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Underlying Index. Errors in index data, index computations and/or the
construction of the Underlying Index in accordance with its methodology 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, which may have an adverse impact on the
Fund and its shareholders.
Management
Risk:
The Fund may not fully replicate its Underlying Index and may hold securities
not included in its Underlying Index. The Adviser’s investment strategy, the
implementation of which is subject to a number of constraints, may cause the
Fund to underperform the market or its relevant benchmark or adversely affect
the ability of the Fund to achieve its investment objective.
Tracking
Error Risk:
Tracking error may occur because of differences between the instruments held in
the Fund's portfolio and those included in the Underlying Index, pricing
differences, transaction costs incurred by the Fund, the Fund's holding of
uninvested cash, size of the Fund, differences in timing of the accrual of or
the valuation of dividends or interest, tax gains or losses, changes to the
Underlying Index or the costs to the Fund of complying with various new or
existing regulatory requirements. This risk may be heightened during times of
increased market volatility or other unusual market conditions. Tracking error
also may result because the Fund incurs fees and expenses, while the Underlying
Index does not. ETFs that track indices with significant weight in emerging
markets issuers may experience higher tracking error than other ETFs that do not
track such indices.
Risks
Associated with Exchange-Traded Funds:
As an ETF, the Fund is subject to the following risks:
Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants and engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. To the extent that those
Authorized Participants exit the business or are unable to process creation
and/or redemption orders, such as in times of market stress, Shares may be more
likely to trade at a premium or discount to NAV and/or at wider intraday bid-ask
spreads, and possibly face trading halts and/or delisting from an exchange.
Authorized Participants Concentration Risk may be heightened because the Fund
invests in non-U.S. securities.
Large
Shareholder Risk: Redemptions
by large shareholders could have a significant negative impact on the Fund. If a
large shareholder were to redeem all, or a large portion, of its Shares, there
is no guarantee that the Fund will be able to maintain sufficient assets to
continue operations in which case the Board of Trustees may determine to
liquidate the Fund. In addition, transactions by large shareholders may account
for a large percentage of the trading volume on a national securities exchange
and may, therefore, have a material upward or downward effect on the market
price of the Shares.
Listing
Standards Risk: The
Fund is required to comply with listing requirements adopted by the listing
exchange. Non-compliance with such requirements may result in the Fund's shares
being delisted by the listing exchange. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs and could result in
negative tax consequences for its shareholders.
Market
Trading Risks and Premium/Discount Risks:
Shares of the Fund are publicly traded on a national securities exchange, which
may subject shareholders to numerous market trading risks. In stressed market
conditions, the market for the Shares may become less liquid in response to the
deteriorating liquidity of the Fund’s portfolio. This adverse effect on the
liquidity of the Shares, as well as disruptions to creations and redemptions,
the existence of extreme market volatility or potential lack of assets in the
Fund or an active trading market for Shares may result in Shares
trading
at a significant premium or discount to NAV. If a shareholder purchases Shares
at a time when the market price is at a premium to the NAV or sells Shares at a
time when the market price is at a discount to the NAV, the shareholder may
sustain losses. The NAV of the Fund is calculated at the end of each business
day and fluctuates with changes in the market value of the Fund’s holdings. The
trading price of the Fund’s shares fluctuates, in some cases materially,
throughout trading hours in response to changes in the Fund’s NAV.
Securities
Lending Risk:
Securities lending involves a risk of loss because the borrower may fail to
return the securities in a timely manner or at all. If the Fund is not able to
recover the securities loaned, it may sell the collateral and purchase a
replacement security in the market. Lending securities entails a risk of loss to
the Fund if and to the extent that the market value of the loaned securities
increases and the collateral is not increased accordingly. Additionally, the
Fund will bear any loss on the investment of cash collateral it receives. These
events could also trigger adverse tax consequences for the Fund. As securities
on loan may not be voted by the Fund, there is a risk that the Fund may not be
able to recall the securities in sufficient time to vote on material proxy
matters.
Trading
Halt Risk:
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading
losses.
Valuation
Risk: The sales price the Fund could receive for
a security may differ from the Fund’s valuation of the security and may differ
from the value used by the Underlying Index, particularly for securities that
trade in low value or volatile markets or that are valued using a fair value
methodology (such as during trading halts). 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 Fund's Shares.
PERFORMANCE
INFORMATION
The bar chart
and table that follow show how the Fund performed on a calendar year basis and
provide an indication of the risks of investing in the Fund by showing changes
in the Fund's performance from year to year and by showing how the Fund's
average annual returns for the indicated periods compare with the Fund's
benchmark index and a broad measure of market performance. On
November 19, 2018, the name of the Fund changed from the Global X YieldCo Index
ETF to the Global X YieldCo & Renewable Energy Income ETF to reflect a
change in the Fund's underlying index from the Indxx Global YieldCo Index to the
Indxx YieldCo & Renewable Energy Income Index. The Fund's past performance
(before and after taxes) is not necessarily indicative of how the Fund will
perform in the future. Updated performance information is
available online at www.globalxetfs.com.
Annual Total Returns (Years Ended December
31)
|
|
|
|
|
|
|
|
|
Best
Quarter: |
12/31/2020 |
24.58% |
Worst
Quarter: |
3/31/2020 |
-18.03% |
Average Annual Total Returns (for the Periods
Ended December 31, 2022)
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Year Ended December 31, 2022 |
Five
Years Ended December 31, 2022 |
Since
Inception (05/27/2015) |
Global
X Renewable Energy Producers ETF: |
|
|
|
·Return before
taxes |
-15.06% |
3.81% |
1.66% |
·Return
after taxes on distributions1 |
-15.18% |
3.09% |
0.87% |
·Return
after taxes on distributions and sale of Fund Shares1 |
-8.65% |
2.88% |
1.12% |
Hybrid
Indxx Renewable Energy Producers Index (net)2
(Index returns reflect
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
-14.73% |
4.22% |
2.05% |
MSCI
ACWI Index (net)
(Index returns reflect
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
-18.36% |
5.23% |
6.28% |
1
After-tax returns are
calculated using the historical highest individual U.S. federal marginal income
tax rates and do not reflect the impact of state and local
taxes. Your actual after-tax returns
will depend on your specific tax situation and may differ from those shown
above. After-tax returns are not relevant to investors who hold Shares of the
Fund through tax-advantaged arrangements, such as 401(k) plans or individual
retirement accounts (IRAs).
2
Hybrid index performance
reflects the performance of the Indxx Global YieldCo Index through November 18,
2018 and the Indxx YieldCo & Renewable Energy Income Index thereafter.
Effective February 1, 2021, the name of the Underlying Index changed from Indxx
YieldCo & Renewable Energy Income Index to the Indxx Renewable Energy
Producers Index.
FUND
MANAGEMENT
Investment
Adviser:
Global X Management Company LLC.
Portfolio
Managers: The
professionals primarily responsible for the day-to-day management of the Fund
are Nam To, CFA; Wayne Xie; Kimberly Chan; Vanessa Yang; and Sandy Lu, CFA
(“Portfolio Managers”). Mr. To has been a Portfolio Manager of the Fund since
March 1, 2018. Mr. Xie has been a Portfolio Manager of the Fund since March 1,
2019. Ms. Chan has been a Portfolio Manager of the Fund since June 10, 2019. Ms.
Yang has been a Portfolio Manager of the Fund since December 2020. Mr. Lu has
been a Portfolio Manager of the Fund since March 2022.
PURCHASE
AND SALE OF FUND SHARES
Shares
of the Fund are or will be listed and traded at market prices on a national
securities exchange. Shares may only be purchased and sold on the exchange
through a broker-dealer. The price of Shares is based on market price, and
because ETF shares trade at market prices rather than at NAV, Shares may trade
at a price greater than NAV (a premium) or less than NAV (a discount). Only
“Authorized Participants” (as defined in the SAI) who have entered into
agreements with the Fund’s distributor, SEI Investments Distribution Co.
(“Distributor”), may engage in creation or redemption transactions directly with
the Fund. The Fund will only issue or redeem Shares that have been aggregated
into blocks called Creation Units. The Fund will issue or redeem Creation Units
in return for a basket of cash and/or securities that the Fund specifies any day
that the national securities exchanges are open for business (“Business Day”).
An investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase shares of the Fund (bid) and the
lowest price a seller is willing to accept for shares of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”). To
access information regarding the Fund’s net asset value, market price, premiums
and discounts, and bid-ask spreads, please go to https://www.globalxetfs.com.
TAX
INFORMATION
The
Fund intends to make distributions that may be taxable to you as ordinary income
or capital gains, unless you are investing through a tax-advantaged arrangement,
such as a 401(k) plan or an individual retirement account ("IRA"), in which case
distributions from such tax-advantaged arrangement may be taxable to you.
PAYMENTS
TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
The
Adviser and its related companies may pay broker-dealers or other financial
intermediaries (such as a bank) for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer, sales persons or other intermediary or its employees or
associated persons to recommend the Fund over another investment. Ask your
financial adviser or visit your financial intermediary’s website for more
information.
Global X Disruptive Materials ETF
Ticker:
DMAT Exchange: NASDAQ
INVESTMENT OBJECTIVE
The Global X Disruptive
Materials ETF ("Fund") seeks to provide investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
Solactive Disruptive Materials Index ("Underlying
Index").
FEES AND EXPENSES
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares (“Shares”) of
the Fund. You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the tables and examples
below.
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment):
|
|
|
|
|
|
Management
Fees: |
0.59% |
Distribution
and Service (12b-1) Fees: |
None |
Other
Expenses:1 |
0.00% |
Total
Annual Fund Operating Expenses: |
0.59% |
1 Other Expenses are based on
estimated amounts for the current fiscal year.
Example:
The following example
is intended to help you compare the cost of investing in the Fund with the cost
of investing in other funds. This example does not take into account customary
brokerage commissions that you pay when purchasing or selling Shares of the Fund
in the secondary market. The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell 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:
|
|
|
|
|
|
|
|
|
|
|
|
One
Year |
Three
Years |
Five
Years |
Ten
Years |
$60 |
$189 |
$329 |
$738 |
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. From the Fund's commencement of
operations on January 24, 2022 to the end of the most recent fiscal period, the
Fund's portfolio turnover rate was 25.34% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund invests at least 80% of its total assets, plus borrowings for investment
purposes (if any), in the securities of the Solactive Disruptive Materials Index
(the "Underlying Index") and in American Depositary Receipts ("ADRs") and Global
Depositary Receipts ("GDRs") based on the securities in the Underlying Index.
The Fund's 80% investment policy is non-fundamental and requires 60 days prior
written notice to shareholders before it can be changed.
The
Underlying Index is designed to provide exposure to companies that produce
metals and other raw or composite materials that have been identified as being
essential to disruptive technologies such as lithium batteries, solar panels,
wind turbines, fuel cells, robotics, and 3D printers. Each material has been
determined by Solactive AG, the provider of the Underlying Index (the “Index
Provider”) to be instrumental to the development and materialization of one or
more disruptive technologies. Disruptive technologies refer to those
technologies that are essential to the development and materialization of
long-term, structural changes to existing products, services, industries, or
sectors. Specifically, the Underlying Index will include securities issued by
“Disruptive Materials Companies” as defined by the Index Provider. Disruptive
Materials Companies are those companies that derive at least 50% of their
revenues in aggregate from the exploration, mining, production and/or
enhancement of one or more of the following ten materials categories: Carbon
Fiber, Cobalt, Copper, Graphene & Graphite, Lithium, Manganese, Nickel,
Platinum & Palladium, Rare Earth Elements, and Zinc (collectively,
“Disruptive Materials Categories”). Companies engaged in
exploration
and mining include those companies involved in locating and extracting
disruptive materials. Companies engaged in production include those companies
involved in manufacturing, processing, and trading disruptive materials for
primary usage. Companies engaged in enhancement include those companies involved
in refining, developing, and/or smelting materials to extract and purify
disruptive materials. As of December 31, 2022, the Underlying Index had 49
constituents.
For
the Lithium category, companies that derive greater than 25% but less than 50%
of revenue from the production and/or processing of lithium are also eligible
for inclusion (collectively, “Diversified Lithium Companies”). In addition,
companies with primary business operations in the exploration, mining,
production and/or enhancement of one or more of the Disruptive Materials
Categories, but which are not currently generating revenue, are also eligible
for inclusion (collectively, “Pre-Revenue Disruptive Materials Companies”). To
determine whether a company has primary business operations in the exploration,
mining, production and/or enhancement of one or more of the Disruptive Materials
Categories, the Index Provider reviews the public financial disclosures and
filings of the company, and identifies the products and business segments
disclosed therein. The Index Provider then reviews the management discussion and
analysis, as well as the level of investment the company allocates to those
products and segments, to determine whether those business operations are the
primary operations of the company.
In
constructing the Underlying Index, the Index Provider applies a proprietary
natural language processing algorithm to the eligible universe, which seeks to
identify and rank companies involved in each of the Disruptive Materials
Categories based on filings, disclosures, and other public information (e.g.,
regulatory filings, earnings transcripts, etc.). The highest-ranking companies
identified by the natural language processing algorithm in each Disruptive
Materials Category, as of the selection date, are further reviewed by the Index
Provider to confirm they derive at least 50% of their revenues from one of the
Disruptive Materials Categories as described above, derive between 25% and 50%
of their revenues from the Lithium category in the case of Diversified Lithium
Companies, or
have
primary business operations in the exploration, mining, production and/or
enhancement of one or more of the Disruptive Materials Categories but do not
currently generate revenues in the case of Pre-Revenue Disruptive Materials
Companies. The five highest-ranking Disruptive Materials Companies and
Pre-Revenue Disruptive Materials Companies according to free float market
capitalization from each Disruptive Materials Category are included in the
Underlying Index. For the Lithium category, the five highest-ranking Disruptive
Materials Companies, Pre-Revenue Disruptive Materials Companies and Diversified
Lithium Companies according to free float market capitalization are
included.
If
fewer than five companies are identified that satisfy the above criteria within
a Disruptive Materials Category, all eligible companies are selected, and the
category consists of fewer than five companies.
To
be a part of the eligible universe of the Underlying Index, companies must be
classified in one of the following Economies according to FactSet (a leading
financial data provider that maintains a comprehensive structured taxonomy
designed to offer precise classification of global companies and their
individual business units): Basic Materials, Industrials, or Technology. In
addition, certain minimum market capitalization and liquidity criteria, as
defined by the Index Provider, must be met. As of December 31, 2022,
companies must have a minimum market capitalization of $100 million and a
minimum average daily turnover for the last 6 months greater than or equal to $1
million in order to be eligible for inclusion in the Underlying Index. As of
December 31, 2022, companies listed in the following countries were
eligible for inclusion in the Underlying Index: Australia, Austria, Belgium,
Brazil, Canada, Chile, China, Colombia, Czech Republic, Denmark, Egypt, Finland,
France, Germany, Greece, Hong Kong, Hungary, Indonesia, Ireland, Israel, Italy,
Japan, Kuwait, Malaysia, Mexico, Netherlands, New Zealand, Norway, Pakistan,
Peru, Philippines, Poland, Portugal, Qatar, Saudi Arabia, Singapore, South
Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey,
United Kingdom, United States, and the United Arab Emirates. As of
December 31, 2022, the Underlying Index had significant exposure to Chinese
issuers. The Fund may invest in China A-Shares, which are issued by companies
incorporated in mainland China and traded on Chinese exchanges. The Fund may
invest in securities of issuers located in emerging markets.
The
Underlying Index is weighted according to a modified capitalization weighting
methodology and is reconstituted and re-weighted semi-annually. Modified
capitalization weighting seeks to weight constituents primarily based on market
capitalization, but subject to caps on the weights of the individual securities.
During each rebalance, the maximum weight of a company is capped at 4%, and all
constituents are subject to a minimum weight of 0.3%. In addition, Diversified
Lithium Companies and Pre-Revenue Disruptive Materials Companies are subject to
an aggregate weight cap of 10% at each semi-annual rebalance. Generally
speaking, modified capitalization weighting will limit the amount of
concentration in the largest market capitalization companies and increase
company-level diversification. The Underlying Index may include large-, mid-,
small-, or micro-capitalization companies, and components primarily include
materials companies. The Fund's investment objective and Underlying Index may be
changed without shareholder approval.
The
Underlying Index is sponsored by the Index Provider, which is an organization
that is independent of, and unaffiliated with, the Fund and Global X Management
Company LLC, the investment adviser for the Fund ("Adviser"). In addition, any
determinations related to the constituents of the Underlying Index are made
independent of the Fund's portfolio managers. The
Index
Provider determines the relative weightings of the securities in the Underlying
Index and publishes information regarding the market value of the Underlying
Index.
The
Adviser uses a "passive" or indexing approach to try to achieve the Fund's
investment objective. Unlike many investment companies, the Fund does not try to
outperform the Underlying Index and does not seek temporary defensive positions
when markets decline or appear overvalued.
The
Fund generally will use a replication strategy. A replication strategy is an
indexing strategy that involves investing in the securities of the Underlying
Index in approximately the same proportions as in the Underlying Index. However,
the Fund may utilize a representative sampling strategy with respect to the
Underlying Index when a replication strategy might be detrimental or
disadvantageous to shareholders, such as when there are practical difficulties
or substantial costs involved in compiling a portfolio of equity securities to
replicate the Underlying Index, in instances in which a security in the
Underlying Index becomes temporarily illiquid, unavailable or less liquid, or as
a result of legal restrictions or limitations (such as tax diversification
requirements) that apply to the Fund but not the Underlying Index.
