cik0001137360-20220930
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PROSPECTUS |
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February 1,
2023 |
Biotech
ETF BBH
Digital
Transformation ETF DAPP
Energy
Income
ETF EINC
Environmental
Services ETF EVX
Gaming
ETF BJK
Pharmaceutical
ETF PPH
Retail
ETF RTH
Semiconductor
ETF SMH
Video
Gaming and eSports
ETF ESPO
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| Principal
U.S. Listing Exchange for EVX and EINC: NYSE Arca, Inc. |
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| Principal
U.S. Listing Exchange for BBH, DAPP, BJK, PPH, RTH, SMH and ESPO:
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| The
NASDAQ Stock Market LLC. |
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| The
U.S. Securities and Exchange Commission (“SEC”) has not approved or
disapproved these securities or passed upon the accuracy or adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense. |
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800.826.2333 vaneck.com
INVESTMENT OBJECTIVE
VanEck® Biotech
ETF (the “Fund”) seeks to replicate as closely as
possible, before fees and expenses, the price and yield performance of the
MVIS®
US Listed Biotech 25 Index (the “Biotech Index” or the
“Index”).
FUND FEES AND EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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Management
Fee |
0.35 |
% |
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Other
Expenses(a) |
0.00 |
% |
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Total
Annual Fund Operating Expenses(a) |
0.35 |
% |
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(a) Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, except for the
fee payment under the investment management agreement, acquired fund fees and
expenses, interest expense, offering costs, trading expenses, taxes and
extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to
pay the offering costs until at least February 1,
2024.
EXPENSE EXAMPLE
This example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of the
Fund.
The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell or hold all of
your Shares at the end of those periods. The example also assumes that your
investment has a 5% annual return 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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YEAR |
EXPENSES |
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1 |
$36 |
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3 |
$113 |
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5 |
$197 |
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10 |
$443 |
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PORTFOLIO
TURNOVER
The Fund will pay transaction
costs, such as commissions, when it purchases and sells securities (or “turns
over” its portfolio). A higher portfolio turnover will cause the Fund to incur
additional transaction costs and may result in higher taxes when Fund Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the example, may affect the Fund’s performance. During
the most recent fiscal year, the Fund’s portfolio turnover rate was
24% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund normally invests at least 80% of its total assets in securities that
comprise the Fund’s benchmark index. The Biotech Index includes common stocks
and depositary receipts of U.S. exchange-listed companies in the biotechnology
industry. Such companies may include medium-capitalization companies and foreign
companies that are listed on a U.S. exchange. To be initially eligible for the
Biotech Index, companies must generate at least 50% of their revenues from
biotechnology. Biotechnology includes companies engaged primarily in research
(including research contractors) and development as well as production,
marketing and sales of drugs based on genetic analysis and diagnostic equipment
(excluding pharmacies). Of the largest 50 stocks in the biotechnology industry
by full market capitalization, the top 25 by free-float market capitalization
(i.e.,
includes only shares that are readily available for trading in the market) and
three month average daily trading volume are included in the Biotech Index. As
of December 31, 2022, the Biotech Index included 25 securities of companies with
a market capitalization range of between
approximately
$2.7 billion and $140.1 billion and a weighted average market capitalization of
$53.7 billion. These amounts are subject to change. The Fund’s 80% investment
policy is non-fundamental and may be changed without shareholder approval upon
60 days’ prior written notice to shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Biotech Index by investing in a portfolio of
securities that generally replicates the Biotech Index. Unlike many investment
companies that try to “beat” the performance of a benchmark index, the Fund does
not try to “beat” the Biotech Index and does not seek temporary defensive
positions that are inconsistent with its investment objective of seeking to
replicate the Biotech Index.
The
Fund is classified as a non-diversified fund under the Investment Company Act of
1940, as amended (the “Investment Company Act of 1940”) and, therefore, may
invest a greater percentage of its assets in a particular issuer. The Fund may concentrate its
investments in a particular industry or group of industries to the extent that
the Biotech Index concentrates in an industry or group of industries. As of
September 30, 2022, each of the biotechnology and life sciences tools &
services industries represented a significant portion of the
Fund.
PRINCIPAL RISKS OF INVESTING IN THE
FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Biotechnology Industry
Risk. The
success of biotechnology companies is highly dependent on the development,
procurement and/or marketing of drugs. The values of biotechnology companies are
also dependent on the development, protection and exploitation of intellectual
property rights and other proprietary information, and the profitability of
biotechnology companies may be affected significantly by such things as the
expiration of patents or the loss of, or the inability to enforce, intellectual
property rights. The research and development and other costs associated with
developing or procuring new drugs, products or technologies and the related
intellectual property rights can be significant, and the results of such
research and expenditures are unpredictable and may not necessarily lead to
commercially successful products. In addition, the potential for an increased
amount of required disclosure or proprietary scientific information could
negatively impact the competitive position of these companies. Governmental
regulation may delay or inhibit the release of new products. The process for
obtaining regulatory approval by the Food and Drug Administration or other
governmental regulatory authorities is long and costly and there can be no
assurance that the necessary approvals will be obtained or maintained. Companies
in the biotechnology industry may also be subject to expenses and losses from
expensive insurance costs due to the risk of product liability lawsuits, and
extensive litigation based on intellectual property, product liability and
similar claims. Companies in the biotechnology industry may be adversely
affected by government regulation and changes in reimbursement rates. Health
care providers, principally hospitals, that transact with companies in the
biotechnology industry often rely on third-party payors, such as Medicare,
Medicaid and other government sponsored programs, private health insurance plans
and health maintenance organizations to reimburse all or a portion of the cost
of health care related products or services.
Equity Securities Risk. The
value of the equity securities held by the Fund may fall due to general market
and economic conditions, perceptions regarding the markets in which the issuers
of securities held by the Fund participate, or factors relating to specific
issuers in which the Fund invests. Equity securities are subordinated to
preferred securities and debt in a company’s capital structure with respect to
priority to a share of corporate income, and therefore will be subject to
greater dividend risk than preferred securities or debt instruments. In
addition, while broad market measures of equity securities have historically
generated higher average returns than fixed income securities, equity securities
have generally also experienced significantly more volatility in those
returns.
Life
Sciences Tools and Services Industry Risk. The
Fund will be sensitive to, and its performance may depend to a greater extent
on, the overall condition of the life sciences tools and services industry. The
profitability of life sciences tools and services companies may be adversely
affected by the loss or impairment of patent or intellectual property rights,
the advent of new technologies or competitors, large expenditures on research
and development of products or services that may not prove commercially
successful or may become obsolete quickly, and the imposition of regulations and
restrictions by the Food and Drug Administration, the Environmental Protection
Agency, state and local governments, and foreign regulatory authorities. In
addition, stock prices of these companies are at times extremely volatile,
particularly when their products are subject to regulatory approval and/or under
regulatory scrutiny. Life sciences tools and services companies may also be
particularly affected by risks that affect the broader health care sector,
including heavy dependence on patent protection, competition that may make it
difficult to raise prices or may result in price discounts, and thin
capitalization and limited product lines, markets, financial resources or
personnel. Companies that make medical equipment and supplies may be subject to
extensive litigation based on product liability claims. Meanwhile, healthcare
providers and services companies are particularly subject to the risks of
restrictions on government reimbursement for medical expenses, an increased
emphasis on outpatient services, rising costs of medical products, and public
health conditions.
Depositary Receipts
Risk.
The Fund may invest in depositary receipts (including American Depositary
Receipts), which involve similar risks to those associated with investments in
foreign securities. Depositary receipts are receipts listed on U.S. or foreign
exchanges issued by banks or trust companies that entitle the holder to all
dividends and capital gains that are paid out on the underlying foreign shares.
The issuers of certain depositary receipts are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities. Investments
in depositary receipts may be less liquid than the underlying shares in their
primary trading market. The issuers of depositary receipts may discontinue
issuing new depositary receipts and withdraw existing depositary receipts at any
time, which may result in costs and delays in the distribution of the underlying
assets to the Fund and may negatively impact the Fund’s
performance.
Medium-Capitalization
Companies Risk.
Medium-capitalization companies may be more volatile and more likely than
large-capitalization companies to have narrower product lines, fewer financial
resources, less management depth and experience and less competitive strength.
In addition, these companies often have greater price volatility, lower trading
volume and less liquidity than larger more established companies. Returns on
investments in securities of medium-capitalization companies could trail the
returns on investments in securities of large-capitalization
companies.
Issuer-Specific
Changes Risk.
The value of individual securities in the Fund’s portfolio can be more volatile
than the market as a whole and can perform differently from the value of the
market as a whole, which may have a greater impact if the Fund’s portfolio is
concentrated in a country, region, market, industry, sector or asset class. A
change in the financial condition, market perception or the credit rating of an
issuer of securities included in the Fund’s Index may cause the value of its
securities to decline.
