Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is available in the Fund’s prospectus, a copy of which may be obtained by visiting the Fund’s website at www.hyldetf.com. Please read the Fund’s prospectus carefully before you invest.

There are risks involved with investing, including possible loss of principal, and there is no guarantee the Fund will achieve its investment objective. The Fund is classified as a diversified investment company under the Investment Company Act of 1940 (the “1940 Act”).

Individual shares of the Fund may be purchased or sold in the secondary market throughout the regular trading day on the NYSE Arca, Inc. (the “Exchange”) through a brokerage account. However, shares are not individually redeemable directly from the Fund. The Fund issues and redeems shares on a continuous basis, at net asset value (“NAV”), only in large blocks of shares (“Creation Units”).

Distributor: Foreside Fund Services, LLC

Dear HYLD Shareholders,

The High Yield ETF’s (“HYLD” or the “Fund”) return over the fiscal year ended June 30, 2022 was -10.63% based on net asset value (“NAV”) and -11.81% based on market price, versus a loss of -13.57% for the Bloomberg U.S. High Yield Very Liquid Index, and -12.81% for the Bloomberg U.S. Corporate High Yield Index, two of the Fund’s benchmark indexes. While HYLD has outperformed the indexes and many peer funds consistently during the recent market turmoil on a net asset value (NAV) basis, the Fund’s market price showed a large discrepancy from its NAV in the first half of 2022, caused by poor liquidity conditions. Over longer time periods, the Fund’s NAV has more closely tracked its market price. In general, when the Fund is experiencing significant trading volume, there are more sellers than buyers, especially during periods of market stress. In such a situation, discounts may arise. Since the beginning of May 2022, the Fund’s price discount to NAV steadily narrowed to -1.1% from -4.5%, as liquidity conditions stabilized. Investors that purchased shares of the Fund at the height of the NAV discount booked additional relative performance against the broader high-yield market.

During the fiscal year ended June 30, 2022, the Fund maintained a monthly dividend of $0.17 per share, or $2.04 per share annually in total. As of June 30, 2022, the Fund’s indicated dividend yield was 7.56% with a SEC yield of 8.2%, about 0.65% lower than the Bloomberg U.S. Corporate High Yield Index. A year ago, the Fund’s dividend yield was about 2.53% higher than the Bloomberg U.S. Corporate High Yield Index. The change reflects our active management efforts to navigate through the credit cycle, stay defensive in the near-term, and be well-positioned for growth once a recovery is at hand.

In our previous annual shareholder letter, we stated that while bond investors may continue to find opportunities in higher-yielding debt that hedge against rising inflation and interest rates, the market has moved past the macro driven recovery post-pandemic, and the possibilities of further upside for the broad market as a whole are limited. Early in 2022, an economist for Mackay Shields, a sub-adviser to the Fund, predicted that inflation would remain elevated, and that the U.S. economy was entering the late phase of the current cycle and was likely to slow into next year at a time when everyone is paying more for food and gasoline, higher rent, higher mortgage rates, higher car payments and higher credit card interest rates. Moreover, Mackay Shields’ economist predicted that the Federal Reserve would be forced to focus on inflation and was prepared to risk collateral damage to the broader economy to stabilize prices. Based on this macro assessment, we did some intensive research into the impact of Federal Reserve policy cycles on the yield curve and high yield bonds, much of this work is frequently referenced in our monthly commentary sent to shareholders. Our baseline thesis was that tighter financial conditions require higher compensation for investors to take on risk, and that investors would likely get rattled over the potential for aggressive Federal Reserve rate hikes to spur an economic downturn. This outlook would likely weigh heavily on the high yield bond market. As a result, the Fund has maintained a 5-10% cash position, and a shorter duration than the Bloomberg U.S. Corporate High Yield Index. The decision has thus far been fruitful, as the elevated cash position and the shorter duration contributed approximately 1.0% in excess return over the Bloomberg U.S. Corporate High Yield Index.

Another contributing factor to the Fund’s performance is from tactical allocation and risk management. We have dynamically re-positioned the portfolio to adapt to the changing credit environment. Throughout the year, we have adjusted the Fund’s credit exposure at each maturity bucket to capture the optimal risk-adjusted income: our average rating in the 1-3 year maturity bucket is three credit notches lower than the Bloomberg U.S. Corporate High Yield Index, while our exposure to the “belly” of the yield curve (3-10 year) is just one notch lower, and the long-term bonds (over 10 years) in the Fund are predominately high quality BB or above rated bonds. This positioning has added value. The spread between CCC and BB bonds has widened 400 basis points since mid-2021. As an example of the effect on performance, the Bloomberg Long BB High Yield Index outperformed the Bloomberg Long CCC High Yield Index by 8.3% over the period. At the front end of the curve (shorter maturities), benefiting from the lowest default rate in nearly 40 years, lower-rated bonds did not underperform higher-rated debt by any meaningful margin.

Are high yield bonds a buy now? With the 5% yield increase on the Bloomberg U.S. Corporate High Yield Index, we still hold the same view as we did at the start of the fiscal year: the recent selloff was in anticipation of future downward revisions to fundamentals, and one might even argue that, although high yield bond prices have declined, they may not have necessarily cheapened. Many investors expect the next contraction to be brief and shallow, followed by a robust recovery, because they

are conditioned by recent history and assume the Federal Reserve will quickly pivot to a lower interest rate policy if the markets were to experience a more severe downturn. But a key lesson that the Federal Reserve took from high inflation in the past is that delaying action to bring down inflation leads to worse outcomes later. So, if a recession occurs with inflation still high, the Federal Reserve won’t use its tools to fully support growth. Thus, the next downturn may be brief, but without meaningful policy support, the recovery will likely be sluggish.

As we look forward, the high yield market faces accumulating fundamental headwinds due to a more hawkish Federal Reserve, more restrictive financing rates, a few idiosyncratic credit issues, and prospects for slower growth in 2023. More than ever, we will stay defensive and strive to remain nimble to create value for our shareholders.

We appreciate your continued support of HYLD.

Sincerely,

J. Garrett Stevens
Chief Executive Officer
Exchange Traded Concepts, Adviser to the Fund

See accompanying Notes to Financial Statements.

See accompanying Notes to Financial Statements.

See accompanying Notes to Financial Statements.

See accompanying Notes to Financial Statements.