The
Adviser expects that, over time, the correlation between the Fund's performance
and that of the Underlying Index, before fees and expenses, will exceed 95%. A
correlation percentage of 100% would indicate perfect correlation. If the Fund
uses a replication strategy, it can be expected to have greater correlation to
the Underlying Index than if it uses a representative sampling
strategy.
The Fund concentrates its investments
(i.e., holds 25% or more of its total assets) in a particular industry or group
of industries to approximately the same extent that the Underlying Index is
concentrated. As of December 31, 2022, the Underlying Index was
concentrated in the metals and mining industry and had significant exposure to
the materials sector. The Fund is classified as
“non-diversified,” which means it may invest a larger percentage of its assets
in a smaller number of issuers than a diversified
fund.
SUMMARY OF PRINCIPAL RISKS
As with any investment, you could lose all or part of
your investment in the Fund, and the Fund’s performance could trail that of
other investments. There is no guarantee that the Fund will
achieve its investment objective. An investment in the Fund is not a
bank deposit and it is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, the Adviser or any of its
affiliates. The Fund is subject to the principal risks noted
below, any of which may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and ability to meet its investment objective,
as well as other risks that are described in greater detail in the Additional
Information About the Funds
section of this Prospectus and in the Statement of Additional Information
(“SAI”). The order of the below risk factors does not indicate the significance
of any particular risk factor.
Asset
Class Risk:
Securities and other assets in the Underlying Index or otherwise held in the
Fund's portfolio may underperform in comparison to the general securities
markets, a particular securities market or other asset classes.
China
A-Shares Risk:
A-Shares are issued by companies incorporated in mainland China and are traded
on Chinese exchanges. Foreign investors can access A-Shares by obtaining a
Qualified Foreign Institutional Investor ("QFII") or a Renminbi Qualified
Foreign Institutional Investor ("RQFII") license, as well as through the Stock
Connect Program, which is a securities trading and clearing program with an aim
to achieve mutual stock market access between the China and Hong Kong markets.
Stock Connect was developed by Hong Kong Exchanges and Clearing Limited, the
Shanghai Stock Exchange ("SSE") (in the case of Shanghai Connect) or the
Shenzhen Stock Exchange ("SZSE") (in the case of Shenzhen Connect), and the
China Securities Depository and Clearing Corporation Limited (“CSDCC”). The Fund
currently intends to gain exposure to A-Shares through the Stock Connect
Programs. Investments in A-Shares are subject to various regulations and limits,
and the recoupment or repatriation of assets invested in A-Shares is subject to
restrictions by the Chinese government. In addition, investors from outside
mainland China may face difficulties or prohibitions accessing certain A-Shares
that are part of a restricted list in countries such as the U.S. A-Shares may be
subject to frequent and widespread trading halts and may become illiquid.
Trading suspensions in certain stock could lead to greater market execution risk
and costs for the Fund, and the creation and redemption of Creation Units (as
defined below) may also be disrupted. These risks, among others, could adversely
affect the value of the Fund’s investments.
Depositary
Receipts Risk: The
Fund may invest in depositary receipts, such as ADRs and GDRs. Depositary
receipts may be subject to certain of the risks associated with direct
investments in the securities of foreign companies. For additional details on
these risks, please see Foreign
Securities Risk.
Moreover, depositary receipts may not track the
price
of the underlying foreign securities on which they are based. A holder of
depositary receipts may also be subject to fees and the credit risk of the
financial institution acting as depositary.
Equity
Securities Risk:
Equity securities are subject to changes in value, and their values may be more
volatile than other asset classes, as a result of such factors as a company’s
business performance, investor perceptions, stock market trends and general
economic conditions.
Associated
Risks Related to Investing in Disruptive Materials Companies:
Disruptive Materials Companies engage in the exploration, mining, production
and/or enhancement of metals and other raw or composite materials that have been
identified as being essential to many of the world’s most disruptive
technologies. There is no guarantee that demand for these technologies will
continue, or that the raw materials currently used in the production of these
materials will continue to be utilized. A reduction of demand for the
technologies that utilize these disruptive materials, or of the materials
themselves, would have an adverse impact on the Fund. Companies involved in the
various activities that are related to the exploration, mining, production
and/or enhancement of disruptive materials may be medium-, small-, or
micro-capitalization companies. These companies tend to have volatile share
prices and are highly dependent on the price of the underlying disruptive
materials, which may fluctuate substantially over short periods of time. The
value of such companies may be significantly affected by the success of
exploration projects, political and economic conditions in geographies where the
companies operate, government royalties, energy conservation, environmental
policies, commodity price volatility, changes in exchange rates, imposition of
import/export controls, increased competition, depletion of resources and labor
relations, and other world events. The exploration, mining, production and/or
enhancement of disruptive materials can require large amounts of capital and, if
companies involved in such activities are mismanaged, the share prices of such
companies could decline even as prices for the underlying materials rise. In
addition, companies involved in the various activities that are related to the
exploration, mining, production and/or enhancement of disruptive materials may
be at risk for environmental damage allegations and potentially punitive claims.
Exploration, mining, production and/or enhancement of disruptive materials may
involve environmentally intensive processes, and Disruptive Materials Companies
may be at risk for environmental damage liabilities, as well as mandated
expenditures for safety, pollution control, and environment
remediation.
Capitalization
Risk:
Investing in issuers within the same market capitalization category carries the
risk that the category may be out of favor due to current market conditions or
investor sentiment.
Large-Capitalization
Companies Risk: Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk: Mid-capitalization
companies may have greater price volatility, lower trading volume and less
liquidity than large-capitalization companies. In addition, mid-capitalization
companies may have smaller revenues, narrower product lines, less management
depth and experience, smaller shares of their product or service markets, fewer
financial resources and less competitive strength than large-capitalization
companies.
Small-Capitalization
Companies Risk:
Compared to mid- and large-capitalization companies, small-capitalization
companies may be less stable and more susceptible to adverse developments, and
their securities may be more volatile and less liquid.
Cash
Transaction Risk:
Unlike most exchange-traded funds ("ETFs"), the Fund intends to effect a
significant portion of creations and redemptions for cash, rather than in-kind
securities. As a result, an investment in the Fund may be less tax-efficient
than an investment in a more conventional ETF. Moreover, cash transactions may
have to be carried out over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and taxes. These factors
may result in wider spreads between the bid and the offered prices of the Fund’s
Shares than for more conventional ETFs.
Commodity
Exposure Risk:
The Fund will hold securities that are dependent on a single commodity, or are
concentrated on a single commodity sector, that typically exhibit even higher
volatility attributable to commodity prices. Any negative changes in commodity
markets could have a great impact on the Fund. Commodity prices may be
influenced or characterized by unpredictable factors, including, where
applicable, high volatility, changes in supply and demand relationships,
weather, agriculture, trade, changes in interest rates and monetary and other
governmental policies, action and inaction.
Commodity
Price Relationship Risk: The
Underlying Index measures the performance of companies engaged in a particular
industry and not the performance of commodities prices themselves. Companies may
under- or over-perform commodities prices over the short-term or the
long-term.
Currency
Risk:
The Fund may invest in securities denominated in foreign currencies. Because the
Fund's NAV is determined in U.S. dollars, the Fund's NAV could decline if
currencies of the underlying securities depreciate against the U.S. dollar or if
there are delays or limits on repatriation of such currencies. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the Fund's NAV may change quickly and without warning, which could have
a significant negative impact on the Fund. Additionally, the Chinese government
heavily regulates the domestic exchange of foreign currencies and yuan exchange
rates in China, which may adversely affect the operations and financial results
of the Fund’s investments in China. Shares purchased through the Stock Connect
Programs will be purchased using offshore yuan, the value of which may differ
from and experience greater volatility than the value of onshore yuan. Offshore
yuan cannot be freely remitted into or transferred out of China, and there is no
assurance that there will always be sufficient amounts of offshore yuan
available for the Fund to invest in all components of the Underlying
Index.
Custody
Risk:
The Fund may hold foreign securities and cash with foreign banks, agents, and
securities depositories appointed by the Fund's custodian. Investments in
emerging markets may be subject to even greater custody risks than investments
in more developed markets. Less developed markets are more likely to experience
problems with the clearing and settling of trades and the holding of securities
by local banks, agents and depositories.
Focus
Risk:
To the extent that the Underlying Index focuses in investments related to a
particular industry or group of industries, the Fund will also focus its
investments to approximately the same extent. Similarly, if the Underlying Index
has significant exposure to one or more sectors, the Fund’s investments will
likely have significant exposure to such sectors. In such event, the Fund’s
performance will be particularly susceptible to adverse events impacting such
industry or sector, which may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively
affect supply and demand; competition for resources; adverse labor relations;
political or world events; obsolescence of technologies; and increased
competition or new product introductions that may affect the profitability or
viability of companies in a particular industry or sector. As a result, the
value of the Fund’s investments 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 or sectors.
Risks
Related to Investing in the Materials Sector:
Companies in the materials sector are affected by commodity price volatility,
exchange rates, import controls and worldwide competition. At times, worldwide
production of industrial materials has exceeded demand, leading to poor
investment returns or outright losses. Issuers in the materials sector are at
risk of depletion of resources, technological progress, labor relations,
governmental regulations and environmental damage and product liability
claims.
Risks
Related to Investing in the Metals and Mining Industry: Securities
in the Fund's portfolio may be significantly subject to the effects of
competitive pressures in the mining industry and commodity prices generally.
Commodity prices may be affected by changes in inflation rates, interest rates,
monetary policy, economic conditions, and political stability. Commodity prices
may fluctuate substantially over short periods of time; therefore, the Fund’s
Share price may be more volatile than other types of investments. In addition,
metals and mining companies may also be significantly affected by import
controls, worldwide competition, liability for environmental damage, depletion
of resources, and mandated expenditures for safety and pollution control
devices. Metals and mining companies may have significant operations in areas at
risk for social and political unrest, security concerns and environmental
damage. These companies may also be at risk for increased government regulation
and intervention. Such risks may adversely affect the issuers to which the Fund
has exposure.
Foreign
Securities Risk:
The Fund may invest, within U.S. regulations, in foreign securities. The Fund's
investments in foreign securities can be riskier than U.S. securities
investments. Investments in the securities of foreign issuers (including
investments in ADRs and GDRs) are subject to the risks associated with investing
in those foreign markets, such as heightened risks of inflation or
nationalization. The prices of foreign securities and the prices of U.S.
securities have, at times, moved in opposite directions. In addition, securities
of foreign issuers may lose value due to political, economic and geographic
events affecting a foreign issuer or market. During periods of social, political
or economic instability in a country or region, the value of a foreign security
traded on U.S. exchanges could be affected by, among other things, increasing
price volatility, illiquidity, or the closure of the primary market on which the
security (or the security underlying the ADR or GDR) is traded. You may lose
money due to political, economic and geographic events affecting a foreign
issuer or market. Where all or a portion of the Fund's underlying securities
trade in a market that is closed when the market in which the Fund's shares are
listed and trading is open, there may be differences between the last quote from
the security’s closed foreign market and the value of the security during the
Fund’s domestic trading day. This in turn could lead to differences between the
market price of the Fund’s shares and the underlying value of those shares.
Geographic
Risk: A
natural, biological or other disaster could occur in a geographic region in
which the Fund invests, which could affect the economy or particular business
operations of companies in the specific geographic region, causing an adverse
impact
on the Fund’s investments in the affected region or in a region economically
tied to the affected region. The securities in which the Fund invests and,
consequently, the Fund are also subject to specific risks as a result of their
business operations, including, but not limited to:
Risk
of Investing in Australia: Investments
in Australian issuers may subject the Fund to regulatory, political, currency,
security, and economic risk specific to Australia. The Australian economy is
heavily dependent on exports from the energy, agricultural and mining sectors.
This makes the Australian economy susceptible to fluctuations in the commodity
markets. Australia is also dependent on trading with key trading
partners.
Risk
of Investing in Chile: Investments
in Chilean issuers involve risks that are specific to Chile, including legal,
regulatory, political, currency, environmental and economic risks. Among other
things, the Chilean economy is heavily dependent on the export of certain
commodities.
Risk
of Investing in China:
Investment exposure to China subjects the Fund to risks specific to China.
Economic,
Political and Social Risk
China
may be subject to considerable degrees of economic, political and social
instability. Concerns about the rising government and household debt levels
could impact the stability of the Chinese economy. China is an emerging market
and demonstrates significantly higher volatility from time to time in comparison
to developed markets. Over the last few decades, the Chinese government has
undertaken reform of economic and market practices, including recent reforms to
liberalize its capital markets and expand the sphere for private ownership of
property in China. However, Chinese markets generally continue to experience
inefficiency, volatility and pricing anomalies resulting from governmental
influence, a lack of publicly available information and/or political and social
instability. Chinese companies are also subject to the risk that Chinese
authorities can intervene in their operations and structure. Internal social
unrest or confrontations with other neighboring countries, including military
conflicts in response to such events, may also disrupt economic development in
China and result in a greater risk of currency fluctuations, currency
convertibility, interest rate fluctuations and higher rates of inflation.
China
has experienced major health crises. These health crises include, but are not
limited to, the rapid and pandemic spread of novel viruses commonly known as
SARS, MERS, and COVID-19 (Coronavirus). Such health crises could exacerbate
political, social, and economic risks previously mentioned.
Export
growth continues to be a major driver of China’s rapid economic growth. Elevated
trade tensions between China and its trading partners, including the imposition
of U.S. tariffs on certain Chinese goods and increased international pressure
related to Chinese trade policy and forced technology transfers and intellectual
property protections, may have a substantial impact on the Chinese economy.
Reduction in spending on Chinese products and services, institution of
additional tariffs or other trade barriers (including as a result of heightened
trade tensions between China and the U.S. or in response to actual or alleged
Chinese cyber activity), or a downturn in any of the economies of China’s key
trading partners may have an adverse impact on the Chinese economy. The
continuation or worsening of the current political climate between China and the
U.S. could result in additional regulatory restrictions being contemplated or
imposed in the U.S. or in China that could impact the Fund’s ability to invest
in certain companies.
Security
Risk
China
has experienced security concerns, such as terrorism and strained international
relations. Additionally, China is alleged to have participated in
state-sponsored cyberattacks against foreign companies and foreign governments.
Actual and threatened responses to such activity, including purchasing
restrictions, sanctions, tariffs or cyberattacks on the Chinese government or
Chinese companies, may impact China’s economy and Chinese issuers of securities
in which the Fund invests. Incidents involving China’s or the region’s security,
including the contagion of infectious viruses or diseases, may cause uncertainty
in Chinese markets and may adversely affect the Chinese economy and the Fund’s
investments.
Heavy
Government Control and Regulation
Chinese
companies, including Chinese companies that are listed on U.S. exchanges, are
not subject to the same degree of regulatory requirements, accounting standards
or auditor oversight as companies in more developed countries, and as a result,
information about the Chinese securities in which the Fund invests may be less
reliable or complete. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against Chinese
companies and shareholders may have limited legal remedies. Investments in China
may be subject to loss due to expropriation or nationalization of assets and
property or the imposition of restrictions on foreign investments and
repatriation of capital. Furthermore, government actions against leaders or
other key figures within companies, or speculation about such actions, may lead
to sudden and unpredictable falls in the value of securities within the
Fund.
Tax
Risk
China
has implemented a number of tax reforms in recent years and may amend or revise
its existing tax laws and/or procedures in the future, possibly with retroactive
effect. Changes in applicable Chinese tax law could reduce the after-tax profits
of the Fund, directly or indirectly, including by reducing the after-tax profits
of companies in China in which the Fund invests. Uncertainties in Chinese tax
rules could result in unexpected tax liabilities for the Fund. Should
legislation limit U.S. investors’ ability to invest in specific Chinese
companies through A-shares or other share class listings that are part of the
underlying holdings, these shares may be excluded from Fund
holdings.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the Chinese government restricts foreign
ownership to raise capital from foreign investors. While the shell company has
no equity ownership of the VIE, these contractual arrangements permit the shell
company to consolidate the VIE’s financial statements with its own for
accounting purposes and provide for economic exposure to the performance of the
underlying Chinese operating company.
Therefore,
an investor in the listed shell company, such as the Fund, will have exposure to
the Chinese-based operating company only through contractual arrangements and
has no ownership in the Chinese-based operating company. Furthermore, because
the shell company only has specific rights provided for in these service
agreements with the VIE, its abilities to control the activities at the
Chinese-based operating company are limited and the operating company may engage
in activities that negatively impact investment value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without the Chinese-based
issuer’s authorization to enter into contractual arrangements in China. Chops
and seals, which are carved stamps used to sign documents, represent a legally
binding commitment by the company. Moreover, any future regulatory action may
prohibit the ability of the shell company to receive the economic benefits of
the Chinese-based operating company, which may cause the value of the Fund’s
investment in the listed shell company to suffer a significant loss. For
example, in 2021, the Chinese government prohibited use of the VIE structure for
investment in after-school tutoring companies. There is no guarantee that the
Chinese government will not place similar restrictions on other
industries.
Chinese
equities that utilize the VIE structure to list in the U.S. as ADRs face the
risk of regulatory action from U.S. authorities, including the risk of
delisting. This will depend in part on whether U.S. regulatory authorities are
satisfied with their access to Mainland China and Hong Kong for the purpose of
conducting inspections on the quality of audits for these companies. Although
the U.S. and China reached an agreement in September 2022 to grant the U.S.
access for such inspections, there is no guarantee that the agreement will hold
up or that U.S. regulatory authorities will continue to feel satisfied with
their access.