Market
Risk. The
prices of securities are subject to the risks associated with investing in the
securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including 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 system failures.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (to the extent the Fund effects creations and redemptions in
cash) raising cash to meet redemptions or deploying cash in connection with
newly created Creation Units. Transaction costs, including brokerage costs, will
decrease the Fund’s net asset value to the extent not offset by the transaction
fee payable by an Authorized Participant.
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 Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards, a lack of liquidity in markets in which such securities
trade, potential adverse tax consequences or other regulatory reasons (such as
diversification requirements). To the extent the Fund utilizes depositary
receipts, the purchase of depositary receipts may negatively affect the Fund’s
ability to track the performance of the Index and increase tracking error, which
may be exacerbated if the issuer of the depositary receipt discontinues issuing
new depositary receipts or withdraws existing depositary receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be
adversely
affected. In addition, any issues the Fund encounters with regard to currency
convertibility (including the cost of borrowing funds, if any), repatriation or
economic sanctions may also increase the index tracking risk. The Fund’s
performance may also deviate from the performance of the Index due to the impact
of withholding taxes, late announcements relating to changes to the Index and
high turnover of the Index. When markets are volatile, the ability to sell
securities at fair value prices may be adversely impacted and may result in
additional trading costs and/or increase the index tracking risk. The Fund may
also need to rely on borrowings to meet redemptions, which may lead to increased
expenses. For tax efficiency purposes, the Fund may sell certain securities, and
such sale may cause the Fund to realize a loss and deviate from the performance
of the Index. In light of the factors discussed above, the Fund’s return may
deviate significantly from the return of the Index. Changes to the composition
of the Index in connection with a rebalancing or reconstitution of the Index may
cause the Fund to experience increased volatility, during which time the Fund’s
index tracking risk may be heightened.
Authorized
Participant Concentration Risk. The
Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk.
There can be no assurance that an active trading market for the Shares will
develop or be maintained, as applicable. Further, secondary markets may be
subject to irregular trading activity, wide bid/ask spreads and extended trade
settlement periods in times of market stress because market makers and
Authorized Participants may step away from making a market in the Shares and in
executing creation and redemption orders, which could cause a material deviation
in the Fund’s market price from its net asset value.
Trading
Issues Risk. Trading
in shares on the exchange may be halted due to market conditions or for reasons
that, in the view of the exchange, make trading in shares inadvisable. In
addition, trading in shares on the exchange is subject to trading halts caused
by extraordinary market volatility pursuant to the relevant exchange’s “circuit
breaker” rules. If a trading halt or unanticipated early close of the exchange
occurs, a shareholder may be unable to purchase or sell Shares of the Fund.
There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from its Index, the Fund generally would
not sell a security because the security’s issuer is in financial trouble. If a
specific security is removed from the Fund’s Index, the Fund may be forced to
sell such security at an inopportune time or for prices other than at current
market values. An investment in the Fund involves risks similar to those of
investing in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares.
The market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Non-Diversified
Risk. The Fund is classified as a
“non-diversified” fund under the Investment Company Act of 1940. The Fund is
subject to the risk that it will be more volatile than a diversified fund
because the Fund may invest a relatively high percentage of its assets in a
smaller number of issuers or may invest a larger proportion of its assets in a
single issuer. Moreover, the gains and
losses on a single investment may have a
greater impact on the Fund’s net asset value and may make the Fund more volatile
than more diversified funds. The Fund may be particularly vulnerable to this
risk if its Index is comprised of securities of a limited number of
companies.
Industry
Concentration Risk. The
Fund’s assets are concentrated in an industry or group of industries. As such,
the Fund will be subject to the risk that economic, political or other
conditions that have a negative effect on such groups of industries may
negatively impact the Fund to a greater extent than if the Fund’s assets were
invested in a wider variety of groups of
industries.
PERFORMANCE
The bar chart that follows
shows how the Fund performed for the calendar years shown. The table below the
bar chart shows the Fund’s average annual returns (before and after taxes).
The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s benchmark index and a
broad measure of market performance. All returns assume
reinvestment of dividends and distributions. 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.vaneck.com.
Annual Total Returns (%)—Calendar
Years
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Quarter: |
27.58% |
2Q
2020 |
| Worst
Quarter: |
-18.19% |
1Q
2016 |
Average Annual Total Returns for the Periods
Ended December 31, 2022
The after-tax returns presented
in the table below are calculated using the highest historical individual
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 below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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Past
One Year |
Past
Five Years |
Past
Ten Years |
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VanEck Biotech ETF (return before
taxes) |
-15.11% |
5.51% |
11.91% |
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VanEck Biotech ETF (return after taxes
on distributions) |
-15.20% |
5.42% |
11.83% |
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VanEck Biotech ETF (return after taxes
on distributions and sale of Fund Shares) |
-8.88% |
4.30% |
9.95% |
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MVIS®
US
Listed Biotech 25 Index (reflects no deduction for
fees, expenses or taxes, except withholding
taxes) |
-15.03% |
5.68% |
12.08% |
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S&P
500®
Index (reflects no deduction for fees, expenses or
taxes) |
-18.11% |
9.42% |
12.56% |
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See “License Agreements
and Disclaimers” for important information.
PORTFOLIO
MANAGEMENT
Investment
Adviser. Van
Eck Associates Corporation.
Portfolio Manager. The
following individual is primarily responsible for the day-to-day management of
the Fund’s portfolio:
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Name |
Title
with Adviser |
Date
Began Managing the Fund |
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Peter
H. Liao |
Portfolio
Manager |
December
2011 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT OBJECTIVE
VanEck® Digital Transformation
ETF (the “Fund”) seeks to track as closely as possible, before
fees and expenses, the price and yield performance of the MVIS®
Global Digital Assets Equity Index (the “Digital Transformation Index” or the
“Index”).
FUND FEES AND EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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Management
Fee |
0.50 |
% |
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Other
Expenses(a) |
0.00 |
% |
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Total
Annual Fund Operating Expenses(a) |
0.50 |
% |
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(a)Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, except for the
fee payment under the investment management agreement, acquired fund fees and
expenses, interest expense, offering costs, trading expenses, taxes and
extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to
pay the offering costs until at least February 1,
2024.
EXPENSE EXAMPLE
This example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of the
Fund.
The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell or hold all of
your Shares at the end of those periods. The example also assumes that your
investment has a 5% annual return 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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YEAR
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EXPENSES |
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1 |
$51 |
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3 |
$160 |
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5 |
$280 |
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10 |
$628 |
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PORTFOLIO TURNOVER
The Fund will pay transaction
costs, such as commissions, when it purchases and sells securities (or “turns
over” its portfolio). A higher portfolio turnover will cause the Fund to incur
additional transaction costs and may result in higher taxes when Fund Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the example, may affect the Fund’s performance. During
the most recent fiscal year, the Fund’s portfolio turnover rate was
74% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The Fund normally invests at
least 80% of its total assets in securities of Digital Transformation Companies.
The Digital Transformation Index is a global index that tracks the performance
of Digital Transformation Companies. “Digital Transformation Companies” are
companies (i) that operate digital asset exchanges, operate payment gateways
(i.e., a merchant service that authorizes direct payments processing for
businesses), engage in and/or assist with the digital asset mining operations,
provide software services, equipment and technology or services to digital asset
operations, operate digital asset infrastructure businesses, or facilitate
commerce with the use of digital assets (these items are collectively referred
to herein as “digital asset projects”) and/or (ii) that own a material amount of
digital assets or otherwise generate revenues related to digital asset
projects.
The
Fund will not invest in digital assets (including cryptocurrencies) (i) directly
or (ii) indirectly through the use of digital asset derivatives. The
Fund also will not invest in initial coin offerings. Therefore the Fund is not
expected to track the price movement of any digital asset. The Fund may,
however, have indirect exposure to digital assets by virtue of its investments
in Digital Transformation Companies that use one or more digital assets as part
of their business activities or that hold digital assets as proprietary
investments.
To
be initially eligible for inclusion in the Digital Transformation Index, a
company must (i) generate at least 50% of its revenues from digital asset
projects; (ii) generate at least 50% of its revenues from projects that, when
developed, have the potential to generate at least 50% of their revenues from
digital assets or digital asset projects; and/or (iii) have at least 50% of its
assets invested in direct digital asset holdings or digital asset projects.
Companies that are current components of the Digital Transformation Index must
generate at least 25% of their revenues from digital assets projects and/or have
at least 25% of their assets invested in direct digital asset holdings or
digital asset projects in order to remain in the Digital Transformation Index.
The Digital Transformation Index currently includes a minimum of 20 Digital
Transformation Index components.