Risk
of Investing in Emerging Markets:
Investments in emerging markets may be subject to a greater risk of loss than
investments in developed markets. Securities markets of emerging market
countries are less liquid, subject to greater price volatility, have smaller
market capitalizations, have less government regulation, and are not subject to
as extensive and frequent accounting, financial, and other reporting
requirements as the securities markets of more developed countries, and there
may be greater risk associated with the custody of securities in emerging
markets. It may be difficult or impossible for the Fund to pursue claims against
an emerging market issuer in the courts of an emerging market country. There may
be significant obstacles to obtaining information necessary for investigations
into or litigation against emerging market companies and shareholders may have
limited legal rights and remedies. Emerging markets may be more likely to
experience inflation, political turmoil and rapid changes in economic conditions
than more developed markets. Emerging market economies’ exposure to specific
industries, such as tourism, and lack of efficient or sufficient health care
systems, could make these economies especially vulnerable to global crises,
including but not limited to, pandemics such as the global COVID-19 pandemic.
Certain emerging market countries may have privatized, or have begun the process
of privatizing, certain entities and industries. Privatized entities may lose
money or be re-nationalized.
Risk
of Investing in Mexico: Investments
in Mexican issuers involve risks that are specific to Mexico, including legal,
regulatory, political, currency, security and economic risks. In the past,
Mexico has experienced high interest rates, economic volatility and high
unemployment rates. Recent political developments in the U.S. have potential
implications for the current trade arrangements between the U.S. and Mexico,
which could negatively affect the value of securities held by the
Fund.
Risk
of Investing in South Africa: Investing
in South African securities involves significant risks, including legal,
regulatory and economic risks specific to South Africa. Among other things,
South Africa’s economy is heavily dependent on its agriculture and mining
sectors, and, thus, susceptible to fluctuations in the commodity
markets.
Risk
of Investing in Zambia: Zambia
faces significant poverty and has a large public sector and poor social sector
delivery systems. Economic regulations and red tape are extensive, and
corruption is widespread, which continues to have a negative impact on the
Zambian economy despite recent reforms. The bureaucratic procedures surrounding
the process of obtaining licenses encourage the widespread use of facilitation
payments. Despite recent diversification efforts, the Zambian economy is heavily
dependent on the copper mining industry.
International
Closed Market Trading Risk: To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote from the closed foreign market).
These deviations could result in premiums or discounts to the Fund’s NAV that
may be greater than those experienced by other exchange-traded funds
("ETFs").
Investable
Universe of Companies Risk:
The investable universe of companies in which the Fund may invest may be
limited. If a company no longer meets the Index Provider’s criteria for
inclusion in the Underlying Index, the Fund may need to reduce or eliminate its
holdings in that company. The reduction or elimination of the Fund’s holdings in
the company may have an adverse impact on the liquidity of the Fund’s overall
portfolio holdings and on Fund performance.
Issuer
Risk:
Fund performance depends on the performance of individual companies in which the
Fund invests. Changes to the financial condition of any of those companies may
cause the value of such company's securities to decline.
Market
Risk:
Turbulence in the financial markets and reduced liquidity may negatively affect
issuers, which could have an adverse effect on the Fund. If the securities held
by the Fund experience poor liquidity, the Fund may be unable to transact at
advantageous times or prices, which may decrease the Fund’s returns. In
addition, there is a risk that policy changes by central governments and
governmental agencies, including the U.S. Federal Reserve or the European
Central Bank, which could include increasing interest rates, could cause
increased volatility in financial markets and lead to higher levels of Fund
redemptions from Authorized Participants, which could have a negative impact on
the Fund. Furthermore, local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health issues,
recessions, or other events could have a significant impact on the Fund and its
investments and trading of its Shares. For example, at the start of 2023,
central banks had already increased interest rates at the fastest rate on
record, and it is unknown how long this trend will continue and when inflation
will return to target levels. This increases the risk that monetary policy may
provide less support should economic growth slow. Additionally, China’s shift
away from a zero-COVID policy creates both opportunities and risks, causing
uncertainty for global economic growth. Market risk factors may result in
increased volatility and/or decreased liquidity in the securities markets. The
Fund’s NAV could decline over short periods due to short-term market movements
and over longer periods during market downturns.
New
Fund Risk: The
Fund is a new fund, with a limited operating history, which may result in
additional risks for investors in the Fund. There can be no assurance that the
Fund will grow to or maintain an economically viable size, in which case the
Board of Trustees may determine to liquidate the Fund. While shareholder
interests will be the paramount consideration, the timing of any liquidation may
not be favorable to certain individual shareholders. New funds are also subject
to Large Shareholder Risk.
Non-Diversification
Risk: The Fund is classified as a
“non-diversified” investment company under the Investment Company Act of 1940
("1940 Act"). As a result, the Fund is subject to the risk that it may be more
volatile than a diversified fund because the Fund may invest its assets in a
smaller number of issuers or may invest a larger proportion of its assets in a
single issuer. As a result, the gains and losses on a single investment may have
a greater impact on the Fund’s NAV and may make the Fund more volatile than more
diversified funds.
Operational
Risk:
The Fund is exposed to operational risk arising from a number of factors,
including but not limited to human error, processing and communication errors,
errors of the Fund's service providers, counterparties or other third-parties,
failed
or inadequate processes and technology or systems failures. Additionally, cyber
security failures or breaches of the electronic systems of the Fund, the
Adviser, and the Fund's other service providers, market makers, Authorized
Participants or the issuers of securities in which the Fund invests have the
ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. The Fund and the Adviser seek to reduce these operational risks
through controls and procedures. However, these measures do not address every
possible risk and may be inadequate for those risks that they are intended to
address.
Passive
Investment Risk:
The Fund is not actively managed, and the Adviser does not attempt to take
defensive positions in declining markets. Unlike many investment companies, the
Fund does not seek to outperform its Underlying Index. Therefore, it would not
necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is
underperforming. Additionally, if a constituent of the Underlying Index were
removed, even outside of a regular rebalance of the Underlying Index, the
Adviser anticipates that the Fund would sell such security. Maintaining
investments in securities regardless of market conditions or the performance of
individual securities could cause the Fund’s return to be lower than if the Fund
employed an active strategy.
Index-Related
Risk:
There is no guarantee that the Fund will achieve a high degree of correlation to
the Underlying Index and therefore achieve its investment objective. Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Underlying Index. Errors in index data, index computations and/or the
construction of the Underlying Index in accordance with its methodology 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, which may have an adverse impact on the
Fund and its shareholders.
Management
Risk:
The Fund may not fully replicate its Underlying Index and may hold securities
not included in its Underlying Index. The Adviser’s investment strategy, the
implementation of which is subject to a number of constraints, may cause the
Fund to underperform the market or its relevant benchmark or adversely affect
the ability of the Fund to achieve its investment objective.
Tracking
Error Risk:
Tracking error may occur because of differences between the instruments held in
the Fund's portfolio and those included in the Underlying Index, pricing
differences, transaction costs incurred by the Fund, the Fund's holding of
uninvested cash, size of the Fund, differences in timing of the accrual of or
the valuation of dividends or interest, tax gains or losses, changes to the
Underlying Index or the costs to the Fund of complying with various new or
existing regulatory requirements. This risk may be heightened during times of
increased market volatility or other unusual market conditions. Tracking error
also may result because the Fund incurs fees and expenses, while the Underlying
Index does not. ETFs that track indices with significant weight in emerging
markets issuers may experience higher tracking error than other ETFs that do not
track such indices.
Reliance
on Trading Partners Risk:
The Fund invests in economies which are heavily dependent upon trading with key
partners. Any reduction in this trading, including as a result of adverse
economic conditions in a trading partner’s economy, may cause an adverse impact
on the economies and on the companies in which the Fund invests. Because of this
interdependence and the economies in which the Fund invests, the Fund is
specifically exposed to Asian
Economic Risk.
Economies in emerging market countries generally are dependent heavily upon
commodity prices and international trade and, accordingly, may be affected
adversely by the economies of their trading partners, trade barriers, exchange
or capital controls, managed adjustments in relative currency values, and may
suffer from extreme and volatile debt burdens or inflation rates.
Risks
Associated with Exchange-Traded Funds:
As an ETF, the Fund is subject to the following risks:
Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants and engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. To the extent that those
Authorized Participants exit the business or are unable to process creation
and/or redemption orders, such as in times of market stress, Shares may be more
likely to trade at a premium or discount to NAV and/or at wider intraday bid-ask
spreads, and possibly face trading halts and/or delisting from an exchange.
Authorized Participants Concentration Risk may be heightened because the Fund
invests in non-U.S. securities.
Large
Shareholder Risk: Redemptions
by large shareholders could have a significant negative impact on the Fund. If a
large shareholder were to redeem all, or a large portion, of its Shares, there
is no guarantee that the Fund will be able to maintain sufficient assets to
continue operations in which case the Board of Trustees may determine to
liquidate the Fund. In addition, transactions by large shareholders may account
for a large percentage of the trading volume on a
national
securities exchange and may, therefore, have a material upward or downward
effect on the market price of the Shares.
Listing
Standards Risk: The
Fund is required to comply with listing requirements adopted by the listing
exchange. Non-compliance with such requirements may result in the Fund's shares
being delisted by the listing exchange. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs and could result in
negative tax consequences for its shareholders.
Market
Trading Risks and Premium/Discount Risks:
Shares of the Fund are publicly traded on a national securities exchange, which
may subject shareholders to numerous market trading risks. In stressed market
conditions, the market for the Shares may become less liquid in response to the
deteriorating liquidity of the Fund’s portfolio. This adverse effect on the
liquidity of the Shares, as well as disruptions to creations and redemptions,
the existence of extreme market volatility or potential lack of assets in the
Fund or an active trading market for Shares may result in Shares trading at a
significant premium or discount to NAV. If a shareholder purchases Shares at a
time when the market price is at a premium to the NAV or sells Shares at a time
when the market price is at a discount to the NAV, the shareholder may sustain
losses. The NAV of the Fund is calculated at the end of each business day and
fluctuates with changes in the market value of the Fund’s holdings. The trading
price of the Fund’s shares fluctuates, in some cases materially, throughout
trading hours in response to changes in the Fund’s NAV.
Risks
Related to Stock Connect Programs:
The Stock Connect Programs are subject to daily and aggregate quota limitations,
which could affect the Fund’s ability to enter into and exit Stock Connect
positions on a timely basis. The Shenzen and Shanghai markets may operate when
the Stock Connect Programs are not active, and consequently the prices of shares
held via Stock Connect Programs may fluctuate at times when the Fund is unable
to add to or exit its positions. The Stock Connect Programs are new, and the
effect of the introduction of large numbers of foreign investors on the market
for trading Chinese-listed securities is not well understood. Regulations, such
as limitations on redemptions or suspension of trading, may adversely impact the
value of the Fund’s investments. The Fund's investments in A-Shares though the
Stock Connect Program are held by its custodian in accounts in Central Clearing
and Settlement System ("CCASS") maintained by the Hong Kong Securities Clearing
Company Limited ("HKSCC"), which in turn holds the A-Shares, as the nominee
holder, through an omnibus securities account in its name registered with the
CSDCC. The precise nature and rights of the Fund as the beneficial owner of the
SSE Securities or SZSE Securities through HKSCC as nominee is not well defined
under Chinese law. There is no guarantee that the Shenzen, Shanghai, and Hong
Kong Stock Exchanges will continue to support the Stock Connect Programs in the
future.
Tax
Status Risk: The
Fund intends to pay dividends each taxable year to enable it to continue to
satisfy the distribution requirements necessary to qualify for treatment as a
regulated investment company ("RIC"). If the Fund were to distribute to its
shareholders less than the minimum amount required for any year, the Fund would
become subject to federal income tax for that year on all of its taxable income
and recognized gains, even those distributed to its shareholders. In addition,
under the Internal Revenue Code of 1986, as amended (the "Code"), the Fund may
not earn more than 10% of its annual gross income from gains resulting from the
sale of commodities and precious metals. This could make it more difficult for
the Fund to pursue its investment strategy and maintain qualification as a RIC.
In lieu of potential disqualification as a RIC, the Fund is permitted to pay a
tax for certain failures to satisfy this income requirement, which, in general,
are limited to those due to reasonable cause and not willful
neglect.
Trading
Halt Risk:
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading losses.
Valuation
Risk:
The sales price the Fund could receive for a security may differ from the Fund’s
valuation of the security and may differ from the value used by the Underlying
Index, particularly for securities that trade in low value or volatile markets
or that are valued using a fair value methodology (such as during trading
halts). 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 Fund's
Shares.
PERFORMANCE
INFORMATION
The Fund does not have a full calendar year
of performance. Once the Fund
has completed a full calendar year of operations, a bar chart and table will be
included that will provide some indication of the risks of investing in the Fund
by showing the variability of the Fund's returns and comparing the Fund's
performance to the Underlying Index. The Fund's performance is not
necessarily indicative of how the Fund will perform in the
future.
FUND
MANAGEMENT
Investment
Adviser:
Global X Management Company LLC.
Portfolio
Managers:
The professionals primarily responsible for the day-to-day management of the
Fund are Nam To, CFA; Wayne Xie; Kimberly Chan; Vanessa Yang; and Sandy Lu, CFA
(“Portfolio Managers”). Messrs. To and Xie and Ms. Chan and Ms. Yang have been
Portfolio Managers of the Fund since the Fund's inception. Mr. Lu has been a
Portfolio Manager of the Fund since March 2022.
PURCHASE
AND SALE OF FUND SHARES
Shares
of the Fund are or will be listed and traded at market prices on a national
securities exchange. Shares may only be purchased and sold on the exchange
through a broker-dealer. The price of Shares is based on market price, and
because ETF shares trade at market prices rather than at NAV, Shares may trade
at a price greater than NAV (a premium) or less than NAV (a discount). Only
"Authorized Participants" (as defined in the SAI) who have entered into
agreements with the Fund's distributor, SEI Investments Distribution Co.
("Distributor"), may engage in creation or redemption transactions directly with
the Fund. The Fund will only issue or redeem Shares that have been aggregated
into blocks called "Creation Units". The Fund will issue or redeem Creation
Units in return for a basket of cash and/or securities that the Fund specifies
any day that the national securities exchanges are open for business (“Business
Day”). An investor may incur costs attributable to the difference between the
highest price a buyer is willing to pay to purchase shares of the Fund (bid) and
the lowest price a seller is willing to accept for shares of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”). To
access information regarding the Fund’s net asset value, market price, premiums
and discounts, and bid-ask spreads, please go to
www.globalxetfs.com.
TAX
INFORMATION
The
Fund intends to make distributions that may be taxable to you as ordinary income
or capital gains, unless you are investing through a tax-advantaged arrangement
such as a 401(k) plan or an individual retirement account ("IRA"), in which case
distributions from such tax-advantaged arrangement may be taxable to you.
PAYMENTS
TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
The
Adviser and its related companies may pay broker-dealers or other financial
intermediaries (such as a bank) for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer, sales persons or other intermediary or its employees or
associated persons to recommend the Fund over another investment. Ask your
financial adviser or visit your financial intermediary's website for more
information.
Global X E-commerce ETF
Ticker:
EBIZ Exchange: NASDAQ
INVESTMENT OBJECTIVE
The Global X E-commerce ETF
("Fund") seeks to provide investment results that correspond generally to the
price and yield performance, before fees and expenses, of the Solactive
E-commerce Index ("Underlying Index").
FEES AND EXPENSES
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares (“Shares”) of
the Fund. You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and examples
below.
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment):
|
|
|
|
|
|
Management
Fees: |
0.50% |
Distribution
and Service (12b-1) Fees: |
None |
Other
Expenses: |
0.00% |
Total
Annual Fund Operating Expenses: |
0.50% |
Example:
The following example
is intended to help you compare the cost of investing in the Fund with the cost
of investing in other funds. This example does not take into account customary
brokerage commissions that you pay when purchasing or selling Shares of the Fund
in the secondary market. The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell 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:
|
|
|
|
|
|
|
|
|
|
|
|
One
Year |
Three
Years |
Five
Years |
Ten
Years |
$51 |
$160 |
$280 |
$628 |
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. During the most recent fiscal year, the
Fund's portfolio turnover rate was 25.82% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund invests at least 80% of its total assets in the securities of the Solactive
E-commerce Index ("Underlying Index"). The Fund's 80% investment policy is
non-fundamental and requires 60 days prior written notice to shareholders before
it can be changed. The Fund may lend securities representing up to one-third of
the value of the Fund’s total assets (including the value of the collateral
received).
The
Underlying Index is designed to provide exposure to exchange-listed companies
that are positioned to benefit from the increased adoption of e-commerce as a
distribution model, including but not limited to companies whose principal
business is in operating e-commerce platforms, providing e-commerce software and
services, and/or selling goods and services online (collectively, "E-commerce
Companies"), as defined by Solactive AG, the provider of the Underlying Index
("Index Provider").
In
constructing the Underlying Index, the Index Provider first applies a
proprietary natural language processing algorithm to the eligible universe,
which seeks to identify and rank companies with direct exposure to the
e-commerce industry based on filings, disclosures and other public information
(e.g. regulatory filings, earnings transcripts, etc.). Companies identified by
the natural language processing algorithm, as of the selection date, are further
reviewed by the Index Provider on the basis of revenue related to e-commerce
activities. To be eligible for the Underlying Index, a company is considered by
the Index Provider to be an E-commerce Company if the company generates at least
50% of its revenues from e-commerce activities, as determined by the Index
Provider. E-commerce Companies are those companies that (i) operate e-commerce
platforms that connect buyers and sellers of goods and services via online
marketplaces, (ii) provide e-commerce software, analytics or services that
facilitate the
development
and enhancement of e-commerce platforms, and/or (iii) primarily sell goods and
services online and generate the majority of their overall revenue from online
retail, as determined by the Index Provider.