“Digital
assets” are assets issued and transferred using distributed ledger or blockchain
technology. As used herein, “digital assets” refers to all digital assets,
including both digital asset securities (i.e., digital assets that are
securities under U.S. securities laws) and cryptocurrencies. Many digital assets
and, consequently, many Digital Transformation Companies, rely on “blockchain”
technologies. A “blockchain” is a peer-to-peer shared, distributed ledger that
facilitates the process of recording transactions and tracking assets in a
business network. A blockchain stores transaction data in “blocks” that are
linked together to form a “chain.” As the number of transactions grow, so does
the blockchain. Blocks record and confirm the time and sequence of transactions,
which are then logged into the blockchain, within a discrete network governed by
rules agreed on by the network participants. Although initially associated with
digital commodities, it can be used to track tangible, intangible and digital
assets and companies in all business sectors.
Digital
Transformation Companies may include small- and medium-capitalization companies
and foreign and emerging market issuers, and the Fund may invest in depositary
receipts and securities denominated in foreign currencies. As of December 31,
2022, the Digital Transformation Index included 20 securities of companies with
a market capitalization range of between approximately $49.4 million and $33.7
billion and a weighted average market capitalization of $3.9 billion. These
amounts are subject to change. The Fund’s 80% investment policy is
non-fundamental and may be changed without shareholder approval upon 60 days’
prior written notice to shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Digital Transformation Index by investing in a
portfolio of securities that generally replicates the Index. Unlike many
investment companies that try to “beat” the performance of a benchmark index,
the Fund does not try to “beat” the Digital Transformation Index and does not
seek temporary defensive positions that are inconsistent with its investment
objective of seeking to track the Digital Transformation Index.
The
Fund is classified as a non-diversified fund under the Investment Company Act of
1940, as amended (the “Investment Company Act of 1940”) and, therefore, may
invest a greater percentage of its assets in a particular issuer. The Fund may concentrate its
investments in a particular industry or group of industries to the extent that
the Digital Transformation Index concentrates in an industry or group of
industries. As of September 30, 2022, each of the information technology and
financials sectors represented a significant portion of the
Fund.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Digital
Transformation Companies Risk. The
technology relating to digital assets, including blockchain, is new and
developing and the risks associated with digital assets may not fully emerge
until the technology is widely used. Digital asset technologies are used by
companies to optimize their business practices, whether by using the technology
within their business or operating business lines involved in the operation of
the technology. The cryptographic keys necessary to transact a digital asset may
be subject to theft, loss, or destruction, which could adversely affect a
company’s business or operations. Competing platforms and technologies may be
developed, allowing consumers or investors use an alternative to digital assets.
Currently, there are relatively few companies for which digital assets
represents an attributable and significant revenue stream. Therefore, the values
of the companies included in the Index may not reflect their connection to
digital assets, but may be based on other business operations. In addition,
these companies may engage in other lines of business unrelated to digital
assets that could adversely affect their operating results. These companies may
not be able to develop digital asset technology applications or may not be able
to capitalize on those applications. Digital asset technologies may never be
fully implemented, which could adversely affect an investment in the Fund.
Companies that use digital asset technologies may be subject to cybersecurity
risk. In addition, certain features of digital asset technologies, such as
decentralization, open source protocol, and reliance on peer-to-peer
connectivity, may increase the risk of fraud or cyber-attack by potentially
reducing the likelihood of a coordinated response. A significant
disruption
of Internet connectivity affecting large numbers of users or geographic areas
could impede the functionality of digital asset technologies and adversely
affect companies included in the Index. Digital Transformation Companies may be
subject to the risks posed by conflicting intellectual property claims, which
may reduce confidence in the viability of a digital asset. There may be risks
posed by the lack of regulation for digital assets and any future regulatory
developments could affect the viability and expansion of the use of digital
assets. Because digital asset platforms may operate across many national
boundaries and regulatory jurisdictions, it is possible that digital asset
platforms may be subject to widespread and inconsistent regulation. Digital
asset systems built using third party products may be subject to technical
defects or vulnerabilities beyond a company’s control. Because many digital
assets do not have a standardized exchange, like a stock market, there is less
liquidity for such assets and greater possibility of volatility, fraud or
manipulation.
Certain
of the Fund’s investments, including investments in companies that hold material
amounts of digital assets, may be subject to the risks associated with investing
in digital assets, including cryptocurrencies and crypto tokens. Such companies
may be subject to the risk that: the technology that facilitates the transfer of
a digital asset could fail; the decentralized, open source protocol of the
applicable blockchain network could be affected by internet connectivity
disruptions, fraud, consensus failures or cybersecurity attacks; such network
may not be adequately maintained by its participants; because digital assets are
a new technological innovation with a limited history, they are highly
speculative assets and may experience extreme price volatility; future
regulatory actions or policies may limit the ability to sell, exchange or use a
digital asset; the price of a digital asset may be impacted by the transactions
of a small number of holders of such digital asset; and that a digital asset
will decline in popularity, acceptance or use, thereby impairing its
price.
Special
Risk Considerations of Investing in European Issuers.
Investments in securities of European issuers involve risks and special
considerations not typically associated with investments in the U.S. securities
markets. The Economic and Monetary Union of the European Union requires member
countries to comply with restrictions on inflation rates, deficits, interest
rates, debt levels and fiscal and monetary controls, each of which may
significantly affect every country in Europe. Decreasing imports or exports,
changes in governmental or European Union regulations on trade, changes in the
exchange rate of the euro, the default or threat of default by a European Union
member country on its sovereign debt, and/or an economic recession in an
European Union member country may have a significant adverse effect on the
economies of other European Union countries and on major trading partners
outside Europe. If any member country exits the Economic and Monetary Union, the
departing country would face the risks of currency devaluation and its trading
partners and banks and others around the world that hold the departing country’s
debt would face the risk of significant losses. The European financial markets
have previously experienced, and may continue to experience, volatility and have
been adversely affected, and may in the future be affected, by concerns about
economic downturns, credit rating downgrades, rising government debt levels and
possible default on or restructuring of government debt in several European
countries. These events have adversely affected, and may in the future affect,
the value and exchange rate of the euro and may continue to significantly affect
the economies of every country in Europe, including European Union member
countries that do not use the euro and non-European Union member countries. In a
referendum held on June 23, 2016, voters in the United Kingdom voted to leave
the European Union, creating economic and political uncertainty in its wake. On
January 31, 2020, the United Kingdom officially withdrew from the European Union
and the United Kingdom entered a transition period which ended on December 31,
2020. On December 30, 2020, the European Union and United Kingdom signed the
EU-UK Trade and Cooperation Agreement, an agreement on the terms governing
certain aspects of the European Union’s and the United Kingdom’s relationship
following the end of the transition period. Notwithstanding the EU-UK Trade and
Cooperation Agreement, following the transition period, there is likely to be
considerable uncertainty as to the United Kingdom’s post-transition
framework.
Equity Securities Risk. The
value of the equity securities held by the Fund may fall due to general market
and economic conditions, perceptions regarding the markets in which the issuers
of securities held by the Fund participate, or factors relating to specific
issuers in which the Fund invests. Equity securities are subordinated to
preferred securities and debt in a company’s capital structure with respect to
priority to a share of corporate income, and therefore will be subject to
greater dividend risk than preferred securities or debt instruments. In
addition, while broad market measures of equity securities have historically
generated higher average returns than fixed income securities, equity securities
have generally also experienced significantly more volatility in those
returns.
Small-
and Medium-Capitalization Companies Risk. The
Fund may invest in small- and medium-capitalization companies and, therefore
will be subject to certain risks associated with small- and medium-
capitalization companies. These companies are often subject to less analyst
coverage and may be in early and less predictable periods of their corporate
existences, with little or no record of profitability. In addition, these
companies often have greater price volatility, lower trading volume and less
liquidity than larger more established companies. These companies tend to have
smaller revenues, narrower product lines, less management depth and experience,
smaller shares of their product or service markets, fewer financial resources
and less competitive strength than large-capitalization companies. Returns on
investments in securities of small- and medium-capitalization companies could
trail the returns on investments in securities of larger companies.
Financials
Sector Risk. Companies
in the financials sector may be subject to extensive government regulation that
affects the scope of their activities, the prices they can charge and the amount
of capital they must maintain. The profitability of companies in the financials
sector may be adversely affected by increases in interest rates, by loan losses,
which usually increase in economic downturns, and by credit rating downgrades.
In addition, the financials sector is undergoing numerous changes, including
continuing
consolidations, development of new products and structures and changes to its
regulatory framework. Furthermore, some companies in the financials sector
perceived as benefiting from government intervention in the past may be subject
to future government-imposed restrictions on their businesses or face increased
government involvement in their operations. Increased government involvement in
the financials sector, including measures such as taking ownership positions in
financial institutions, could result in a dilution of the Fund’s investments in
financial institutions.
Information
Technology Sector Risk.
Information technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on profit margins. Information
technology companies may have limited product lines, markets, financial
resources or personnel. The products of information technology companies may
face product obsolescence due to rapid technological developments and frequent
new product introduction, unpredictable changes in growth rates and competition
for the services of qualified personnel. Companies in the information technology
sector are heavily dependent on patent protection and the expiration of patents
may adversely affect the profitability of these companies.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s
investments.