To
be a part of the eligible universe of the Underlying Index, certain minimum
market capitalization and liquidity criteria, as defined by the Index Provider,
must be met. As of December 31, 2022, companies must have a minimum market
capitalization of $200 million and a minimum average daily turnover for the last
6 months greater than or equal to $2 million in order to be eligible for
inclusion in the Underlying Index. As of December 31, 2022, companies
listed in the following countries were eligible for inclusion in the Underlying
Index: Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand,
Norway, Poland, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland,
Taiwan, Turkey, United Kingdom and the United States.
The
Underlying Index is weighted according to a modified capitalization weighting
methodology and is reconstituted and re-weighted semi-annually, with each
included security being allocated a maximum weight of 4% and a minimum weight of
0.3% in connection with each semi-annual rebalance. Modified capitalization
weighting seeks to weight constituents primarily based on market capitalization,
but subject to caps on the weights of the individual securities. Generally
speaking, this approach will limit the amount of concentration in the largest
market capitalization companies and increase company-level diversification. The
Underlying Index may include large-, mid- or small-capitalization companies, and
components primarily include information technology and consumer discretionary
companies. As of December 31, 2022, the Underlying Index had 40
constituents. The Fund's investment objective and Underlying Index may be
changed without shareholder approval.
The
Underlying Index is sponsored by the Index Provider, which is an organization
that is independent of, and unaffiliated with, the Fund and Global X Management
Company LLC, the investment adviser for the Fund ("Adviser"). The Index Provider
determines the relative weightings of the securities in the Underlying Index and
publishes information regarding the market value of the Underlying
Index.
The
Adviser uses a "passive" or indexing approach to try to achieve the Fund's
investment objective. Unlike many investment companies, the Fund does not try to
"outperform" the Underlying Index and does not seek temporary defensive
positions when markets decline or appear overvalued.
The
Fund generally will use a replication strategy. A replication strategy is an
indexing strategy that involves investing in the securities of the Underlying
Index in approximately the same proportions as in the Underlying Index. However,
the Fund may utilize a representative sampling strategy with respect to the
Underlying Index when a replication strategy might be detrimental to
shareholders, such as when there are practical difficulties or substantial costs
involved in compiling a portfolio of equity securities to follow the Underlying
Index, in instances in which a security in the Underlying Index becomes
temporarily illiquid, unavailable or less liquid, or as a result of legal
restrictions or limitations (such as tax diversification requirements) that
apply to the Fund but not the Underlying Index.
The
Adviser expects that, over time, the correlation between the Fund's performance
and that of the Underlying Index, before fees and expenses, will exceed 95%. A
correlation percentage of 100% would indicate perfect correlation. If the Fund
uses a replication strategy, it can be expected to have greater correlation to
the Underlying Index than if it uses a representative sampling
strategy.
The
Fund concentrates its investments (i.e.,
hold 25% or more of its total assets) in a particular industry or group of
industries to approximately the same extent that the Underlying Index is
concentrated. As of December 31, 2022, the Underlying Index was
concentrated in the internet and direct marketing retail industry and had
significant exposure to the consumer discretionary
sector.
SUMMARY OF PRINCIPAL RISKS
As with any investment, you could lose all or part of
your investment in the Fund, and the Fund’s performance could trail that of
other investments. There is no guarantee that the Fund will
achieve its investment objective. An investment in the Fund is not a
bank deposit and it is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, the Adviser or any of its
affiliates. The Fund is subject to the principal risks noted
below, any of which may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and ability to meet its investment objective,
as well as other risks that are described in greater detail in the Additional
Information About the Funds
section of this Prospectus and in the Statement of Additional Information
(“SAI”). The order of the below risk factors does not indicate the significance
of any particular risk factor.
Asset
Class Risk:
Securities and other assets in the Underlying Index or otherwise held in the
Fund's portfolio may underperform in comparison to the general securities
markets, a particular securities market or other asset classes.
Equity
Securities Risk:
Equity securities are subject to changes in value, and their values may be more
volatile than other asset classes, as a result of such factors as a company’s
business performance, investor perceptions, stock market trends and general
economic conditions.
Associated
Risks Related to Investing in E-commerce Companies: E-commerce
companies typically face intense competition and are subject to fluctuating
consumer demand. Many of these companies compete aggressively on price,
potentially affecting their long run profitability. Due to the online nature of
E-commerce companies and their involvement in processing, storing and
transmitting large amounts of data, these companies are particularly vulnerable
to cyber security risk. This includes threats to operational software and
hardware, as well as theft of personal and transaction records and other
customer data. In the event of a cyberattack, E-commerce companies could suffer
serious adverse reputational and operational consequences, including liability
and litigation. E-commerce companies may participate in monopolistic practices
that could make them subject to higher levels of regulatory scrutiny and/or
potential break ups in the future, which could severely impact the viability of
these companies. Chinese E-commerce Companies have been subject to heightened
scrutiny as regulators seek to rein in monopolistic practices and prevent the
‘disorderly expansion of capital’ under the Common Prosperity initiative.
Through its portfolio companies’ customers and suppliers, the Fund is
specifically exposed to Asian
Economic Risk,
European
Economic Risk
and North
American Economic Risk.
Capitalization
Risk:
Investing in issuers within the same market capitalization category carries the
risk that the category may be out of favor due to current market conditions or
investor sentiment.
Large-Capitalization
Companies Risk: Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk: Mid-capitalization
companies may have greater price volatility, lower trading volume and less
liquidity than large-capitalization companies. In addition, mid-capitalization
companies may have smaller revenues, narrower product lines, less management
depth and experience, smaller shares of their product or service markets, fewer
financial resources and less competitive strength than large-capitalization
companies.
Small-Capitalization
Companies Risk: Compared
to mid- and large-capitalization companies, small-capitalization companies may
be less stable and more susceptible to adverse developments, and their
securities may be more volatile and less liquid.
Currency
Risk:
The Fund may invest in securities denominated in foreign currencies. Because the
Fund's NAV is determined in U.S. dollars, the Fund's NAV could decline if
currencies of the underlying securities depreciate against the U.S. dollar or if
there are delays or limits on repatriation of such currencies. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the Fund's NAV may change quickly and without warning, which could have
a significant negative impact on the Fund.
Custody
Risk:
The Fund may hold foreign securities and cash with foreign banks, agents, and
securities depositories appointed by the Fund's custodian. Investments in
emerging markets may be subject to even greater custody risks than investments
in more developed markets. Less developed markets are more likely to experience
problems with the clearing and settling of trades and the holding of securities
by local banks, agents and depositories.
Focus
Risk:
To the extent that the Underlying Index focuses in investments related to a
particular industry or group of industries, the Fund will also focus its
investments to approximately the same extent. Similarly, if the Underlying Index
has significant exposure to one or more sectors, the Fund’s investments will
likely have significant exposure to such sectors. In such event, the Fund’s
performance will be particularly susceptible to adverse events impacting such
industry or sector, which may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively
affect supply and demand; competition for resources; adverse labor relations;
political or world events; obsolescence of technologies; and increased
competition or new product introductions that may affect the profitability or
viability of companies in a particular industry or sector. As a result, the
value of the Fund’s investments 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 or sectors.
Risks
Related to Investing in the Consumer Discretionary Sector: The
consumer discretionary sector may be affected by changes in domestic and
international economies, exchange and interest rates, competition, consumers’
disposable income and consumer preferences, social trends and marketing
campaigns.
Risks
Related to Investing in the Internet and Direct Marketing Retail Industry:
Companies
in the internet and direct marketing retail industry are dependent on internal
infrastructure and on the availability, reliability and security of the internet
and related systems. Critical systems and operations may be vulnerable to damage
or interruption from fire, flood, power loss, telecommunications failure,
terrorist attacks, cyber-attacks, acts of war, break-ins, earthquake and similar
events. Any system interruption that results in the unavailability of a
company’s website or mobile app or reduced performance of transaction systems
could interrupt or substantially reduce a company’s ability to conduct its
business. Companies in the internet and direct marketing retail industry are
dependent on paid and unpaid natural search engines and are therefore dependent
on business decisions made by companies that offer natural search engines. Any
business changes by dominant providers of natural search engines can be
detrimental to an internet and direct marketing retail company’s business while
being totally outside of the control of such company.
Foreign
Securities Risk:
The Fund may invest, within U.S. regulations, in foreign securities. The Fund's
investments in foreign securities can be riskier than U.S. securities
investments. Investments in the securities of foreign issuers (including
investments in ADRs and GDRs) are subject to the risks associated with investing
in those foreign markets, such as heightened risks of inflation or
nationalization. The prices of foreign securities and the prices of U.S.
securities have, at times, moved in opposite directions. In addition, securities
of foreign issuers may lose value due to political, economic and geographic
events affecting a foreign issuer or market. During periods of social, political
or economic instability in a country or region, the value of a foreign security
traded on U.S. exchanges could be affected by, among other things, increasing
price volatility, illiquidity, or the closure of the primary market on which the
security (or the security underlying the ADR or GDR) is traded. You may lose
money due to political, economic and geographic events affecting a foreign
issuer or market. Where all or a portion of the Fund's underlying securities
trade in a market that is closed when the market in which the Fund's shares are
listed and trading is open, there may be differences between the last quote from
the security’s closed foreign market and the value of the security during the
Fund’s domestic trading day. This in turn could lead to differences between the
market price of the Fund’s shares and the underlying value of those shares.
Geographic
Risk: A
natural, biological or other disaster could occur in a geographic region in
which the Fund invests, which could affect the economy or particular business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in the affected region or in a region
economically tied to the affected region. The securities in which the Fund
invests and, consequently, the Fund are also subject to specific risks as a
result of their business operations, including, but not limited to:
Risk
of Investing in Brazil: Investment
in Brazilian issuers involves risks that are specific to Brazil, including
legal, regulatory, political and economic risks. The Brazilian economy has
historically been exposed to high rates of inflation, debt, corruption, and
violence, each of which may reduce and/or prevent economic growth.
Risk
of Investing in China:
Investment exposure to China subjects the Fund to risks specific to China.
Economic,
Political and Social Risk
China
may be subject to considerable degrees of economic, political and social
instability. Concerns about the rising government and household debt levels
could impact the stability of the Chinese economy. China is an emerging market
and demonstrates significantly higher volatility from time to time in comparison
to developed markets. Over the last few decades, the Chinese government has
undertaken reform of economic and market practices, including recent reforms to
liberalize its capital markets and expand the sphere for private ownership of
property in China. However, Chinese markets generally continue to experience
inefficiency, volatility and pricing anomalies resulting from governmental
influence, a lack of publicly available information and/or political and social
instability. Chinese companies are also subject to the risk that Chinese
authorities can intervene in their operations and structure. Internal social
unrest or confrontations with other neighboring countries, including military
conflicts in response to such events, may also disrupt economic development in
China and result in a greater risk of currency fluctuations, currency
convertibility, interest rate fluctuations and higher rates of inflation.
China
has experienced major health crises. These health crises include, but are not
limited to, the rapid and pandemic spread of novel viruses commonly known as
SARS, MERS, and COVID-19 (Coronavirus). Such health crises could exacerbate
political, social, and economic risks previously mentioned.
Export
growth continues to be a major driver of China’s rapid economic growth. Elevated
trade tensions between China and its trading partners, including the imposition
of U.S. tariffs on certain Chinese goods and increased international pressure
related to Chinese trade policy and forced technology transfers and intellectual
property protections, may have a substantial impact on the Chinese economy.
Reduction in spending on Chinese products and services, institution of
additional tariffs or other trade barriers (including as a result of heightened
trade tensions between China and the U.S. or in response to actual or alleged
Chinese cyber activity), or a downturn in any of the economies of China’s key
trading partners may have an adverse impact on the Chinese economy. The
continuation or worsening of the current political climate between China and the
U.S. could result in additional regulatory restrictions being contemplated or
imposed in the U.S. or in China that could impact the Fund’s ability to invest
in certain companies.
Security
Risk
China
has experienced security concerns, such as terrorism and strained international
relations. Additionally, China is alleged to have participated in
state-sponsored cyberattacks against foreign companies and foreign governments.
Actual and threatened responses to such activity, including purchasing
restrictions, sanctions, tariffs or cyberattacks on the Chinese government or
Chinese companies, may impact China’s economy and Chinese issuers of securities
in which the Fund invests. Incidents involving China’s or the region’s security,
including the contagion of infectious viruses or diseases, may cause uncertainty
in Chinese markets and may adversely affect the Chinese economy and the Fund’s
investments.
Heavy
Government Control and Regulation
Chinese
companies, including Chinese companies that are listed on U.S. exchanges, are
not subject to the same degree of regulatory requirements, accounting standards
or auditor oversight as companies in more developed countries, and as a result,
information about the Chinese securities in which the Fund invests may be less
reliable or complete. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against Chinese
companies and shareholders may have limited legal remedies. Investments in China
may be subject to loss due to expropriation or nationalization of assets and
property or the imposition of restrictions on foreign investments and
repatriation of capital. Furthermore, government actions against leaders or
other key figures within companies, or speculation about such actions, may lead
to sudden and unpredictable falls in the value of securities within the
Fund.
Tax
Risk
China
has implemented a number of tax reforms in recent years and may amend or revise
its existing tax laws and/or procedures in the future, possibly with retroactive
effect. Changes in applicable Chinese tax law could reduce the after-tax profits
of the Fund, directly or indirectly, including by reducing the after-tax profits
of companies in China in which the Fund invests. Uncertainties in Chinese tax
rules could result in unexpected tax liabilities for the Fund. Should
legislation limit U.S. investors’ ability to invest in specific Chinese
companies through A-shares or other share class listings that are part of the
underlying holdings, these shares may be excluded from Fund
holdings.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the Chinese government restricts foreign
ownership to raise capital from foreign investors. While the shell company has
no equity ownership of the VIE, these contractual arrangements permit the shell
company to consolidate the VIE’s financial statements with its own for
accounting purposes and provide for economic exposure to the performance of the
underlying Chinese operating company.
Therefore,
an investor in the listed shell company, such as the Fund, will have exposure to
the Chinese-based operating company only through contractual arrangements and
has no ownership in the Chinese-based operating company. Furthermore, because
the shell company only has specific rights provided for in these service
agreements with the VIE, its abilities to control the activities at the
Chinese-based operating company are limited and the operating company may engage
in activities that negatively impact investment value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without
the
Chinese-based issuer’s authorization to enter into contractual arrangements in
China. Chops and seals, which are carved stamps used to sign documents,
represent a legally binding commitment by the company. Moreover, any future
regulatory action may prohibit the ability of the shell company to receive the
economic benefits of the Chinese-based operating company, which may cause the
value of the Fund’s investment in the listed shell company to suffer a
significant loss. For example, in 2021, the Chinese government prohibited use of
the VIE structure for investment in after-school tutoring companies. There is no
guarantee that the Chinese government will not place similar restrictions on
other industries.
Chinese
equities that utilize the VIE structure to list in the U.S. as ADRs face the
risk of regulatory action from U.S. authorities, including the risk of
delisting. This will depend in part on whether U.S. regulatory authorities are
satisfied with their access to Mainland China and Hong Kong for the purpose of
conducting inspections on the quality of audits for these companies. Although
the U.S. and China reached an agreement in September 2022 to grant the U.S.
access for such inspections, there is no guarantee that the agreement will hold
up or that U.S. regulatory authorities will continue to feel satisfied with
their access. As of December 31, 2022, the Fund had significant exposure to
VIEs, as defined above.
Risk
of Investing in Developed Markets:
The Fund’s investment in a developed country issuer may subject the Fund to
regulatory, political, currency, security, economic and other risks associated
with developed countries. Developed countries tend to represent a significant
portion of the global economy and have generally experienced slower economic
growth than some less developed countries. Certain developed countries have
experienced security concerns, such as terrorism and strained international
relations. Incidents involving a country’s or region’s security may cause
uncertainty in its markets and may adversely affect its economy and the Fund’s
investments. In addition, developed countries may be impacted by changes to the
economic conditions of certain key trading partners, regulatory burdens, debt
burdens and the price or availability of certain commodities.
Risk
of Investing in Emerging Markets:
The Fund targets e-commerce companies globally and is expected to invest in
securities in emerging market countries. Investments in emerging markets may be
subject to a greater risk of loss than investments in developed markets.
Securities markets of emerging market countries are less liquid, subject to
greater price volatility, have smaller market capitalizations, have less
government regulation, and are not subject to as extensive and frequent
accounting, financial, and other reporting requirements as the securities
markets of more developed countries, and there may be greater risk associated
with the custody of securities in emerging markets. It may be difficult or
impossible for the Fund to pursue claims against an emerging market issuer in
the courts of an emerging market country.
There
may be significant obstacles to obtaining information necessary for
investigations into or litigation against emerging market companies and
shareholders may have limited legal rights and remedies. Emerging markets may be
more likely to experience inflation, political turmoil and rapid changes in
economic conditions than more developed markets. Emerging market economies’
exposure to specific industries, such as tourism, and lack of efficient or
sufficient health care systems, could make these economies especially vulnerable
to global crises, including but not limited to, pandemics such as the global
COVID-19 pandemic. Certain emerging market countries may have privatized, or
have begun the process of privatizing, certain entities and industries.
Privatized entities may lose money or be re-nationalized.
International
Closed Market Trading Risk: To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote from the closed foreign market).