Emerging
Market Issuers Risk.
Investments in securities of emerging market issuers involve risks not typically
associated with investments in securities of issuers in more developed countries
that may negatively affect the value of your investment in the Fund. Such
heightened risks may include, among others, expropriation and/or nationalization
of assets, restrictions on and government intervention in international trade,
confiscatory taxation, political instability, including authoritarian and/or
military involvement in governmental decision making, armed conflict, the impact
on the economy as a result of civil war, crime (including drug violence) and
social instability as a result of religious, ethnic and/or socioeconomic unrest.
Issuers in certain emerging market countries are subject to less stringent
requirements regarding accounting, auditing, financial reporting and record
keeping than are issuers in more developed markets, and therefore, all material
information may not be available or reliable. Emerging markets are also more
likely than developed markets to experience problems with the clearing and
settling of trades, as well as the holding of securities by local banks, agents
and depositories. Low trading volumes and volatile prices in less developed
markets may make trades harder to complete and settle, and governments or trade
groups may compel local agents to hold securities in designated depositories
that may not be subject to independent evaluation. Local agents are held only to
the standards of care of their local markets. In general, the less developed a
country’s securities markets are, the greater the likelihood of custody
problems. The Adviser may be limited in its ability to assess the Index
provider’s due diligence process over Index data prior to its use in Index
computation, construction and/or rebalancing. Additionally, each of the factors
described below could have a negative impact on the Fund’s performance and
increase the volatility of the Fund.
Securities
Markets. Securities
markets in emerging market countries are underdeveloped and are often considered
to be less correlated to global economic cycles than those markets located in
more developed countries. Securities markets in emerging market countries are
subject to greater risks associated with market volatility, lower market
capitalization, lower trading volume, illiquidity, inflation, greater price
fluctuations, uncertainty regarding the existence of trading markets,
governmental control and heavy regulation of labor and industry. These factors,
coupled with restrictions on foreign investment and other factors, limit the
supply of securities available for investment by the Fund. This will affect the
rate at which the Fund is able to invest in emerging market countries, the
purchase and sale prices for such securities and the timing of purchases and
sales. Emerging markets can experience high rates of inflation, deflation and
currency devaluation. The prices of certain securities listed on securities
markets in emerging market countries have been subject to sharp fluctuations and
sudden declines, and no assurance can be given as to the future performance of
listed securities in general. Volatility of prices may be greater than in more
developed securities markets. Moreover, securities markets in emerging market
countries may be closed for extended periods of time or trading on securities
markets may be suspended altogether due to political or civil unrest. Market
volatility may also be heightened by the actions of a small number of investors.
Brokerage firms in emerging market countries may be fewer in number and less
established than brokerage firms in more developed markets. Since the Fund may
need to effect securities transactions through these brokerage firms, the Fund
is subject to the risk that these brokerage firms will not be able to fulfill
their obligations to the Fund. This risk is magnified to the extent the Fund
effects securities transactions through a single brokerage firm or a small
number of brokerage firms. In addition, the infrastructure for the safe custody
of securities and for purchasing and selling securities, settling trades,
collecting dividends, initiating corporate actions, and following corporate
activity is not as well developed in emerging market countries as is the case in
certain more developed markets.
Political
and Economic Risk. Certain
emerging market countries have historically been subject to political
instability and their prospects are tied to the continuation of economic and
political liberalization in the region. Instability may result from factors such
as government or military intervention in decision making, terrorism, civil
unrest, extremism or hostilities between neighboring countries. Any of these
factors, including an outbreak of hostilities could negatively impact the Fund’s
returns.
Limited political and democratic freedoms in emerging market countries might
cause significant social unrest. These factors may have a significant adverse
effect on an emerging market country’s economy.
Many
emerging market countries may be heavily dependent upon international trade and,
consequently, may continue to be negatively affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which it
trades. They also have been, and may continue to be, adversely affected by
economic conditions in the countries with which they trade.
In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of certain emerging market countries’ exports and these economies are
particularly sensitive to fluctuations in commodity prices. Adverse economic
events in one country may have a significant adverse effect on other countries
of this region. In addition, most emerging market countries have experienced, at
one time or another, severe and persistent levels of inflation, including, in
some cases, hyperinflation. This has, in turn, led to high interest rates,
extreme measures by governments to keep inflation in check, and a generally
debilitating effect on economic growth.
Although
inflation in many countries has lessened, there is no guarantee it will remain
at lower levels. The political history of certain emerging market countries has
been characterized by political uncertainty, intervention by the military in
civilian and economic spheres, and political corruption. Such events could
reverse favorable trends toward market and economic reform, privatization, and
removal of trade barriers, and result in significant disruption in securities
markets in the region.
Also,
from time to time, certain issuers located in emerging market countries in which
the Fund invests may operate in, or have dealings with, countries subject to
sanctions and/or embargoes imposed by the U.S. Government and the United Nations
and/or countries identified by the U.S. Government as state sponsors of
terrorism. As a result, an issuer may sustain damage to its reputation if it is
identified as an issuer which operates in, or has dealings with, such countries.
The Fund, as an investor in such issuers, will be indirectly subject to those
risks.
The
economies of one or more countries in which the Fund may invest may be in
various states of transition from a planned economy to a more market oriented
economy. The economies of such countries differ from the economies of most
developed countries in many respects, including levels of government
involvement, states of development, growth rates, control of foreign exchange
and allocation of resources. Economic growth in these economies may be uneven
both geographically and among various sectors of their economies and may also be
accompanied by periods of high inflation. Political changes, social instability
and adverse diplomatic developments in these countries could result in the
imposition of additional government restrictions, including expropriation of
assets, confiscatory taxes or nationalization of some or all of the property
held by the underlying issuers of securities included in the Fund’s Index. There
is no guarantee that the governments of these countries will not revert back to
some form of planned or non-market oriented economy, and such governments
continue to be active participants in many economic sectors through ownership
positions and regulation. The allocation of resources in such countries is
subject to a high level of government control. Such countries’ governments may
strictly regulate the payment of foreign currency denominated obligations and
set monetary policy. Through their policies, these governments may provide
preferential treatment to particular industries or companies. The policies set
by the government of one of these countries could have a substantial effect on
that country’s economy.
Investment
and Repatriation Restrictions. The
government in an emerging market country may restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers
located or operating in such emerging market countries. These restrictions
and/or controls may at times limit or prevent foreign investment in securities
of issuers located or operating in emerging market countries and may inhibit the
Fund’s ability to track its Index. In addition, the Fund may not be able to buy
or sell securities or receive full value for such securities. Moreover, certain
emerging market countries may require governmental approval or special licenses
prior to investments by foreign investors and may limit the amount of
investments by foreign investors in a particular industry and/or issuer; may
limit such foreign investment to a certain class of securities of an issuer that
may have less advantageous rights than the classes available for purchase by
domiciliaries of such emerging market countries; and/or may impose additional
taxes on foreign investors. A delay in obtaining a required government approval
or a license would delay investments in those emerging market countries, and, as
a result, the Fund may not be able to invest in certain securities while
approval is pending. The government of certain emerging market countries may
also withdraw or decline to renew a license that enables the Fund to invest in
such country. These factors make investing in issuers located or operating in
emerging market countries significantly riskier than investing in issuers
located or operating in more developed countries, and any one of them could
cause a decline in the value of the Fund’s Shares.
Additionally,
investments in issuers located in certain emerging market countries may be
subject to a greater degree of risk associated with governmental approval in
connection with the repatriation of investment income, capital or the proceeds
of sales of securities by foreign investors. Moreover, there is the risk that if
the balance of payments in an emerging market country declines, the government
of such country may impose temporary restrictions on foreign capital
remittances. Consequently, the Fund could be adversely affected by delays in, or
a refusal to grant, required governmental approval for repatriation of capital,
as well as by the application to the Fund of any restrictions on investments.
Furthermore, investments
in
emerging market countries may require the Fund to adopt special procedures, seek
local government approvals or take other actions, each of which may involve
additional costs to the Fund.
Available
Disclosure About Emerging Market Issuers. Issuers
located or operating in emerging market countries are not subject to the same
rules and regulations as issuers located or operating in more developed
countries. Therefore, there may be less financial and other information publicly
available with regard to issuers located or operating in emerging market
countries and such issuers are not subject to the uniform accounting, auditing
and financial reporting standards applicable to issuers located or operating in
more developed countries.
Foreign
Currency Considerations. The
Fund’s assets that are invested in securities of issuers in emerging market
countries will generally be denominated in foreign currencies, and the proceeds
received by the Fund from these investments will be principally in foreign
currencies. The value of an emerging market country’s currency may be subject to
a high degree of fluctuation. This fluctuation may be due to changes in interest
rates, the effects of monetary policies issued by the United States, foreign
governments, central banks or supranational entities, the imposition of currency
controls or other national or global political or economic developments. The
economies of certain emerging market countries can be significantly affected by
currency devaluations. Certain emerging market countries may also have managed
currencies which are maintained at artificial levels relative to the U.S. dollar
rather than at levels determined by the market. This type of system can lead to
sudden and large adjustments in the currency which, in turn, can have a
disruptive and negative effect on foreign investors.