These deviations could result in premiums or discounts to the Fund’s NAV that
may be greater than those experienced by other exchange-traded funds
("ETFs").
Issuer
Risk:
Fund performance depends on the performance of individual companies in which the
Fund invests. Changes to the financial condition of any of those companies may
cause the value of such company's securities to decline.
Market
Risk:
Turbulence in the financial markets and reduced liquidity may negatively affect
issuers, which could have an adverse effect on the Fund. If the securities held
by the Fund experience poor liquidity, the Fund may be unable to transact at
advantageous times or prices, which may decrease the Fund’s returns. In
addition, there is a risk that policy changes by central governments and
governmental agencies, including the U.S. Federal Reserve or the European
Central Bank, which could include increasing interest rates, could cause
increased volatility in financial markets and lead to higher levels of Fund
redemptions from Authorized Participants, which could have a negative impact on
the Fund. Furthermore, local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health issues,
recessions, or other events could have a significant impact on the Fund and its
investments and trading of its Shares. For example, at the start of 2023,
central banks had already increased interest rates at the fastest rate on
record, and it is unknown how long this trend will continue and when inflation
will return to target levels. This increases the risk that monetary policy may
provide less support
should
economic growth slow. Additionally, China’s shift away from a zero-COVID policy
creates both opportunities and risks, causing uncertainty for global economic
growth. Market risk factors may result in increased volatility and/or decreased
liquidity in the securities markets. The Fund’s NAV could decline over short
periods due to short-term market movements and over longer periods during market
downturns.
Non-Diversification
Risk:
The Fund is classified as a “non-diversified” investment company under the
Investment Company Act of 1940 ("1940 Act"). As a result, the Fund is subject to
the risk that it may be more volatile than a diversified fund because the Fund
may invest its assets in a smaller number of issuers or may invest a larger
proportion of its assets in a single issuer. As a result, the gains and losses
on a single investment may have a greater impact on the Fund’s NAV and may make
the Fund more volatile than more diversified funds.
Operational
Risk:
The Fund is exposed to operational risk arising from a number of factors,
including but not limited to human error, processing and communication errors,
errors of the Fund's service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. Additionally,
cyber security failures or breaches of the electronic systems of the Fund, the
Adviser, and the Fund's other service providers, market makers, Authorized
Participants or the issuers of securities in which the Fund invests have the
ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. The Fund and the Adviser seek to reduce these operational risks
through controls and procedures. However, these measures do not address every
possible risk and may be inadequate for those risks that they are intended to
address.
Passive
Investment Risk:
The Fund is not actively managed, and the Adviser does not attempt to take
defensive positions in declining markets. Unlike many investment companies, the
Fund does not seek to outperform its Underlying Index. Therefore, it would not
necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is
underperforming. Additionally, if a constituent of the Underlying Index were
removed, even outside of a regular rebalance of the Underlying Index, the
Adviser anticipates that the Fund would sell such security. Maintaining
investments in securities regardless of market conditions or the performance of
individual securities could cause the Fund’s return to be lower than if the Fund
employed an active strategy.
Index-Related
Risk:
There is no guarantee that the Fund will achieve a high degree of correlation to
the Underlying Index and therefore achieve its investment objective. Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Underlying Index. Errors in index data, index computations and/or the
construction of the Underlying Index in accordance with its methodology 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, which may have an adverse impact on the
Fund and its shareholders.
Management
Risk:
The Fund may not fully replicate its Underlying Index and may hold securities
not included in its Underlying Index. The Adviser’s investment strategy, the
implementation of which is subject to a number of constraints, may cause the
Fund to underperform the market or its relevant benchmark or adversely affect
the ability of the Fund to achieve its investment objective.
Tracking
Error Risk:
Tracking error may occur because of differences between the instruments held in
the Fund's portfolio and those included in the Underlying Index, pricing
differences, transaction costs incurred by the Fund, the Fund's holding of
uninvested cash, size of the Fund, differences in timing of the accrual of or
the valuation of dividends or interest, tax gains or losses, changes to the
Underlying Index or the costs to the Fund of complying with various new or
existing regulatory requirements. This risk may be heightened during times of
increased market volatility or other unusual market conditions. Tracking error
also may result because the Fund incurs fees and expenses, while the Underlying
Index does not. ETFs that track indices with significant weight in emerging
markets issuers may experience higher tracking error than other ETFs that do not
track such indices.
Risks
Associated with Exchange-Traded Funds:
As an ETF, the Fund is subject to the following risks:
Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants and engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. To the extent that those
Authorized Participants exit the business or are unable to process creation
and/or redemption orders, such as in times of market stress, Shares may be more
likely to trade at a premium or discount to NAV and/or at wider intraday bid-ask
spreads, and possibly face trading halts and/or delisting from an exchange.
Authorized Participants Concentration Risk may be heightened because the Fund
invests in non-U.S. securities.
Large
Shareholder Risk: Redemptions
by large shareholders could have a significant negative impact on the Fund. If a
large shareholder were to redeem all, or a large portion, of its Shares, there
is no guarantee that the Fund will be able to maintain sufficient assets to
continue operations in which case the Board of Trustees may determine to
liquidate the Fund. In addition, transactions by large shareholders may account
for a large percentage of the trading volume on a national securities exchange
and may, therefore, have a material upward or downward effect on the market
price of the Shares.
Listing
Standards Risk: The
Fund is required to comply with listing requirements adopted by the listing
exchange. Non-compliance with such requirements may result in the Fund's shares
being delisted by the listing exchange. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs and could result in
negative tax consequences for its shareholders.
Market
Trading Risks and Premium/Discount Risks:
Shares of the Fund are publicly traded on a national securities exchange, which
may subject shareholders to numerous market trading risks. In stressed market
conditions, the market for the Shares may become less liquid in response to the
deteriorating liquidity of the Fund’s portfolio. This adverse effect on the
liquidity of the Shares, as well as disruptions to creations and redemptions,
the existence of extreme market volatility or potential lack of assets in the
Fund or an active trading market for Shares may result in Shares trading at a
significant premium or discount to NAV. If a shareholder purchases Shares at a
time when the market price is at a premium to the NAV or sells Shares at a time
when the market price is at a discount to the NAV, the shareholder may sustain
losses. The NAV of the Fund is calculated at the end of each business day and
fluctuates with changes in the market value of the Fund’s holdings. The trading
price of the Fund’s shares fluctuates, in some cases materially, throughout
trading hours in response to changes in the Fund’s NAV.
Securities
Lending Risk:
Securities lending involves a risk of loss because the borrower may fail to
return the securities in a timely manner or at all. If the Fund is not able to
recover the securities loaned, it may sell the collateral and purchase a
replacement security in the market. Lending securities entails a risk of loss to
the Fund if and to the extent that the market value of the loaned securities
increases and the collateral is not increased accordingly. Additionally, the
Fund will bear any loss on the investment of cash collateral it receives. These
events could also trigger adverse tax consequences for the Fund. As securities
on loan may not be voted by the Fund, there is a risk that the Fund may not be
able to recall the securities in sufficient time to vote on material proxy
matters.
Trading
Halt Risk:
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading
losses.
Valuation
Risk: The sales price the Fund could receive for
a security may differ from the Fund’s valuation of the security and may differ
from the value used by the Underlying Index, particularly for securities that
trade in low value or volatile markets or that are valued using a fair value
methodology (such as during trading halts). 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 Fund's Shares.
PERFORMANCE
INFORMATION
The bar chart
and table that follow show how the Fund performed on a calendar year basis and
provide an indication of the risks of investing in the Fund by showing changes
in the Fund's performance from year to year and by showing how the Fund's
average annual returns for the indicated periods compare with the Fund's
benchmark index and a broad measure of market performance.
The Fund's past performance
(before and after taxes) is not necessarily indicative of how the Fund will
perform in the future. Updated performance information is
available online at www.globalxetfs.com.
Annual Total Returns (Years Ended December
31)
|
|
|
|
|
|
|
|
|
Best
Quarter: |
6/30/2020 |
55.92% |
Worst
Quarter: |
6/30/2022 |
-24.25% |
Average Annual Total Returns (for the Periods
Ended December 31, 2022)
|
|
|
|
|
|
|
|
|
|
One
Year Ended December 31, 2022 |
Since
Inception (11/27/2018) |
Global
X E-commerce ETF: |
|
|
·Return before
taxes |
-40.77% |
2.40% |
·Return
after taxes on distributions1 |
-40.79% |
2.29% |
·Return
after taxes on distributions and sale of Fund Shares1 |
-24.13% |
1.89% |
Solactive
E-commerce Index (net)
(Index returns reflects
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
-40.55% |
2.84% |
MSCI
ACWI Index (net)
(Index returns reflects
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
-18.36% |
7.62% |
1
After-tax returns are
calculated using the historical highest individual U.S. federal marginal income
tax rates and do not reflect the impact of state and local
taxes. Your actual after-tax returns
will depend on your specific tax situation and may differ from those shown
above. After-tax returns are not relevant to investors who hold Shares of the
Fund through tax-advantaged arrangements, such as 401(k) plans or individual
retirement accounts (IRAs).
FUND
MANAGEMENT
Investment
Adviser:
Global X Management Company LLC.
Portfolio
Managers: The
professionals primarily responsible for the day-to-day management of the Fund
are Nam To, CFA; Wayne Xie; Kimberly Chan; Vanessa Yang; and Sandy Lu, CFA
(“Portfolio Managers”). Mr. To has been a Portfolio Manager
of
the Fund since the Fund's inception. Mr. Xie has been a Portfolio Manager of the
Fund since March 1, 2019. Ms. Chan has been a Portfolio Manager of the Fund
since June 10, 2019. Ms. Yang has been a Portfolio Manager of the Fund since
December 2020. Mr. Lu has been a Portfolio Manager of the Fund since March
2022.
PURCHASE
AND SALE OF FUND SHARES
Shares
of the Fund are or will be listed and traded at market prices on a national
securities exchange. Shares may only be purchased and sold on the exchange
through a broker-dealer. The price of Shares is based on market price, and
because ETF shares trade at market prices rather than at NAV, Shares may trade
at a price greater than NAV (a premium) or less than NAV (a discount). Only
“Authorized Participants” (as defined in the SAI) who have entered into
agreements with the Fund’s distributor, SEI Investments Distribution Co.
(“Distributor”), may engage in creation or redemption transactions directly with
the Fund. The Fund will only issue or redeem Shares that have been aggregated
into blocks called Creation Units. The Fund will issue or redeem Creation Units
in return for a basket of cash and/or securities that the Fund specifies any day
that the national securities exchanges are open for business (“Business Day”).
An investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase shares of the Fund (bid) and the
lowest price a seller is willing to accept for shares of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”). To
access information regarding the Fund’s net asset value, market price, premiums
and discounts, and bid-ask spreads, please go to https://www.globalxetfs.com.
TAX
INFORMATION
The
Fund intends to make distributions that may be taxable to you as ordinary income
or capital gains, unless you are investing through a tax-advantaged arrangement,
such as a 401(k) plan or an individual retirement account ("IRA"), in which case
distributions from such tax-advantaged arrangement may be taxable to you.
PAYMENTS
TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
The
Adviser and its related companies may pay broker-dealers or other financial
intermediaries (such as a bank) for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer, sales persons or other intermediary or its employees or
associated persons to recommend the Fund over another investment. Ask your
financial adviser or visit your financial intermediary’s website for more
information.
Global X Emerging Markets Internet & E-commerce
ETF
Ticker:
EWEB Exchange: NASDAQ
INVESTMENT OBJECTIVE
The Global X Emerging Markets
Internet & E-commerce ETF ("Fund") seeks to provide investment results that
correspond generally to the price and yield performance, before fees and
expenses, of the NASDAQ CTA Emerging Markets Internet & E-commerce Net Total
Return Index ("Underlying Index").
FEES AND EXPENSES
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares (“Shares”) of
the Fund. You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and examples
below.
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment):
|
|
|
|
|
|
Management
Fees: |
0.65% |
Distribution
and Service (12b-1) Fees: |
None |
Other
Expenses: |
0.00% |
Total
Annual Fund Operating Expenses: |
0.65% |
Example: The following example
is intended to help you compare the cost of investing in the Fund with the cost
of investing in other funds. This example does not take into account customary
brokerage commissions that you pay when purchasing or selling Shares of the Fund
in the secondary market. The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell 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:
|
|
|
|
|
|
|
|
|
|
|
|
One
Year |
Three
Years |
Five
Years |
Ten
Years |
$66 |
$208 |
$362 |
$810 |
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. During the most recent fiscal year, the
Fund's portfolio turnover rate was 26.27% of the average value of the
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund invests at least 80% of its total assets, plus borrowings for investment
purposes (if any), in the securities of the NASDAQ CTA Emerging Markets Internet
& E-commerce Net Total Return Index ("Underlying Index") and in American
Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") based on
the securities in the Underlying Index. The Fund's 80% investment policy is
non-fundamental and requires 60 days prior written notice to shareholders before
it can be changed.
The
Underlying Index is designed to provide exposure to exchange-listed companies
that are expected to benefit from further adoption of internet and e-commerce
technologies in emerging markets countries (collectively, "Emerging Markets
Internet & E-commerce Companies"), as defined by Nasdaq, Inc., the provider
of the Underlying Index (the "Index Provider") and the Consumer Technology
Association (“CTA”). The Index Provider and the CTA have jointly developed the
eligibility and selection criteria for the Underlying Index. In order to be
eligible for inclusion in the Underlying Index, a company is considered by the
CTA to be an Emerging Markets Internet & E-commerce Company if it derives at
least 50% of its revenue, operating income, or assets from: (i) internet-related
services (including social media and online entertainment), (ii) internet retail
commerce, (iii) internet search engine services, and/or (iv) software delivered
via the internet.
The
Index Provider classifies countries as being “emerging markets” by employing
both a quantitative and qualitative review process. The quantitative criteria
that the Index Provider assesses include: (i) the Gross National Income (“GNI”)
per capita, which measures a country’s income divided by its population, which
must be greater than $1,000 and less than $20,000 for three consecutive years;
(ii) the aggregate market capitalization of index eligible companies listed in
the country must be greater than $20 billion and less than $30 billion; (iii)
the aggregate annual traded value of companies listed in the country; and (iv)
the total number of index eligible securities listed in the country must be at
least 5. In addition to the quantitative criteria, the Index Provider applies a
supplementary qualitative review of each country’s investability to confirm each
country’s classification. The qualitative criteria that the Index Provider
assesses include: (i) restrictions that may be imposed on foreign investment;
(ii) currency convertibility; and/or (iii) the ability for capital to move from
one country to another country without restrictions. Additionally, the Index
Provider considers securities listed in Hong Kong (classified by the Index
Provider as a developed market) as eligible for inclusion in the Underlying
Index, to ensure representation in the Underlying Index of companies
incorporated or operating primarily in China.
The
eligible universe of the Underlying Index includes exchange-listed companies
that meet minimum market capitalization and liquidity criteria, as defined by
the Index Provider. As of December 31, 2022, companies must have a minimum
free float market capitalization of $1 billion and a minimum average daily
turnover for the last six months greater than or equal to $5 million in order to
be eligible for inclusion in the Underlying Index. As of December 31, 2022,
companies listed in the following countries were eligible for inclusion in the
Underlying Index: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece,
Hong Kong, Hungary, Indonesia, Kuwait, Malaysia, Mexico, Peru, Philippines,
Poland, Qatar, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand,
Turkey, United Arab Emirates and the United States (as a function of emerging
market exposure obtained through the use of ADRs). The Fund may have significant
exposure to a particular foreign country or foreign currency.
The
Underlying Index is weighted according to a modified capitalization weighting
methodology and is reconstituted and re-weighted semi-annually. Modified
capitalization weighting seeks to weight constituents primarily based on market
capitalization, but subject to caps on the weights of the individual securities.
During each rebalance, the five largest securities by free float market
capitalization are individually capped at a maximum weight of 8% and all other
constituents are capped at a maximum weight of 4%. Generally speaking, this
approach will limit the amount of concentration in the largest market
capitalization companies and increase company-level diversification. The
Underlying Index may include large-, mid- or small-capitalization companies, and
components primarily include communication services and consumer discretionary
companies. As of December 31, 2022, the Underlying Index had 39
constituents. The Fund's investment objective and Underlying Index may be
changed without shareholder approval.
The
Underlying Index is sponsored by the Index Provider, which is an organization
that is independent of, and unaffiliated with, the Fund and Global X Management
Company LLC, the investment adviser for the Fund ("Adviser"). The Index Provider
determines the relative weightings of the securities in the Underlying Index and
publishes information regarding the market value of the Underlying
Index.
The
Adviser uses a "passive" or indexing approach to try to achieve the Fund's
investment objective. Unlike many investment companies, the Fund does not try to
outperform the Underlying Index and does not seek temporary defensive positions
when markets decline or appear overvalued.
The
Fund generally will use a replication strategy. A replication strategy is an
indexing strategy that involves investing in the securities of the Underlying
Index in approximately the same proportions as in the Underlying Index. However,
the Fund may utilize a representative sampling strategy with respect to the
Underlying Index when a replication strategy might be detrimental or
disadvantageous to shareholders, such as when there are practical difficulties
or substantial costs involved in compiling a portfolio of equity securities to
replicate the Underlying Index, in instances in which a security in the
Underlying Index becomes temporarily illiquid, unavailable or less liquid, or as
a result of legal restrictions or limitations (such as tax diversification
requirements) that apply to the Fund but not the Underlying Index.