The
Fund’s exposure to an emerging market country’s currency and changes in value of
such foreign currencies versus the U.S. dollar may reduce the Fund’s investment
performance and the value of your investment in the Fund. Meanwhile, the Fund
will compute and expects to distribute its income in U.S. dollars, and the
computation of income will be made on the date that the income is earned by the
Fund at the foreign exchange rate in effect on that date. Therefore, if the
value of the respective emerging market country’s currency falls relative to the
U.S. dollar between the earning of the income and the time at which the Fund
converts the relevant emerging market country’s currency to U.S. dollars, the
Fund may be required to liquidate certain positions in order to make
distributions if the Fund has insufficient cash in U.S. dollars to meet
distribution requirements under the Internal Revenue Code. The liquidation of
investments, if required, could be at disadvantageous prices or otherwise have
an adverse impact on the Fund’s performance.
Certain
emerging market countries also restrict the free conversion of their currency
into foreign currencies, including the U.S. dollar. There is no significant
foreign exchange market for many such currencies and it would, as a result, be
difficult for the Fund to engage in foreign currency transactions designed to
protect the value of the Fund’s interests in securities denominated in such
currencies. Furthermore, if permitted, the Fund may incur costs in connection
with conversions between U.S. dollars and an emerging market country’s currency.
Foreign exchange dealers realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a dealer
normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell
that currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into forward, futures or options contracts to purchase or
sell foreign currencies.
Operational
and Settlement Risk. In
addition to having less developed securities markets, emerging market countries
have less developed custody and settlement practices than certain developed
countries. Rules adopted under the Investment Company Act of 1940 permit the
Fund to maintain its foreign securities and cash in the custody of certain
eligible non-U.S. banks and securities depositories. Banks in emerging market
countries that are eligible foreign sub-custodians may be recently organized or
otherwise lack extensive operating experience. In addition, in certain emerging
market countries there may be legal restrictions or limitations on the ability
of the Fund to recover assets held in custody by a foreign sub-custodian in the
event of the bankruptcy of the sub-custodian. Because settlement systems in
emerging market countries may be less organized than in other developed markets,
there may be a risk that settlement may be delayed and that cash or securities
of the Fund may be in jeopardy because of failures of or defects in the systems.
Under the laws in many emerging market countries, the Fund may be required to
release local shares before receiving cash payment or may be required to make
cash payment prior to receiving local shares, creating a risk that the Fund may
surrender cash or securities without ever receiving securities or cash from the
other party. Settlement systems in emerging market countries also have a higher
risk of failed trades and back to back settlements may not be
possible.
The
Fund may not be able to convert a foreign currency to U.S. dollars in time for
the settlement of redemption requests. In the event of a redemption request from
an Authorized Participant, the Fund will be required to deliver U.S. dollars to
the Authorized Participant on the settlement date. In the event that the Fund is
not able to convert the foreign currency to U.S. dollars in time for settlement,
which may occur as a result of the delays described above, the Fund may be
required to liquidate certain investments and/or borrow money in order to fund
such redemption. The liquidation of investments, if required, could be at
disadvantageous prices or otherwise have an adverse impact on the Fund’s
performance (e.g.,
by causing the Fund to overweight foreign currency denominated holdings and
underweight other holdings which were sold to
fund
redemptions). In addition, the Fund will incur interest expense on any
borrowings and the borrowings will cause the Fund to be leveraged, which may
magnify gains and losses on its investments.
In
certain emerging market countries, the marketability of investments may be
limited due to the restricted opening hours of trading exchanges, and a
relatively high proportion of market value may be concentrated in the hands of a
relatively small number of investors. In addition, because certain emerging
market countries’ trading exchanges on which the Fund’s portfolio securities may
trade are open when the relevant Exchanges are closed, the Fund may be subject
to heightened risk associated with market movements. Trading volume may be lower
on certain emerging market countries’ trading exchanges than on more developed
securities markets and securities may be generally less liquid. The
infrastructure for clearing, settlement and registration on the primary and
secondary markets of certain emerging market countries are less developed than
in certain other markets and under certain circumstances this may result in the
Fund experiencing delays in settling and/or registering transactions in the
markets in which it invests, particularly if the growth of foreign and domestic
investment in certain emerging market countries places an undue burden on such
investment infrastructure. Such delays could affect the speed with which the
Fund can transmit redemption proceeds and may inhibit the initiation and
realization of investment opportunities at optimum times.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer’s securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before and, in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent the Fund from buying
or selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the block cannot be removed. As a result of the
ramifications of voting ballots in markets that allow share blocking, the
Adviser, on behalf of the Fund, reserves the right to abstain from voting
proxies in those markets.
Corporate
and Securities Laws. Securities
laws in emerging market countries are relatively new and unsettled and,
consequently, there is a risk of rapid and unpredictable change in laws
regarding foreign investment, securities regulation, title to securities and
securityholders rights. Accordingly, foreign investors may be adversely affected
by new or amended laws and regulations. In addition, the systems of corporate
governance to which emerging market issuers are subject may be less advanced
than those systems to which issuers located in more developed countries are
subject, and therefore, securityholders of issuers located in emerging market
countries may not receive many of the protections available to securityholders
of issuers located in more developed countries. In circumstances where adequate
laws and securityholders rights exist, it may not be possible to obtain swift
and equitable enforcement of the law. In addition, the enforcement of systems of
taxation at federal, regional and local levels in emerging market countries may
be inconsistent and subject to sudden change. The Fund has limited rights and
few practical remedies in emerging markets and the ability of U.S. authorities
to bring enforcement actions in emerging markets may be limited.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including 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 system failures.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (to the extent the Fund effects creations and redemptions in
cash) raising cash to meet redemptions or deploying cash in connection with
newly created Creation Units. Transaction costs, including brokerage costs, will
decrease the Fund’s net asset value to the extent not offset by the transaction
fee payable by an Authorized Participant.
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 Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any
transaction
costs and market exposure arising from such portfolio rebalancing will be borne
directly by the Fund and its shareholders. Apart from scheduled rebalances, the
Index provider or its agents may carry out additional ad hoc rebalances to the
Index. Therefore, errors and additional ad hoc rebalances carried out by the
Index provider or its agents to the Index may increase the costs to and the
tracking error risk of the Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards, a lack of liquidity in markets in which such securities
trade, potential adverse tax consequences or other regulatory reasons (such as
diversification requirements). To the extent the Fund utilizes depositary
receipts, the purchase of depositary receipts may negatively affect the Fund’s
ability to track the performance of the Index and increase tracking error, which
may be exacerbated if the issuer of the depositary receipt discontinues issuing
new depositary receipts or withdraws existing depositary receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to changes to the Index and high turnover of the Index.
When markets are volatile, the ability to sell securities at fair value prices
may be adversely impacted and may result in additional trading costs and/or
increase the index tracking risk. The Fund may also need to rely on borrowings
to meet redemptions, which may lead to increased expenses. For tax efficiency
purposes, the Fund may sell certain securities, and such sale may cause the Fund
to realize a loss and deviate from the performance of the Index. In light of the
factors discussed above, the Fund’s return may deviate significantly from the
return of the Index. Changes to the composition of the Index in connection with
a rebalancing or reconstitution of the Index may cause the Fund to experience
increased volatility, during which time the Fund’s index tracking risk may be
heightened.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk. There
can be no assurance that an active trading market for the Shares will develop or
be maintained, as applicable. Further, secondary markets may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods in times of market stress because market makers and Authorized
Participants may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its net asset value.
Trading
Issues Risk. Trading
in shares on the exchange may be halted due to market conditions or for reasons
that, in the view of the exchange, make trading in shares inadvisable. In
addition, trading in shares on the exchange is subject to trading halts caused
by extraordinary market volatility pursuant to the relevant exchange’s “circuit
breaker” rules. If a trading halt or unanticipated early close of the exchange
occurs, a shareholder may be unable to purchase or sell Shares of the Fund.
There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from its Index, the Fund generally would
not sell a security because the security’s issuer is in financial trouble. If a
specific security is removed from the Fund’s Index, the Fund may be forced to
sell such security at an inopportune time or for prices other than at current
market values. An investment in the Fund involves risks similar to those of
investing in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares.
The market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Non-Diversified
Risk.
The Fund is classified as a “non-diversified”
fund under the Investment Company Act of 1940. The Fund is subject to the risk
that it will be more volatile than a diversified fund because the Fund may
invest a relatively high percentage of its assets in a smaller number of issuers
or may invest a larger proportion of its assets in a single issuer. Moreover,
the gains and losses on a single investment may have a greater impact on the
Fund’s net asset value and may make the Fund more volatile than more diversified
funds. The Fund may be particularly vulnerable to this risk if its Index is
comprised of securities of a limited number of
companies.
Industry
Concentration Risk. The
Fund’s assets are concentrated in an industry or group of industries. As such,
the Fund will be subject to the risk that economic, political or other
conditions that have a negative effect on such groups of industries may
negatively impact the Fund to a greater extent than if the Fund’s assets were
invested in a wider variety of groups of
industries.
PERFORMANCE
The bar chart that follows
shows how the Fund performed for the calendar year shown. The table below the
bar chart shows the Fund’s average annual returns (before and after taxes).
The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s benchmark index and a
broad measure of market performance. All returns assume
reinvestment of dividends and distributions. 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.vaneck.com.
Annual Total Returns (%)—Calendar Year
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| Best
Quarter: |
13.31% |
3Q
2022 |
| Worst
Quarter: |
-70.98% |
2Q
2022 |
Average Annual Total Returns for the Periods
Ended December 31, 2022
The after-tax returns presented
in the table below are calculated using the highest historical individual
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 below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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Past
One Year |
Since
Inception (4/9/2021) |
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VanEck Digital Transformation ETF
(return before taxes) |
-85.36% |
-76.32% |
|
|
VanEck Digital Transformation ETF
(return after taxes on distributions) |
-85.36% |
-76.80% |
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VanEck Digital Transformation ETF
(return after taxes on distributions and sale of Fund
Shares) |
-50.53% |
-49.64% |
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MVIS Global Digital Assets Equity Total
Return Net Index (reflects no deduction for
fees, expenses or taxes, except withholding
taxes) |
-85.89% |
-77.00% |
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S&P
500®
Index (reflects no deduction for fees, expenses or
taxes) |
-18.11% |
-2.64% |
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See “License Agreements
and Disclaimers” for important information.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Manager.
The following individual is primarily responsible for the day-to-day management
of the Fund’s portfolio:
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Name |
Title
with Adviser |
Date
Began Managing the Fund |
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Peter
H. Liao |
Portfolio
Manager |
April
2021 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT OBJECTIVE
VanEck® Energy Income ETF
(the
“Fund”) seeks to replicate as closely as possible, before fees and expenses, the
price and yield performance of the MVIS®
North
America Energy Infrastructure Index (the “Energy Income Index” or the
“Index”).
FUND FEES AND EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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Management
Fee |
0.45% |
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Other
Expenses(a) |
0.03% |
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Total
Annual Fund Operating Expenses(a) |
0.48% |
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(a) Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, except for the
fee payment under the investment management agreement, acquired fund fees and
expenses, interest expense, offering costs, trading expenses, taxes and
extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to
pay the offering costs until at least February 1,
2024.
EXPENSE EXAMPLE
This example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of the
Fund.
The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell or hold all of
your Shares at the end of those periods. The example also assumes that your
investment has a 5% annual return 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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YEAR
|
EXPENSES |
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1 |
$49 |
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3 |
$154 |
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5 |
$269 |
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|
10 |
$604 |
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PORTFOLIO TURNOVER
The Fund will pay transaction
costs, such as commissions, when it purchases and sells securities (or “turns
over” its portfolio). A higher portfolio turnover will cause the Fund to incur
additional transaction costs and may result in higher taxes when Fund Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the example, may affect the Fund’s performance. During
the most recent fiscal year, the Fund’s portfolio turnover rate was
21% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The Fund normally invests at
least 80% of its total assets in securities that comprise the Fund’s benchmark
index. The Energy Income Index is a rules-based index designed to give investors
a means to track the overall performance of North American companies involved in
the midstream energy segment, which includes master limited partnerships
(“MLPs”) and corporations involved in oil and gas storage and transportation.
The Energy Income Index is entirely comprised of companies involved in the
midstream energy segment and includes common stock of corporations and equity
securities of MLPs and MLP affiliates. “Oil and gas storage and transportation”
companies may include those involved in oil and gas pipelines, storage
facilities, and other activities associated with transporting, storing, and
gathering natural gas, natural gas liquids, crude oil or refined products. To be
initially eligible for the Energy Income Index, companies must generate at least
50% of their revenues from oil and gas storage and transportation (as defined
above). Such companies may include medium- and large-capitalization companies
and North American
issuers,
including Canadian issuers. As of December 31, 2022, the Energy Income Index
included 29 securities of companies with a market capitalization range of
approximately $1.2 billion and $79.1 billion and a weighted average market
capitalization of $27.6 billion. The Energy Income Index is rebalanced
quarterly. The Fund’s 80% investment policy is non-fundamental and may be
changed without shareholder approval upon 60 days’ prior written notice to
shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Energy Income Index by investing in a
portfolio of securities that generally replicates the Energy Income Index.
Unlike many investment companies that try to “beat” the performance of a
benchmark index, the Fund does not try to “beat” the Energy Income Index and
does not seek temporary defensive positions that are inconsistent with its
investment objective of seeking to replicate the Energy Income
Index.
The Fund is classified as a non-diversified
fund under the Investment Company Act of 1940, as amended (the “Investment
Company Act of 1940”), and, therefore, may invest a greater percentage of its
assets in a particular issuer. The Fund may concentrate its
investments in a particular industry or group of industries to the extent that
the Index concentrates in an industry or group of industries. As of September
30, 2022, the energy sector represented a significant portion of the
Fund.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Oil
and Gas Companies Risk. The
profitability of oil and gas companies is related to worldwide energy prices,
including all sources of energy, and exploration and production costs. The price
of oil and gas, the earnings of oil and gas companies, and the value of such
companies’ securities can be extremely volatile. Such companies are also subject
to risks of changes in commodity prices, changes in the global supply of and
demand for oil and gas interest rates, exchange rates, the price of oil and gas,
the prices of competitive energy services, the imposition of import controls,
world events, friction with certain oil-producing countries and between the
governments of the United States and other major exporters of oil to the United
States, actions of OPEC, negative perception and publicity, depletion of
resources, development of alternative energy sources, energy conservation,
technological developments, labor relations and general economic conditions, as
well as market, economic and political risks of the countries where oil and gas
companies are located or do business, fluctuations caused by events relating to
international politics, including political instability, expropriation, social
unrest and acts of war, acts of terrorism, energy conservation, the success of
exploration projects and tax and other governmental regulatory policies. Oil and
gas companies operate in a highly competitive and cyclical industry, with
intense price competition. A significant portion of their revenues may depend on
a relatively small number of customers, including governmental entities and
utilities.
Oil
and gas companies are exposed to significant and numerous operating hazards. Oil
and gas equipment and services, as well as oil and gas exploration and
production, can be significantly affected by natural disasters and adverse
weather conditions in the regions in which they operate. The revenues of oil and
gas companies may be negatively affected by contract termination and
renegotiation. Oil and gas companies are subject to, and may be adversely
affected by, extensive federal, state, local and foreign laws, rules and
regulations. Oil and gas exploration and production companies may also be
adversely affected by environmental damage claims and other types of litigation.
Laws and regulations protecting the environment may expose oil and gas companies
to liability for the conduct of or conditions caused by others or for acts that
complied with all applicable laws at the time they were performed. The
international operations of oil and gas companies expose them to risks
associated with instability and changes in economic and political conditions,
social unrest and acts of war, foreign currency fluctuations, changes in foreign
regulations and other risks inherent to international business. Such companies
may also have significant capital investments or operations in, or engage in
transactions involving, emerging market countries, which may increase these
risks.
Midstream.
Midstream energy companies that provide crude oil, refined product and natural
gas services are subject to supply and demand fluctuations in the markets they
serve which may be impacted by a wide range of factors, including fluctuating
commodity prices, weather, increased conservation, increased governmental or
environmental regulation, depletion, rising interest rates, declines in domestic
or foreign production, accidents or catastrophic events, increasing operating
expenses and economic conditions.
Marine
Shipping.
Marine shipping energy companies and MLPs are primarily marine transporters of
natural gas, crude oil or refined petroleum products. Marine shipping companies
are exposed to many of the same risks as other energy companies. The highly
cyclical nature of the marine transportation industry may lead to volatile
changes in charter rates and vessel values, which may adversely affect the
revenues, profitability and cash flows of energy companies and MLPs with marine
transportation assets.
Geopolitical
Risk.
Global political and economic instability could affect the operations of energy
companies and MLPs in unpredictable ways, including through disruptions of
natural resource supplies and markets and the resulting volatility in
commodity
prices. Market disruptions arising out of geopolitical events could also prevent
the Fund from executing advantageous investment decisions in a timely
manner.
Special
Risk Considerations of Investing in Canadian Issuers. Investments
in securities of Canadian issuers, including issuers located outside of Canada
that generate significant revenue from Canada, involve risks and special
considerations not typically associated with investments in the U.S. securities
markets. The Canadian economy is very dependent on the demand for, and supply
and price of, natural resources. The Canadian market is relatively concentrated
in issuers involved in the production and distribution of natural resources.