The
Adviser expects that, over time, the correlation between the Fund's performance
and that of the Underlying Index, before fees and expenses, will exceed 95%. A
correlation percentage of 100% would indicate perfect correlation. If the Fund
uses a replication strategy, it can be expected to have greater correlation to
the Underlying Index than if it uses a representative sampling
strategy.
The Fund concentrates its investments
(i.e., holds 25% or more of its total assets) in a particular industry or group
of industries to approximately the same extent that the Underlying Index is
concentrated. As of December 31, 2022, the Underlying Index was
concentrated in the Internet and direct marketing retail industry and had
significant exposure to the consumer discretionary and communication services
sectors.
SUMMARY OF PRINCIPAL RISKS
As with any investment, you could lose all or part of
your investment in the Fund, and the Fund’s performance could trail that of
other investments. There is no guarantee that the Fund will
achieve its investment objective. An investment in the Fund is not a
bank deposit and it is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, the Adviser or any of its
affiliates. The Fund is subject to the principal risks noted
below, any of which may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and ability to meet its investment objective,
as well as other risks that are described in greater detail in the Additional
Information About the Funds
section of this Prospectus and in the Statement of Additional Information
(“SAI”). The order of the below risk factors does not indicate the significance
of any particular risk factor.
Asset
Class Risk:
Securities and other assets in the Underlying Index or otherwise held in the
Fund's portfolio may underperform in comparison to the general securities
markets, a particular securities market or other asset classes.
Equity
Securities Risk:
Equity securities are subject to changes in value, and their values may be more
volatile than other asset classes, as a result of such factors as a company’s
business performance, investor perceptions, stock market trends and general
economic conditions.
Associated
Risks Related to Investing in Emerging Markets Internet & E-commerce
Companies: Emerging
Markets Internet & E-commerce Companies typically face intense competition
and are subject to fluctuating consumer demand. Many of these companies compete
aggressively on price, potentially affecting their long run profitability. Due
to the online nature of Emerging Markets Internet & E-commerce Companies and
their involvement in processing, storing and transmitting large amounts of data,
these companies are particularly vulnerable to cyber security risk. This
includes threats to operational software and hardware, as well as theft of
personal and transaction records and other customer data. In the event of a
cyberattack, Emerging Markets Internet & E-commerce Companies could suffer
serious adverse reputational and operational consequences, including liability
and litigation. E-commerce Companies may participate in monopolistic practices
that could make them subject to higher levels of regulatory scrutiny and/or
potential break ups in the future, which could severely impact the viability of
these companies. Chinese E-commerce Companies have been subject to heightened
scrutiny as regulators seek to rein in monopolistic practices and prevent the
‘disorderly expansion of capital’ under the Common Prosperity initiative.
Through its portfolio companies’ customers and suppliers, the Fund is
specifically exposed to Asian
Economic Risk, European Economic Risk and
North American Economic Risk. Please
see "Reliance
on Trading Partners Risk"
in this Prospectus.
Capitalization
Risk:
Investing in issuers within the same market capitalization category carries the
risk that the category may be out of favor due to current market conditions or
investor sentiment.
Large-Capitalization
Companies Risk: Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk: Mid-capitalization
companies may have greater price volatility, lower trading volume and less
liquidity than large-capitalization companies. In addition, mid-capitalization
companies may have smaller revenues, narrower product lines, less management
depth and experience, smaller shares of their product or service markets, fewer
financial resources and less competitive strength than large-capitalization
companies.
Currency
Risk:
The Fund may invest in securities denominated in foreign currencies. Because the
Fund's NAV is determined in U.S. dollars, the Fund's NAV could decline if
currencies of the underlying securities depreciate against the U.S. dollar or if
there are delays or limits on repatriation of such currencies. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the Fund's NAV may change quickly and without warning, which could have
a significant negative impact on the Fund.
Custody
Risk:
The Fund may hold foreign securities and cash with foreign banks, agents, and
securities depositories appointed by the Fund's custodian. Investments in
emerging markets may be subject to even greater custody risks than investments
in more developed markets. Less developed markets are more likely to experience
problems with the clearing and settling of trades and the holding of securities
by local banks, agents and depositories.
Focus
Risk:
To the extent that the Underlying Index focuses in investments related to a
particular industry or group of industries, the Fund will also focus its
investments to approximately the same extent. Similarly, if the Underlying Index
has significant exposure to one or more sectors, the Fund’s investments will
likely have significant exposure to such sectors. In
such
event, the Fund’s performance will be particularly susceptible to adverse events
impacting such industry or sector, which may include, but are not limited to,
the following: general economic conditions or cyclical market patterns that
could negatively affect supply and demand; competition for resources; adverse
labor relations; political or world events; obsolescence of technologies; and
increased competition or new product introductions that may affect the
profitability or viability of companies in a particular industry or sector. As a
result, the value of the Fund’s investments 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 or sectors.
Risks
Related to Investing in the Communication Services Sector: Companies
in the communication services sector may be affected by industry competition,
substantial capital requirements, government regulation, cyclicality of revenues
and earnings, obsolescence of communications products and services due to
technological advancement, a potential decrease in the discretionary income of
targeted individuals and changing consumer tastes and interests.
Risks
Related to Investing in the Consumer Discretionary Sector: The
consumer discretionary sector may be affected by changes in domestic and
international economies, exchange and interest rates, competition, consumers’
disposable income and consumer preferences, social trends and marketing
campaigns.
Risks
Related to Investing in the Internet and Direct Marketing Retail Industry:
Companies
in the internet and direct marketing retail industry are dependent on internal
infrastructure and on the availability, reliability and security of the internet
and related systems. Critical systems and operations may be vulnerable to damage
or interruption from fire, flood, power loss, telecommunications failure,
terrorist attacks, cyber-attacks, acts of war, break-ins, earthquake and similar
events. Any system interruption that results in the unavailability of a
company’s website or mobile app or reduced performance of transaction systems
could interrupt or substantially reduce a company’s ability to conduct its
business. Companies in the internet and direct marketing retail industry are
dependent on paid and unpaid natural search engines and are therefore dependent
on business decisions made by companies that offer natural search engines. Any
business changes by dominant providers of natural search engines can be
detrimental to an internet and direct marketing retail company’s business while
being totally outside of the control of such company.
Foreign
Securities Risk:
The Fund may invest, within U.S. regulations, in foreign securities. The Fund's
investments in foreign securities can be riskier than U.S. securities
investments. Investments in the securities of foreign issuers (including
investments in ADRs and GDRs) are subject to the risks associated with investing
in those foreign markets, such as heightened risks of inflation or
nationalization. The prices of foreign securities and the prices of U.S.
securities have, at times, moved in opposite directions. In addition, securities
of foreign issuers may lose value due to political, economic and geographic
events affecting a foreign issuer or market. During periods of social, political
or economic instability in a country or region, the value of a foreign security
traded on U.S. exchanges could be affected by, among other things, increasing
price volatility, illiquidity, or the closure of the primary market on which the
security (or the security underlying the ADR or GDR) is traded. You may lose
money due to political, economic and geographic events affecting a foreign
issuer or market. Where all or a portion of the Fund's underlying securities
trade in a market that is closed when the market in which the Fund's shares are
listed and trading is open, there may be differences between the last quote from
the security’s closed foreign market and the value of the security during the
Fund’s domestic trading day. This in turn could lead to differences between the
market price of the Fund’s shares and the underlying value of those shares.
Geographic
Risk: A
natural, biological or other disaster could occur in a geographic region in
which the Fund invests, which could affect the economy or particular business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in the affected region or in a region
economically tied to the affected region. The securities in which the Fund
invests and, consequently, the Fund are also subject to specific risks as a
result of their business operations, including, but not limited to:
Risk
of Investing in Brazil: Investment
in Brazilian issuers involves risks that are specific to Brazil, including
legal, regulatory, political and economic risks. The Brazilian economy has
historically been exposed to high rates of inflation, debt, corruption, and
violence, each of which may reduce and/or prevent economic growth.
Risk
of Investing in China:
Investment exposure to China subjects the Fund to risks specific to China.
Economic,
Political and Social Risk
China
may be subject to considerable degrees of economic, political and social
instability. Concerns about the rising government and household debt levels
could impact the stability of the Chinese economy. China is an emerging market
and demonstrates significantly higher volatility from time to time in comparison
to developed markets. Over the last few decades, the Chinese government has
undertaken reform of economic and market practices, including recent reforms to
liberalize its capital markets and expand the sphere for private ownership of
property in China.
However,
Chinese markets generally continue to experience inefficiency, volatility and
pricing anomalies resulting from governmental influence, a lack of publicly
available information and/or political and social instability. Chinese companies
are also subject to the risk that Chinese authorities can intervene in their
operations and structure. Internal social unrest or confrontations with other
neighboring countries, including military conflicts in response to such events,
may also disrupt economic development in China and result in a greater risk of
currency fluctuations, currency convertibility, interest rate fluctuations and
higher rates of inflation.
China
has experienced major health crises. These health crises include, but are not
limited to, the rapid and pandemic spread of novel viruses commonly known as
SARS, MERS, and COVID-19 (Coronavirus). Such health crises could exacerbate
political, social, and economic risks previously mentioned.
Export
growth continues to be a major driver of China’s rapid economic growth. Elevated
trade tensions between China and its trading partners, including the imposition
of U.S. tariffs on certain Chinese goods and increased international pressure
related to Chinese trade policy and forced technology transfers and intellectual
property protections, may have a substantial impact on the Chinese economy.
Reduction in spending on Chinese products and services, institution of
additional tariffs or other trade barriers (including as a result of heightened
trade tensions between China and the U.S. or in response to actual or alleged
Chinese cyber activity), or a downturn in any of the economies of China’s key
trading partners may have an adverse impact on the Chinese economy. The
continuation or worsening of the current political climate between China and the
U.S. could result in additional regulatory restrictions being contemplated or
imposed in the U.S. or in China that could impact the Fund’s ability to invest
in certain companies.
Security
Risk
China
has experienced security concerns, such as terrorism and strained international
relations. Additionally, China is alleged to have participated in
state-sponsored cyberattacks against foreign companies and foreign governments.
Actual and threatened responses to such activity, including purchasing
restrictions, sanctions, tariffs or cyberattacks on the Chinese government or
Chinese companies, may impact China’s economy and Chinese issuers of securities
in which the Fund invests. Incidents involving China’s or the region’s security,
including the contagion of infectious viruses or diseases, may cause uncertainty
in Chinese markets and may adversely affect the Chinese economy and the Fund’s
investments.
Heavy
Government Control and Regulation
Chinese
companies, including Chinese companies that are listed on U.S. exchanges, are
not subject to the same degree of regulatory requirements, accounting standards
or auditor oversight as companies in more developed countries, and as a result,
information about the Chinese securities in which the Fund invests may be less
reliable or complete. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against Chinese
companies and shareholders may have limited legal remedies. Investments in China
may be subject to loss due to expropriation or nationalization of assets and
property or the imposition of restrictions on foreign investments and
repatriation of capital. Furthermore, government actions against leaders or
other key figures within companies, or speculation about such actions, may lead
to sudden and unpredictable falls in the value of securities within the
Fund.
Tax
Risk
China
has implemented a number of tax reforms in recent years and may amend or revise
its existing tax laws and/or procedures in the future, possibly with retroactive
effect. Changes in applicable Chinese tax law could reduce the after-tax profits
of the Fund, directly or indirectly, including by reducing the after-tax profits
of companies in China in which the Fund invests. Uncertainties in Chinese tax
rules could result in unexpected tax liabilities for the Fund. Should
legislation limit U.S. investors’ ability to invest in specific Chinese
companies through A-shares or other share class listings that are part of the
underlying holdings, these shares may be excluded from Fund
holdings.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the Chinese government restricts foreign
ownership to raise capital from foreign investors. While the shell company has
no equity ownership of the VIE, these contractual arrangements permit the shell
company to consolidate the VIE’s financial statements with its own for
accounting purposes and provide for economic exposure to the performance of the
underlying Chinese operating company.
Therefore,
an investor in the listed shell company, such as the Fund, will have exposure to
the Chinese-based operating company only through contractual arrangements and
has no ownership in the Chinese-based operating company. Furthermore, because
the shell company only has specific rights provided for in these service
agreements with the VIE, its abilities to control the
activities
at the Chinese-based operating company are limited and the operating company may
engage in activities that negatively impact investment value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without the Chinese-based
issuer’s authorization to enter into contractual arrangements in China. Chops
and seals, which are carved stamps used to sign documents, represent a legally
binding commitment by the company. Moreover, any future regulatory action may
prohibit the ability of the shell company to receive the economic benefits of
the Chinese-based operating company, which may cause the value of the Fund’s
investment in the listed shell company to suffer a significant loss. For
example, in 2021, the Chinese government prohibited use of the VIE structure for
investment in after-school tutoring companies. There is no guarantee that the
Chinese government will not place similar restrictions on other
industries.
Chinese
equities that utilize the VIE structure to list in the U.S. as ADRs face the
risk of regulatory action from U.S. authorities, including the risk of
delisting. This will depend in part on whether U.S. regulatory authorities are
satisfied with their access to Mainland China and Hong Kong for the purpose of
conducting inspections on the quality of audits for these companies. Although
the U.S. and China reached an agreement in September 2022 to grant the U.S.
access for such inspections, there is no guarantee that the agreement will hold
up or that U.S. regulatory authorities will continue to feel satisfied with
their access. As of December 31, 2022, the Fund had significant exposure to
VIEs, as defined above.
Risk
of Investing in Emerging Markets:
The Fund targets e-commerce companies globally and is expected to invest in
securities in emerging market countries. Investments in emerging markets may be
subject to a greater risk of loss than investments in developed markets.
Securities markets of emerging market countries are less liquid, subject to
greater price volatility, have smaller market capitalizations, have less
government regulation, and are not subject to as extensive and frequent
accounting, financial, and other reporting requirements as the securities
markets of more developed countries, and there may be greater risk associated
with the custody of securities in emerging markets. It may be difficult or
impossible for the Fund to pursue claims against an emerging market issuer in
the courts of an emerging market country.
There
may be significant obstacles to obtaining information necessary for
investigations into or litigation against emerging market companies and
shareholders may have limited legal rights and remedies. Emerging markets may be
more likely to experience inflation, political turmoil and rapid changes in
economic conditions than more developed markets. Emerging market economies’
exposure to specific industries, such as tourism, and lack of efficient or
sufficient health care systems, could make these economies especially vulnerable
to global crises, including but not limited to, pandemics such as the global
COVID-19 pandemic. Certain emerging market countries may have privatized, or
have begun the process of privatizing, certain entities and industries.
Privatized entities may lose money or be re-nationalized.
Risk
of Investing in South Africa: Investing
in South African securities involves significant risks, including legal,
regulatory and economic risks specific to South Africa. Among other things,
South Africa’s economy is heavily dependent on its agriculture and mining
sectors, and, thus, susceptible to fluctuations in the commodity
markets.
Risk
of Investing in South Korea: Investments
in South Korean issuers may subject the Fund to legal, regulatory, political,
currency, security, and economic risks that are specific to South Korea. In
addition, economic and political developments of South Korea’s neighbors,
including escalated tensions involving North Korea and any outbreak of
hostilities involving North Korea, or even the threat of an outbreak of
hostilities, may have a severe adverse effect on the South Korean
economy.
International
Closed Market Trading Risk: To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote from the closed foreign market).
These deviations could result in premiums or discounts to the Fund’s NAV that
may be greater than those experienced by other exchange-traded funds
("ETFs").
Issuer
Risk:
Fund performance depends on the performance of individual companies in which the
Fund invests. Changes to the financial condition of any of those companies may
cause the value of such company's securities to decline.
Market
Risk:
Turbulence in the financial markets and reduced liquidity may negatively affect
issuers, which could have an adverse effect on the Fund. If the securities held
by the Fund experience poor liquidity, the Fund may be unable to transact at
advantageous times or prices, which may decrease the Fund’s returns. In
addition, there is a risk that policy changes by central governments and
governmental agencies, including the U.S. Federal Reserve or the European
Central Bank, which could include increasing interest rates, could cause
increased volatility in financial markets and lead to higher levels of Fund
redemptions from Authorized Participants, which could have a negative impact on
the Fund. Furthermore, local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health issues,
recessions, or other events could have a significant impact on the Fund and its
investments and trading of its Shares. For example, at the start of 2023,
central banks had already increased interest rates at the fastest rate on
record, and it is unknown how long this trend will continue and when inflation
will return to target levels. This increases the risk that monetary policy may
provide less support should economic growth slow. Additionally, China’s shift
away from a zero-COVID policy creates both opportunities and risks, causing
uncertainty for global economic growth. Market risk factors may result in
increased volatility and/or decreased liquidity in the securities markets. The
Fund’s NAV could decline over short periods due to short-term market movements
and over longer periods during market downturns.
Non-Diversification
Risk:
The Fund is classified as a “non-diversified” investment company under the
Investment Company Act of 1940 ("1940 Act"). As a result, the Fund is subject to
the risk that it may be more volatile than a diversified fund because the Fund
may invest its assets in a smaller number of issuers or may invest a larger
proportion of its assets in a single issuer. As a result, the gains and losses
on a single investment may have a greater impact on the Fund’s NAV and may make
the Fund more volatile than more diversified funds.
Operational
Risk:
The Fund is exposed to operational risk arising from a number of factors,
including but not limited to human error, processing and communication errors,
errors of the Fund's service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. Additionally,
cyber security failures or breaches of the electronic systems of the Fund, the
Adviser, and the Fund's other service providers, market makers, Authorized
Participants or the issuers of securities in which the Fund invests have the
ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. The Fund and the Adviser seek to reduce these operational risks
through controls and procedures. However, these measures do not address every
possible risk and may be inadequate for those risks that they are intended to
address.
Passive
Investment Risk:
The Fund is not actively managed, and the Adviser does not attempt to take
defensive positions in declining markets. Unlike many investment companies, the
Fund does not seek to outperform its Underlying Index. Therefore, it would not
necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is
underperforming. Additionally, if a constituent of the Underlying Index were
removed, even outside of a regular rebalance of the Underlying Index, the
Adviser anticipates that the Fund would sell such security. Maintaining
investments in securities regardless of market conditions or the performance of
individual securities could cause the Fund’s return to be lower than if the Fund
employed an active strategy.
Index-Related
Risk:
There is no guarantee that the Fund will achieve a high degree of correlation to
the Underlying Index and therefore achieve its investment objective. Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Underlying Index. Errors in index data, index computations and/or the
construction of the Underlying Index in accordance with its methodology 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, which may have an adverse impact on the
Fund and its shareholders.
Management
Risk:
The Fund may not fully replicate its Underlying Index and may hold securities
not included in its Underlying Index. The Adviser’s investment strategy, the
implementation of which is subject to a number of constraints, may cause the
Fund to underperform the market or its relevant benchmark or adversely affect
the ability of the Fund to achieve its investment objective.
Tracking
Error Risk:
Tracking error may occur because of differences between the instruments held in
the Fund's portfolio and those included in the Underlying Index, pricing
differences, transaction costs incurred by the Fund, the Fund's holding of
uninvested cash, size of the Fund, differences in timing of the accrual of or
the valuation of dividends or interest, tax gains or losses, changes to the
Underlying Index or the costs to the Fund of complying with various new or
existing regulatory requirements. This risk may be heightened during times of
increased market volatility or other unusual market conditions. Tracking error
also may result because the Fund incurs fees and
expenses,
while the Underlying Index does not. ETFs that track indices with significant
weight in emerging markets issuers may experience higher tracking error than
other ETFs that do not track such indices.
Reliance
on Trading Partners Risk: The
Fund invests in an economy that is heavily dependent upon trading with key
partners. Any reduction in this trading, including as a result of adverse
economic conditions in a trading partner’s economy, may cause an adverse impact
on the economy in which the Fund invests.
Risks
Associated with Exchange-Traded Funds:
As an ETF, the Fund is subject to the following risks:
Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants and engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. To the extent that those
Authorized Participants exit the business or are unable to process creation
and/or redemption orders, such as in times of market stress, Shares may be more
likely to trade at a premium or discount to NAV and/or at wider intraday bid-ask
spreads, and possibly face trading halts and/or delisting from an exchange.
Authorized Participants Concentration Risk may be heightened because the Fund
invests in non-U.S. securities.
Large
Shareholder Risk: Redemptions
by large shareholders could have a significant negative impact on the Fund. If a
large shareholder were to redeem all, or a large portion, of its Shares, there
is no guarantee that the Fund will be able to maintain sufficient assets to
continue operations in which case the Board of Trustees may determine to
liquidate the Fund. In addition, transactions by large shareholders may account
for a large percentage of the trading volume on a national securities exchange
and may, therefore, have a material upward or downward effect on the market
price of the Shares.
Listing
Standards Risk: The
Fund is required to comply with listing requirements adopted by the listing
exchange. Non-compliance with such requirements may result in the Fund's shares
being delisted by the listing exchange. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs and could result in
negative tax consequences for its shareholders.
Market
Trading Risks and Premium/Discount Risks:
Shares of the Fund are publicly traded on a national securities exchange, which
may subject shareholders to numerous market trading risks. In stressed market
conditions, the market for the Shares may become less liquid in response to the
deteriorating liquidity of the Fund’s portfolio. This adverse effect on the
liquidity of the Shares, as well as disruptions to creations and redemptions,
the existence of extreme market volatility or potential lack of assets in the
Fund or an active trading market for Shares may result in Shares trading at a
significant premium or discount to NAV. If a shareholder purchases Shares at a
time when the market price is at a premium to the NAV or sells Shares at a time
when the market price is at a discount to the NAV, the shareholder may sustain
losses. The NAV of the Fund is calculated at the end of each business day and
fluctuates with changes in the market value of the Fund’s holdings. The trading
price of the Fund’s shares fluctuates, in some cases materially, throughout
trading hours in response to changes in the Fund’s NAV.
Trading
Halt Risk:
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading
losses.
Valuation
Risk: The sales price the Fund could receive for
a security may differ from the Fund’s valuation of the security and may differ
from the value used by the Underlying Index, particularly for securities that
trade in low value or volatile markets or that are valued using a fair value
methodology (such as during trading halts). 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 Fund's Shares.
PERFORMANCE
INFORMATION
The bar chart
and table that follow show how the Fund performed on a calendar year basis and
provide an indication of the risks of investing in the Fund by showing changes
in the Fund's performance from year to year and by showing how the Fund's
average annual returns for the indicated periods compare with the Fund's
benchmark index and a broad measure of market performance.
The Fund's past performance
(before and after taxes) is not necessarily indicative of how the Fund will
perform in the future. Updated performance information is
available online at www.globalxetfs.com.
Annual Total Returns (Years Ended December
31)
|
|
|
|
|
|
|
|
|
Best
Quarter: |
12/31/2022 |
13.05% |
Worst
Quarter: |
9/30/2021 |
-24.76% |
Average Annual Total Returns (for the Periods
Ended December 31, 2022)
|
|
|
|
|
|
|
|
|
|
One
Year Ended December 31, 2022 |
Since
Inception (11/09/2020)
|
Global
X Emerging Markets Internet & E-commerce ETF: |
|
|
·Return before
taxes |
-28.05% |
-28.73% |
·Return
after taxes on distributions1 |
-28.05% |
-28.73% |
·Return
after taxes on distributions and sale of Fund Shares1 |
-16.61% |
-20.79% |
NASDAQ
CTA Emerging Markets Internet & E-commerce Net Total Return Index
(net)
(Index returns reflect
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
-27.76% |
-28.34% |
MSCI
Emerging Markets Index (net)
(Index returns reflect
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
-20.09% |
-7.55% |
1 After-tax returns are
calculated using the historical highest individual U.S. federal marginal income
tax rates and do not reflect the impact of state and local
taxes. Your actual after-tax returns
will depend on your specific tax situation and may differ from those shown
above. After-tax returns are not relevant to investors who hold Shares of the
Fund through tax-advantaged arrangements, such as 401(k) plans or individual
retirement accounts (IRAs).
FUND
MANAGEMENT
Investment
Adviser:
Global X Management Company LLC.
Portfolio
Managers:
The professionals primarily responsible for the day-to-day management of the
Fund are Nam To, CFA; Wayne Xie; Kimberly Chan; Vanessa Yang; and Sandy Lu, CFA
(“Portfolio Managers”). Messrs. To and Xie and Ms. Chan have been Portfolio
Managers of the Fund since the Fund's inception. Ms. Yang has been a Portfolio
Manager of the Fund since December 2020. Mr. Lu has been a Portfolio Manager of
the Fund since March 2022.
PURCHASE
AND SALE OF FUND SHARES
Shares
of the Fund are or will be listed and traded at market prices on a national
securities exchange. Shares may only be purchased and sold on the exchange
through a broker-dealer. The price of Shares is based on market price, and
because ETF shares trade at market prices rather than at NAV, Shares may trade
at a price greater than NAV (a premium) or less than NAV (a discount). Only
"Authorized Participants" (as defined in the SAI) who have entered into
agreements with the Fund's distributor, SEI Investments Distribution Co.
("Distributor"), may engage in creation or redemption transactions directly with
the Fund. The Fund will only issue or redeem Shares that have been aggregated
into blocks called “Creation Units”. The Fund will issue or redeem Creation
Units in return for a basket of cash and/or securities that the Fund specifies
any day that the national securities exchanges are open for business (“Business
Day”). An investor may incur costs attributable to the difference between the
highest price a buyer is willing to pay to purchase shares of the Fund (bid) and
the lowest price a seller is willing to accept for shares of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”). To
access information regarding the Fund’s net asset value, market price, premiums
and discounts, and bid-ask spreads, please go to
https://www.globalxetfs.com
TAX
INFORMATION
The
Fund intends to make distributions that may be taxable to you as ordinary income
or capital gains, unless you are investing through a tax-advantaged arrangement
such as a 401(k) plan or an individual retirement account ("IRA"), in which case
distributions from such tax-advantaged arrangement may be taxable to you.
PAYMENTS
TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
The
Adviser and its related companies may pay broker-dealers or other financial
intermediaries (such as a bank) for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer, sales persons or other intermediary or its employees or
associated persons to recommend the Fund over another investment. Ask your
financial adviser or visit your financial intermediary's website for more
information.
Global
X SuperDividend®
ETF
Ticker:
SDIV Exchange: NYSE Arca
INVESTMENT OBJECTIVE
The
Global X SuperDividend®
ETF ("Fund") seeks investment results that correspond generally to the price and
yield performance, before fees and expenses, of the Solactive Global
SuperDividend®
Index ("Underlying Index").
FEES AND EXPENSES
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares (“Shares”) of
the Fund. You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and examples
below.
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment):
|
|
|
|
|
|
Management
Fees: |
0.58% |
Distribution
and Service (12b-1) Fees: |
None |
Other
Expenses: |
0.03% |
Total
Annual Fund Operating Expenses: |
0.61% |
Expense
Reimbursement and/or Fee Waiver1 |
(0.03)% |
Total
Annual Fund Operating Expenses After Fee Waiver and/or Expense
Reimbursement: |
0.58% |
1
Pursuant
to an Expense Limitation Agreement, the Adviser has contractually agreed to
reimburse or waive fees and/or limit Fund expenses to the extent necessary to
assure that the operating expenses of the Fund (exclusive of taxes, brokerage
fees, commissions, and other transaction expenses and extraordinary expenses
(such as litigation and indemnification expenses)) will not exceed 0.58% of the
Fund's average daily net assets per year, effective March 1, 2023, until
at least March 1,
2024.
Example:
The following example
is intended to help you compare the cost of investing in the Fund with the cost
of investing in other funds. This example does not take into account customary
brokerage commissions that you pay when purchasing or selling Shares of the Fund
in the secondary market. The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell 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:
|
|
|
|
|
|
|
|
|
|
|
|
One
Year |
Three
Years |
Five
Years |
Ten
Years |
$59 |
$192 |
$337 |
$759 |
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. During the most recent fiscal year, the
Fund's portfolio turnover rate was 91.10% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund invests at least 80% of its total assets in the securities of the Solactive
Global SuperDividend®
Index ("Underlying Index") and in American Depositary Receipts ("ADRs") and
Global Depositary Receipts ("GDRs") based on the securities in the Underlying
Index. The Fund's 80% investment policy is non-fundamental and requires 60 days
prior written notice to shareholders before it can be changed. The Fund may lend
securities representing up to one-third of the value of the Fund’s total assets
(including the value of the collateral received).
The
Underlying Index tracks the performance of 100 equally-weighted companies that
rank among the highest dividend yielding equity securities in the world,
including emerging market countries, as defined by Solactive AG, the provider of
the
Underlying
Index ("Index Provider"). The Fund's investment objective and Underlying Index
may be changed without shareholder approval.
The
Underlying Index is sponsored by the Index Provider, which is an organization
that is independent of, and unaffiliated with, the Fund and Global X Management
Company LLC, the investment adviser for the Fund ("Adviser"). The Index Provider
determines the relative weightings of the securities in the Underlying Index and
publishes information regarding the market value of the Underlying Index.
The
Adviser uses a "passive" or indexing approach to try to achieve the Fund's
investment objective. Unlike many investment companies, the Fund does not try to
outperform the Underlying Index and does not seek temporary defensive positions
when markets decline or appear overvalued.
The
Fund generally will use a replication strategy. A replication strategy is an
indexing strategy that involves investing in the securities of the Underlying
Index in approximately the same proportions as in the Underlying Index. However,
the Fund may utilize a representative sampling strategy with respect to the
Underlying Index when a replication strategy might be detrimental or
disadvantageous to shareholders, such as when there are practical difficulties
or substantial costs involved in compiling a portfolio of equity securities to
replicate the Underlying Index, in instances in which a security in the
Underlying Index becomes temporarily illiquid, unavailable or less liquid, or as
a result of legal restrictions or limitations (such as tax diversification
requirements) that apply to the Fund but not the Underlying Index.
The
Adviser expects that, over time, the correlation between the Fund's performance
and that of the Underlying Index, before fees and expenses, will exceed 95%. A
correlation percentage of 100% would indicate perfect correlation. If the Fund
uses a replication strategy, it can be expected to have greater correlation to
the Underlying Index than if it uses a representative sampling
strategy.
The Fund concentrates its investments
(i.e., holds 25% or more of its total assets) in a particular industry or group
of industries to approximately the same extent that the Underlying Index is
concentrated. As of December 31, 2022, the Underlying Index had significant
exposure to the financials
sector.
SUMMARY OF PRINCIPAL RISKS
As with any investment, you could lose all or part of
your investment in the Fund, and the Fund’s performance could trail that of
other investments. There is no guarantee that the Fund will
achieve its investment objective. An investment in the Fund is not a
bank deposit and it is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, the Adviser or any of its
affiliates. The Fund is subject to the principal risks noted
below, any of which may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and ability to meet its investment objective,
as well as other risks that are described in greater detail in the Additional
Information About the Funds
section of this Prospectus and in the Statement of Additional Information
(“SAI”). The order of the below risk factors does not indicate the significance
of any particular risk factor.
Asset
Class Risk:
Securities and other assets in the Underlying Index or otherwise held in the
Fund's portfolio may underperform in comparison to the general securities
markets, a particular securities market or other asset classes.
Equity
Securities Risk:
Equity securities are subject to changes in value, and their values may be more
volatile than other asset classes, as a result of such factors as a company’s
business performance, investor perceptions, stock market trends and general
economic conditions.
Real
Estate Stocks and Real Estate Investment Trusts (REITs) Investment
Risk:
The Fund may have exposure to companies that invest in real estate, such as
REITs, which exposes investors in the Fund to the risks of owning real estate
directly, as well as to risks that relate specifically to the way in which real
estate companies are organized and operated. Real estate is highly sensitive to
general and local economic conditions and developments and characterized by
intense competition and periodic overbuilding. Many real estate companies,
including REITs, utilize leverage (and some may be highly leveraged), which
increases risk and could adversely affect a real estate company's operations and
market value in periods of rising interest rates.
Capitalization
Risk:
Investing in issuers within the same market capitalization category carries the
risk that the category may be out of favor due to current market conditions or
investor sentiment.
Mid-Capitalization
Companies Risk: Mid-capitalization
companies may have greater price volatility, lower trading volume and less
liquidity than large-capitalization companies. In addition, mid-capitalization
companies may have smaller revenues, narrower product lines, less management
depth and experience, smaller shares of their product or service markets, fewer
financial resources and less competitive strength than large-capitalization
companies.
Small-Capitalization
Companies Risk:
Compared to mid- and large-capitalization companies, small-capitalization
companies may be less stable and more susceptible to adverse developments, and
their securities may be more volatile and less liquid.
Credit
Risk: Credit
risk refers to the possibility that the issuer of the security will not be able
to make principal and interest payments when due. Changes in an issuer’s credit
rating or the market’s perception of an issuer’s creditworthiness may also
affect the value of the Fund’s investment in that issuer. Securities rated in
the four highest categories by the rating agencies are considered investment
grade but they may also have some speculative characteristics. Investment grade
ratings do not guarantee that bonds will not lose value.
Currency
Risk:
The Fund may invest in securities denominated in foreign currencies. Because the
Fund's NAV is determined in U.S. dollars, the Fund's NAV could decline if
currencies of the underlying securities depreciate against the U.S. dollar or if
there are delays or limits on repatriation of such currencies. Currency exchange
rates can be very volatile and can change quickly and unpredictably. As a
result, the Fund's NAV may change quickly and without warning, which could have
a significant negative impact on the Fund.
Custody
Risk:
The Fund may hold foreign securities and cash with foreign banks, agents, and
securities depositories appointed by the Fund's custodian. Investments in
emerging markets may be subject to even greater custody risks than investments
in more developed markets. Less developed markets are more likely to experience
problems with the clearing and settling of trades and the holding of securities
by local banks, agents and depositories.
Focus
Risk:
To the extent that the Underlying Index focuses in investments related to a
particular industry or group of industries, the Fund will also focus its
investments to approximately the same extent. Similarly, if the Underlying Index
has significant exposure to one or more sectors, the Fund’s investments will
likely have significant exposure to such sectors. In such event, the Fund’s
performance will be particularly susceptible to adverse events impacting such
industry or sector, which may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively
affect supply and demand; competition for resources; adverse labor relations;
political or world events; obsolescence of technologies; and increased
competition or new product introductions that may affect the profitability or
viability of companies in a particular industry or sector. As a result, the
value of the Fund’s investments 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 or sectors.
Risks
Related to Investing in the Financials Sector: Performance
of companies in the financials sector may be adversely impacted by many factors,
including, among others, government regulations, economic conditions, credit
rating downgrades, changes in interest rates, and decreased liquidity in credit
markets. This sector has experienced significant losses in the past, and the
impact of more stringent capital requirements and of current or future
regulation on any individual financial company or on the sector as a whole
cannot be predicted. In recent years, cyber-attacks and technology malfunctions
and failures have become increasingly frequent in this sector and have caused
significant losses to companies in this sector, which may negatively impact the
Fund.