There is a risk that any changes in natural resources sectors could have an
adverse impact on the Canadian economy. Additionally, the Canadian economy is
heavily dependent on relationships with certain key trading partners, including
the United States, countries in the European Union and China. Because the United
States is Canada’s largest trading partner and foreign investor, the Canadian
economy is dependent on and may be significantly affected by the U.S. economy.
Reduction in spending on Canadian products and services or changes in the U.S.
economy may adversely impact the Canadian economy. Trade agreements may further
increase Canada’s dependency on the U.S. economy, and uncertainty as to the
future of such trade agreements may cause a decline in the value of the Fund’s
Shares. Past periodic demands by the Province of Quebec for sovereignty have
significantly affected equity valuations and foreign currency movements in the
Canadian market and such demands may have this effect in the future. In
addition, certain sectors of Canada’s economy may be subject to foreign
ownership limitations. This may negatively impact the Fund’s ability to
invest in Canadian issuers and to track the Fund’s Index.
MLP
Risk.
Investments in common units of MLPs involve risks that differ from investments
in common stock including risks inherent in the structure of MLPs, including (i)
tax risks (described further below), (ii) risk related to limited control of
management or the general partner or managing member, (iii) limited rights to
vote on matters affecting the MLP, except with respect to extraordinary
transactions, (iv) conflicts of interest between the general partner or managing
member and its affiliates, on the one hand, and the limited partners or members,
on the other hand, including those arising from incentive distribution payments
or corporate opportunities, (v) dilution risks and risks related to the general
partner’s right to require unit-holders to sell their common units at an
undesirable time or price, resulting from regulatory changes or other reasons
and (vi) cash flow risks.
MLP
common units and other equity securities can be affected by factors affecting
the stock market in general, expectations of interest rates, investor sentiment
towards MLPs 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 MLPs, generally measured in terms of distributable cash
flow). MLPs holding credit-related investments are subject to interest rate risk
and the risk of default on payment obligations by debt issuers. Prices of common
units of individual MLPs and other equity securities also can be affected by
fundamentals unique to the partnership or company, including cash flow growth,
cash generating power and distribution coverage.
Certain
MLP securities may trade in relatively low volumes due to their smaller
capitalizations or other factors, which may cause them to have a high degree of
volatility and lack sufficient market liquidity to enable the Fund to effect a
sale at an advantageous time or price. Because many MLPs pay out most of their
operating cash flows, the MLPs rely on capital markets for access to equity and
debt financing to fund growth through organization. If market conditions limit
an MLP’s access to capital markets, the MLP’s growth prospects could diminish
and its costs of capital increase, which would decrease the value of the common
units held by the Fund.
MLP
Tax Risk.
MLPs are generally being treated as partnerships for U.S. federal income tax
purposes. Partnerships generally do not pay U.S. federal income tax at the
partnership level. Rather, each partner is allocated a share of the
partnership’s income, gains, losses, deductions and expenses, and takes that
share into account in calculating its own U.S. federal income tax liability. A
change in current tax law, or a change in the business of a given MLP, could
result in an MLP being treated as a corporation for U.S. federal income tax
purposes, reducing the distributions, after-tax returns, and value of the
investment to the Fund.
Changes
in tax laws or regulations could adversely affect the Fund or the MLPs in which
the Fund invests and could also negatively impact the amount and tax
characterization of dividends received by the Fund’s shareholders. For example,
Congress could take actions which would eliminate the tax benefits of
depreciation, depletion and amortization deductions realized by MLPs.
Alternatively, Congress could impose a tax on pass- through entities such as
MLPs or eliminate the use of pass-through taxation entirely. The tax benefits of
depreciation, depletion and amortization deductions realized by MLPs effectively
defer the income of the MLPs and, in turn, the taxable income of the Fund.
Without these benefits the Fund would be subject to current U.S. federal, state
and local corporate income taxes on a greater proportion of its allocable share
of the income and gains of MLPs in which it invests, and the Fund’s ability to
pay distributions treated as return-of-capital distributions (for tax
purposes).
Individuals
and certain other non-corporate entities are generally eligible for a 20%
deduction with respect to certain taxable income from MLPs. However, the Fund
(which is taxable as a regulated investment company) will not be eligible to
pass through such certain taxable income, if any, from MLPs or the related 20%
deduction to Fund shareholders. As a result, in comparison, investors investing
directly in MLPs would be eligible for the 20% deduction for any such taxable
income from these investments, while investors investing in MLPs held indirectly
through the Fund would not. An MLP’s distributions to the Fund generally will
not be taxable unless the cash amount (or, in certain cases, the value of
marketable securities) distributed exceeds the Fund’s basis in its interest in
the MLP. Distributions received by the Fund from an MLP will reduce the Fund’s
adjusted basis in its interest in the
MLP,
but not below zero. A reduced basis will generally result in an increase in the
amount of gain (or decrease in the amount of loss) that will be recognized by
the Fund for tax purposes on the sale of its interest in the MLP. Cash
distributions from an MLP to the Fund (and, in certain cases, the value of
marketable securities distributed by an MLP to the Fund) in excess of the Fund’s
basis in the MLP will generally be taxable to the Fund as capital gain.
The
tax treatment of all items allocated to the Fund each year by the MLPs will not
be known until the Fund receives a schedule K-1 for that year with respect to
each of its MLP investments.
Energy Sector
Risk. The
Fund will be sensitive to changes in, and its performance will depend to a
greater extent on, the overall condition of the energy sector. Companies
operating in the energy sector are subject to risks including, but not limited
to, economic growth, worldwide demand, political instability in the regions that
the companies operate, government regulation stipulating rates charged by
utilities, interest rate sensitivity, oil price volatility, energy conservation,
environmental policies, depletion of resources, and the cost of providing the
specific utility services and other factors that they cannot
control.
The
energy sector is cyclical and is highly dependent on commodity prices; prices
and supplies of energy may fluctuate significantly over short and long periods
of time due to, among other things, national and international political
changes, OPEC policies, changes in relationships among OPEC members and between
OPEC and oil-importing nations, the regulatory environment, taxation policies,
and the economy of the key energy-consuming countries. Commodity prices have
recently been subject to increased volatility and declines, which may negatively
affect companies in which the Fund invests.
Companies
in the energy sector may be adversely affected by terrorism, natural disasters
or other catastrophes. Companies in the energy sector are at risk of civil
liability from accidents resulting in injury, loss of life or property,
pollution or other environmental damage claims and risk of loss from terrorism
and natural disasters. Disruptions in the oil industry or shifts in fuel
consumption may significantly impact companies in this sector. Significant oil
and gas deposits are located in emerging markets countries where corruption and
security may raise significant risks, in addition to the other risks of
investing in emerging markets.
Companies
in the energy sector may also be adversely affected by changes in exchange
rates, tax treatment, government regulation and intervention, negative
perception, efforts at energy conservation and world events in the regions in
which the companies operate (e.g.,
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investments and repatriation of capital,
military coups, social unrest, violence or labor unrest). Because a significant
portion of revenues of companies in this sector is derived from a relatively
small number of customers that are largely comprised of governmental entities
and utilities, governmental budget constraints may have a significant impact on
the stock prices of companies in this sector. The energy sector is highly
regulated. Entities operating in the energy sector are subject to significant
regulation of nearly every aspect of their operations by federal, state and
local governmental agencies. Such regulation can change rapidly or over time in
both scope and intensity. Stricter laws, regulations or enforcement policies
could be enacted in the future which would likely increase compliance costs and
may materially adversely affect the financial performance of companies in the
energy sector.
A
downturn in the energy sector of the economy, adverse political, legislative or
regulatory developments or other events could have a larger impact on the Fund
than on an investment company that does not invest a substantial portion of its
assets in the energy sector. At times, the performance of securities of
companies in the energy sector may lag the performance of other sectors or the
broader market as a whole. The price of oil, natural gas and other fossil fuels
may decline and/or experience significant volatility, which could adversely
impact companies operating in the energy sector.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s
investments.
Return
of Capital Risk. A
portion of the Fund’s distributions are expected to be treated as a return of
capital for tax purposes. Return of capital distributions are not taxable income
to you but reduce your tax basis in your Fund Shares. Such a reduction in tax
basis will generally result in larger taxable gains and/or lower tax losses on a
subsequent sale of Fund Shares. The Fund’s return of capital distributions are
not derived from the net income or earnings and profits of the Fund.
Shareholders should not assume that all Fund distributions are derived from the
net income or earnings and profits of the Fund.
Liquidity
Risk Related to MLPs.