Foreign
Securities Risk:
The Fund may invest, within U.S. regulations, in foreign securities. The Fund's
investments in foreign securities can be riskier than U.S. securities
investments. Investments in the securities of foreign issuers (including
investments in ADRs and GDRs) are subject to the risks associated with investing
in those foreign markets, such as heightened risks of inflation or
nationalization. The prices of foreign securities and the prices of U.S.
securities have, at times, moved in opposite directions. In addition, securities
of foreign issuers may lose value due to political, economic and geographic
events affecting a foreign issuer or market. During periods of social, political
or economic instability in a country or region, the value of a foreign security
traded on U.S. exchanges could be affected by, among other things, increasing
price volatility, illiquidity, or the closure of the primary market on which the
security (or the security underlying the ADR or GDR) is traded. You may lose
money due to political, economic and geographic events affecting a foreign
issuer or market. Where all or a portion of the Fund's underlying securities
trade in a market that is closed when the market in which the Fund's shares are
listed and trading is open, there may be differences between the last quote from
the security’s closed foreign market and the value of the security during the
Fund’s domestic trading day. This in turn could lead to differences between the
market price of the Fund’s shares and the underlying value of those shares.
Geographic
Risk: A
natural, biological or other disaster could occur in a geographic region in
which the Fund invests, which could affect the economy or particular business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in the affected region or in a region
economically tied to the affected region. The securities in which the Fund
invests and, consequently, the Fund are also subject to specific risks as a
result of their business operations, including, but not limited to:
Risk
of Investing in Brazil: Investment
in Brazilian issuers involves risks that are specific to Brazil, including
legal, regulatory, political and economic risks. The Brazilian economy has
historically been exposed to high rates of inflation, debt, corruption, and
violence, each of which may reduce and/or prevent economic growth.
Risk
of Investing in China:
Investment exposure to China subjects the Fund to risks specific to China.
Economic,
Political and Social Risk
China
may be subject to considerable degrees of economic, political and social
instability. Concerns about the rising government and household debt levels
could impact the stability of the Chinese economy. China is an emerging market
and demonstrates significantly higher volatility from time to time in comparison
to developed markets. Over the last few decades, the Chinese government has
undertaken reform of economic and market practices, including recent reforms to
liberalize its capital markets and expand the sphere for private ownership of
property in China. However, Chinese markets generally continue to experience
inefficiency, volatility and pricing anomalies resulting from governmental
influence, a lack of publicly available information and/or political and social
instability. Chinese companies are also subject to the risk that Chinese
authorities can intervene in their operations and structure. Internal social
unrest or confrontations with other neighboring countries, including military
conflicts in response to such events, may also disrupt economic development in
China and result in a greater risk of currency fluctuations, currency
convertibility, interest rate fluctuations and higher rates of inflation.
China
has experienced major health crises. These health crises include, but are not
limited to, the rapid and pandemic spread of novel viruses commonly known as
SARS, MERS, and COVID-19 (Coronavirus). Such health crises could exacerbate
political, social, and economic risks previously mentioned.
Export
growth continues to be a major driver of China’s rapid economic growth. Elevated
trade tensions between China and its trading partners, including the imposition
of U.S. tariffs on certain Chinese goods and increased international pressure
related to Chinese trade policy and forced technology transfers and intellectual
property protections, may have a substantial impact on the Chinese economy.
Reduction in spending on Chinese products and services, institution of
additional tariffs or other trade barriers (including as a result of heightened
trade tensions between China and the U.S. or in response to actual or alleged
Chinese cyber activity), or a downturn in any of the economies of China’s key
trading partners may have an adverse impact on the Chinese economy. The
continuation or worsening of the current political climate between China and the
U.S. could result in additional regulatory restrictions being contemplated or
imposed in the U.S. or in China that could impact the Fund’s ability to invest
in certain companies.
Security
Risk
China
has experienced security concerns, such as terrorism and strained international
relations. Additionally, China is alleged to have participated in
state-sponsored cyberattacks against foreign companies and foreign governments.
Actual and threatened responses to such activity, including purchasing
restrictions, sanctions, tariffs or cyberattacks on the Chinese government or
Chinese companies, may impact China’s economy and Chinese issuers of securities
in which the Fund invests. Incidents involving China’s or the region’s security,
including the contagion of infectious viruses or diseases, may cause uncertainty
in Chinese markets and may adversely affect the Chinese economy and the Fund’s
investments.
Heavy
Government Control and Regulation
Chinese
companies, including Chinese companies that are listed on U.S. exchanges, are
not subject to the same degree of regulatory requirements, accounting standards
or auditor oversight as companies in more developed countries, and as a result,
information about the Chinese securities in which the Fund invests may be less
reliable or complete. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against Chinese
companies and shareholders may have limited legal remedies. Investments in China
may be subject to loss due to expropriation or nationalization of assets and
property or the imposition of restrictions on foreign investments and
repatriation of capital. Furthermore, government actions against leaders or
other key figures within companies, or speculation about such actions, may lead
to sudden and unpredictable falls in the value of securities within the
Fund.
Tax
Risk
China
has implemented a number of tax reforms in recent years and may amend or revise
its existing tax laws and/or procedures in the future, possibly with retroactive
effect. Changes in applicable Chinese tax law could reduce the
after-
tax
profits of the Fund, directly or indirectly, including by reducing the after-tax
profits of companies in China in which the Fund invests. Uncertainties in
Chinese tax rules could result in unexpected tax liabilities for the Fund.
Should legislation limit U.S. investors’ ability to invest in specific Chinese
companies through A-shares or other share class listings that are part of the
underlying holdings, these shares may be excluded from Fund
holdings.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the Chinese government restricts foreign
ownership to raise capital from foreign investors. While the shell company has
no equity ownership of the VIE, these contractual arrangements permit the shell
company to consolidate the VIE’s financial statements with its own for
accounting purposes and provide for economic exposure to the performance of the
underlying Chinese operating company.
Therefore,
an investor in the listed shell company, such as the Fund, will have exposure to
the Chinese-based operating company only through contractual arrangements and
has no ownership in the Chinese-based operating company. Furthermore, because
the shell company only has specific rights provided for in these service
agreements with the VIE, its abilities to control the activities at the
Chinese-based operating company are limited and the operating company may engage
in activities that negatively impact investment value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without the Chinese-based
issuer’s authorization to enter into contractual arrangements in China. Chops
and seals, which are carved stamps used to sign documents, represent a legally
binding commitment by the company. Moreover, any future regulatory action may
prohibit the ability of the shell company to receive the economic benefits of
the Chinese-based operating company, which may cause the value of the Fund’s
investment in the listed shell company to suffer a significant loss. For
example, in 2021, the Chinese government prohibited use of the VIE structure for
investment in after-school tutoring companies. There is no guarantee that the
Chinese government will not place similar restrictions on other
industries.
Chinese
equities that utilize the VIE structure to list in the U.S. as ADRs face the
risk of regulatory action from U.S. authorities, including the risk of
delisting. This will depend in part on whether U.S. regulatory authorities are
satisfied with their access to Mainland China and Hong Kong for the purpose of
conducting inspections on the quality of audits for these companies. Although
the U.S. and China reached an agreement in September 2022 to grant the U.S.
access for such inspections, there is no guarantee that the agreement will hold
up or that U.S. regulatory authorities will continue to feel satisfied with
their access.
Risk
of Investing in Developed Markets: The
Fund’s investment in a developed country issuer may subject the Fund to
regulatory, political, currency, security, economic and other risks associated
with developed countries. Developed countries tend to represent a significant
portion of the global economy and have generally experienced slower economic
growth than some less developed countries. Certain developed countries have
experienced security concerns, such as terrorism and strained international
relations. Incidents involving a country’s or region’s security may cause
uncertainty in its markets and may adversely affect its economy and the Fund’s
investments. In addition, developed countries may be impacted by changes to the
economic conditions of certain key trading partners, regulatory burdens, debt
burdens and the price or availability of certain commodities.
Risk
of Investing in Emerging Markets:
Investments in emerging markets may be subject to a greater risk of loss than
investments in developed markets. Securities markets of emerging market
countries are less liquid, subject to greater price volatility, have smaller
market capitalizations, have less government regulation, and are not subject to
as extensive and frequent accounting, financial, and other reporting
requirements as the securities markets of more developed countries, and there
may be greater risk associated with the custody of securities in emerging
markets. It may be difficult or impossible for the Fund to pursue claims against
an emerging market issuer in the courts of an emerging market
country.
There
may be significant obstacles to obtaining information necessary for
investigations into or litigation against emerging market companies and
shareholders may have limited legal rights and remedies.
Emerging
markets may be more likely to experience inflation, political turmoil and rapid
changes in economic conditions than more developed markets. Emerging market
economies’ exposure to specific industries, such as tourism, and lack of
efficient or sufficient health care systems, could make these economies
especially vulnerable to global crises, including but not limited to, pandemics
such as the global COVID-19 pandemic. Certain emerging market countries may have
privatized, or have begun the process of privatizing, certain entities and
industries. Privatized entities may lose money or be
re-nationalized.
Risk
of Investing in South Africa: Investing
in South African securities involves significant risks, including legal,
regulatory and economic risks specific to South Africa. Among other things,
South Africa’s economy is heavily dependent on its agriculture and mining
sectors, and, thus, susceptible to fluctuations in the commodity
markets.
High
Dividend Yield Stocks Risk:
High-yielding stocks are often speculative, high risk investments. These
companies may be paying out more than they can support and may reduce their
dividends or stop paying dividends at any time, which could have a material
adverse effect on the stock price of these companies and the Fund’s performance.
Securities that pay dividends, as a group, can fall out of favor with the
market, potentially during periods of rising interest rates, causing such
companies to underperform companies that do not pay dividends.
International
Closed Market Trading Risk: To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote from the closed foreign market).
These deviations could result in premiums or discounts to the Fund’s NAV that
may be greater than those experienced by other exchange-traded funds
("ETFs").
Issuer
Risk:
Fund performance depends on the performance of individual companies in which the
Fund invests. Changes to the financial condition of any of those companies may
cause the value of such company's securities to decline.
Market
Risk:
Turbulence in the financial markets and reduced liquidity may negatively affect
issuers, which could have an adverse effect on the Fund. If the securities held
by the Fund experience poor liquidity, the Fund may be unable to transact at
advantageous times or prices, which may decrease the Fund’s returns. In
addition, there is a risk that policy changes by central governments and
governmental agencies, including the U.S. Federal Reserve or the European
Central Bank, which could include increasing interest rates, could cause
increased volatility in financial markets and lead to higher levels of Fund
redemptions from Authorized Participants, which could have a negative impact on
the Fund. Furthermore, local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health issues,
recessions, or other events could have a significant impact on the Fund and its
investments and trading of its Shares. For example, at the start of 2023,
central banks had already increased interest rates at the fastest rate on
record, and it is unknown how long this trend will continue and when inflation
will return to target levels. This increases the risk that monetary policy may
provide less support should economic growth slow. Additionally, China’s shift
away from a zero-COVID policy creates both opportunities and risks, causing
uncertainty for global economic growth. Market risk factors may result in
increased volatility and/or decreased liquidity in the securities markets. The
Fund’s NAV could decline over short periods due to short-term market movements
and over longer periods during market downturns.
Operational
Risk:
The Fund is exposed to operational risk arising from a number of factors,
including but not limited to human error, processing and communication errors,
errors of the Fund's service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. Additionally,
cyber security failures or breaches of the electronic systems of the Fund, the
Adviser, and the Fund's other service providers, market makers, Authorized
Participants or the issuers of securities in which the Fund invests have the
ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. The Fund and the Adviser seek to reduce these operational risks
through controls and procedures. However, these measures do not address every
possible risk and may be inadequate for those risks that they are intended to
address.
Passive
Investment Risk:
The Fund is not actively managed, and the Adviser does not attempt to take
defensive positions in declining markets. Unlike many investment companies, the
Fund does not seek to outperform its Underlying Index. Therefore, it would not
necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is
underperforming. Additionally, if a constituent of the Underlying Index were
removed, even outside of a regular rebalance of the Underlying Index, the
Adviser anticipates that the Fund would sell such security. Maintaining
investments in securities regardless of market conditions or the performance of
individual securities could cause the Fund’s return to be lower than if the Fund
employed an active strategy.
Index-Related
Risk:
There is no guarantee that the Fund will achieve a high degree of correlation to
the Underlying Index and therefore achieve its investment objective. Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Underlying Index. Errors in index data, index computations and/or the
construction of the Underlying Index in accordance with its methodology 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, which may have an adverse impact on the
Fund and its shareholders.
Management
Risk:
The Fund may not fully replicate its Underlying Index and may hold securities
not included in its Underlying Index. The Adviser’s investment strategy, the
implementation of which is subject to a number of constraints, may cause the
Fund to underperform the market or its relevant benchmark or adversely affect
the ability of the Fund to achieve its investment objective.
Tracking
Error Risk:
Tracking error may occur because of differences between the instruments held in
the Fund's portfolio and those included in the Underlying Index, pricing
differences, transaction costs incurred by the Fund, the Fund's holding of
uninvested cash, size of the Fund, differences in timing of the accrual of or
the valuation of dividends or interest, tax gains or losses, changes to the
Underlying Index or the costs to the Fund of complying with various new or
existing regulatory requirements. This risk may be heightened during times of
increased market volatility or other unusual market conditions. Tracking error
also may result because the Fund incurs fees and expenses, while the Underlying
Index does not. ETFs that track indices with significant weight in emerging
markets issuers may experience higher tracking error than other ETFs that do not
track such indices.
Prepayment
Risk:
When interest rates fall, certain obligations will be paid off by the obligor
more quickly than originally anticipated, and the Fund may have to invest the
proceeds in securities with lower yields.
Risks
Associated with Exchange-Traded Funds:
As an ETF, the Fund is subject to the following risks:
Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants and engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. To the extent that those
Authorized Participants exit the business or are unable to process creation
and/or redemption orders, such as in times of market stress, Shares may be more
likely to trade at a premium or discount to NAV and/or at wider intraday bid-ask
spreads, and possibly face trading halts and/or delisting from an exchange.
Authorized Participants Concentration Risk may be heightened because the Fund
invests in non-U.S. securities.
Large
Shareholder Risk: Redemptions
by large shareholders could have a significant negative impact on the Fund. If a
large shareholder were to redeem all, or a large portion, of its Shares, there
is no guarantee that the Fund will be able to maintain sufficient assets to
continue operations in which case the Board of Trustees may determine to
liquidate the Fund. In addition, transactions by large shareholders may account
for a large percentage of the trading volume on a national securities exchange
and may, therefore, have a material upward or downward effect on the market
price of the Shares.
Listing
Standards Risk: The
Fund is required to comply with listing requirements adopted by the listing
exchange. Non-compliance with such requirements may result in the Fund's shares
being delisted by the listing exchange. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs and could result in
negative tax consequences for its shareholders.
Market
Trading Risks and Premium/Discount Risks:
Shares of the Fund are publicly traded on a national securities exchange, which
may subject shareholders to numerous market trading risks. In stressed market
conditions, the market for the Shares may become less liquid in response to the
deteriorating liquidity of the Fund’s portfolio. This adverse effect on the
liquidity of the Shares, as well as disruptions to creations and redemptions,
the existence of extreme market volatility or potential lack of assets in the
Fund or an active trading market for Shares may result in Shares trading at a
significant premium or discount to NAV. If a shareholder purchases Shares at a
time when the market price is at a premium to the NAV or sells Shares at a time
when the market price is at a discount to the NAV, the shareholder may sustain
losses. The NAV of the Fund is calculated at the end of each business day and
fluctuates with changes in the market value of the Fund’s holdings. The trading
price of the Fund’s shares fluctuates, in some cases materially, throughout
trading hours in response to changes in the Fund’s NAV.
Securities
Lending Risk:
Securities lending involves a risk of loss because the borrower may fail to
return the securities in a timely manner or at all. If the Fund is not able to
recover the securities loaned, it may sell the collateral and purchase a
replacement
security in the market. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the loaned securities increases and
the collateral is not increased accordingly. Additionally, the Fund will bear
any loss on the investment of cash collateral it receives. These events could
also trigger adverse tax consequences for the Fund. As securities on loan may
not be voted by the Fund, there is a risk that the Fund may not be able to
recall the securities in sufficient time to vote on material proxy matters.
Trading
Halt Risk:
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading losses.
Turnover
Risk: The
Fund may engage in frequent and active trading, which may significantly increase
the Fund’s portfolio turnover rate. At
times, the Fund may have a portfolio turnover rate substantially greater than
100%. For example, a portfolio turnover rate of 300%
is equivalent to the Fund buying and selling all of its securities three times
during the course of a year. A
high portfolio turnover rate would result in
high brokerage costs for the Fund, may result in higher taxes when shares are
held in a taxable account and lower Fund
performance.
Valuation
Risk: The sales price the Fund could receive for
a security may differ from the Fund’s valuation of the security and may differ
from the value used by the Underlying Index, particularly for securities that
trade in low value or volatile markets or that are valued using a fair value
methodology (such as during trading halts). 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 Fund's Shares.
PERFORMANCE
INFORMATION
The bar chart
and table that follow show how the Fund performed on a calendar year basis and
provide an indication of the risks of investing in the Fund by showing changes
in the Fund's performance from year to year and by showing how the Fund's
average annual returns for the indicated periods compare with the Fund's
benchmark index and a broad measure of market performance.
The Fund's past performance
(before and after taxes) is not necessarily indicative of how the Fund will
perform in the future. Updated performance information is
available online at www.globalxetfs.com.