Although energy companies and MLPs trade on national securities exchanges,
certain MLP securities may trade less frequently than those of larger companies
due to their smaller capitalizations. At times, due to limited trading volumes
of certain MLPs, the prices of such MLPs may display abrupt or erratic
movements. Moreover, it may be more difficult for the Fund to buy and sell
significant amounts of such securities without an unfavorable impact on
prevailing market prices. The Fund’s investment in securities that are less
actively traded or over time experience decreased trading volume may restrict
its ability to take advantage of other market opportunities or to dispose of
securities at a fair price at the times when the Adviser believes it is
desirable to do so. This also may affect adversely the Fund’s ability to make
dividend distributions.
Market
Risk. The
prices of securities are subject to the risks associated with investing in the
securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including 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 system failures.
Medium-Capitalization
Companies Risk.
Medium-capitalization companies may be more volatile and more likely than
large-capitalization companies to have narrower product lines, fewer financial
resources, less management depth and experience and less competitive strength.
In addition, these companies often have greater price volatility, lower trading
volume and less liquidity than larger more established companies. Returns on
investments in securities of medium-capitalization companies could trail the
returns on investments in securities of large-capitalization
companies.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (to the extent the Fund effects creations and redemptions in
cash) raising cash to meet redemptions or deploying cash in connection with
newly created Creation Units. Transaction costs, including brokerage costs, will
decrease the Fund’s net asset value to the extent not offset by the transaction
fee payable by an Authorized Participant.
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 Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards, a lack of liquidity in markets in which such securities
trade, potential adverse tax consequences or other regulatory reasons (such as
diversification requirements). To the extent the Fund utilizes depositary
receipts, the purchase of depositary receipts may negatively affect the Fund’s
ability to track the performance of the Index and increase tracking error, which
may be exacerbated if the issuer of the depositary receipt discontinues issuing
new depositary receipts or withdraws existing depositary receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to changes to the Index and high turnover of the Index.
When markets are volatile, the ability to sell securities at fair value prices
may be adversely impacted and may result in additional trading costs and/or
increase the index tracking risk. The Fund may also need to rely on borrowings
to meet redemptions, which may lead to increased expenses. For tax efficiency
purposes, the Fund may sell certain securities, and such sale may cause the Fund
to realize a loss and deviate from the performance of the Index. In light of the
factors discussed above, the Fund’s return may deviate significantly from the
return of the Index. Changes to the composition of the Index in connection with
a rebalancing or reconstitution of the Index may cause the Fund to experience
increased volatility, during which time the Fund’s index tracking risk may be
heightened.
Authorized
Participant Concentration Risk. The
Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or
de-
listing.
This can be reflected as a spread between the bid-ask prices for the Fund. The
Authorized Participant concentration risk may be heightened in cases where
Authorized Participants have limited or diminished access to the capital
required to post collateral.
No
Guarantee of Active Trading Market Risk.
There can be no assurance that an active trading market for the Shares will
develop or be maintained, as applicable. Further, secondary markets may be
subject to irregular trading activity, wide bid/ask spreads and extended trade
settlement periods in times of market stress because market makers and
Authorized Participants may step away from making a market in the Shares and in
executing creation and redemption orders, which could cause a material deviation
in the Fund’s market price from its net asset value.
Trading
Issues Risk.
Trading in shares on the exchange may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in shares inadvisable.
In addition, trading in shares on the exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the relevant exchange’s
“circuit breaker” rules. If a trading halt or unanticipated early close of the
exchange occurs, a shareholder may be unable to purchase or sell Shares of the
Fund. There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from its Index, the Fund generally would
not sell a security because the security’s issuer is in financial trouble. If a
specific security is removed from the Fund’s Index, the Fund may be forced to
sell such security at an inopportune time or for prices other than at current
market values. An investment in the Fund involves risks similar to those of
investing in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares.
The market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Non-Diversified
Risk.
The Fund is classified as a “non-diversified”
fund under the Investment Company Act of 1940. The Fund is subject to the risk
that it will be more volatile than a diversified fund because the Fund may
invest a relatively high percentage of its assets in a smaller number of issuers
or may invest a larger proportion of its assets in a single issuer. Moreover,
the gains and losses on a single investment may have a greater impact on the
Fund’s net asset value and may make the Fund more volatile than more diversified
funds. The Fund may be particularly vulnerable to this risk if its Index is
comprised of securities of a limited number of companies.
Industry
Concentration Risk.
The Fund’s assets are concentrated in an industry or group of industries. As
such, the Fund will be subject to the risk that economic, political or other
conditions that have a negative effect on such groups of industries may
negatively impact the Fund to a greater extent than if the Fund’s assets were
invested in a wider variety of groups of
industries.
PERFORMANCE
Pursuant to an agreement and
plan of reorganization between the VanEck ETF Trust (the “Trust”), on behalf of
the Fund, and Exchange Traded Concepts Trust, on behalf of Yorkville High Income
MLP ETF (the “Predecessor Fund”), on February 22, 2016, the Fund acquired all of
the assets and liabilities of the Predecessor Fund in exchange for shares of
beneficial interest of the Fund (the “Reorganization”). As a result of the
Reorganization, the Fund is the accounting successor of the Predecessor Fund.
The historical performance information shown below reflects, for the period
prior to the Reorganization, the historical performance of the Predecessor
Fund.
The bar chart that follows shows how the
Fund performed for the calendar years shown. The table below the bar chart shows
the Fund’s average annual returns (before and after taxes). The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s benchmark index and a
broad measure of market performance. Prior to December 2, 2019,
the Fund sought to replicate as closely as possible, before fees and expenses,
the price and yield performance of the Solactive High Income MLP Index (the
“Prior Index”). Therefore, performance information prior to December 2, 2019
reflects the performance of the Fund while seeking to track the Prior Index. All
returns assume reinvestment of dividends and distributions. 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.vaneck.com.
Annual Total Returns (%)—Calendar
Years
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| Best
Quarter: |
39.94% |
2Q
2020 |
| Worst
Quarter: |
-49.42% |
1Q
2020 |
Average Annual Total Returns for the Periods
Ended December 31, 2022
The after-tax returns presented
in the table below are calculated using the highest historical individual
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 below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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Past
One Year |
Past
Five Years |
Past
Ten Years |
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VanEck Energy Income ETF (return before
taxes) |
19.18% |
4.22% |
-5.70% |
|
|
VanEck Energy Income ETF (return after
taxes on distributions) |
18.84% |
3.83% |
-7.15% |
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VanEck Energy Income ETF (return after
taxes on distributions and sale of Fund Shares) |
11.60% |
3.21% |
-4.30% |
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MVIS®
North
America Energy Infrastructure Index (reflects no deduction for
fees, expenses or taxes, except withholding
taxes)* |
20.14% |
4.05% |
-5.54% |
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S&P
500®
Index (reflects no deduction for fees, expenses or
taxes) |
-18.11% |
9.42% |
12.56% |
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*Prior to December 2, 2019,
the Fund sought to replicate as closely as possible, before fees and expenses,
the price and yield performance of the Prior Index. Therefore, performance
information prior to December 2, 2019 reflects the performance of the Fund while
seeking to track the Prior Index. Prior to December 2, 2019, index data reflects
that of the Prior Index.
From
December 2, 2019, the index data will reflect that of the MVIS®
North America Energy Infrastructure
Index.
See “License Agreements
and Disclaimers” for important information.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Manager.
The following individual is primarily responsible for the day-to-day management
of the Fund’s portfolio:
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Name |
Title
with Adviser |
Date
Began Managing the Fund |
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Peter
H. Liao |
Portfolio
Manager |
February
2016 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT OBJECTIVE
VanEck®
Environmental Services ETF
(the
“Fund”) seeks to replicate as closely as possible, before fees and expenses, the
price and yield performance of the NYSE®
Arca Environmental Services Index (the “NYSE Arca Environmental Services Index”
or the “Index”).
FUND FEES AND EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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Management
Fee |
0.50 |
% |
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Other
Expenses |
0.12 |
% |
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Total
Annual Fund Operating Expenses(a) |
0.62 |
% |
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Fee
Waivers and Expense Reimbursement(a) |
-0.07 |
% |
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Total
Annual Fund Operating Expenses After Fee Waivers and Expense
Reimbursement(a) |
0.55 |
% |
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(a) Van Eck Associates
Corporation (the “Adviser”) has agreed to waive fees and/or pay Fund expenses to
the extent necessary to prevent the operating expenses of the Fund (excluding
acquired fund fees and expenses, interest expense, trading expenses, taxes and
extraordinary expenses) from exceeding 0.55% of the Fund’s average daily net
assets per year until at least February 1,
2024. During such time, the expense limitation is expected to
continue until the Fund’s Board of Trustees acts to discontinue all or a portion
of such expense limitation.
EXPENSE EXAMPLE
This example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of the
Fund.
The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell or hold all of
your Shares at the end of those periods. The example also assumes that your
investment has a 5% annual return and that the Fund’s operating expenses remain
the same (except that the example incorporates the fee waivers and/or expense
reimbursement arrangement for only the first year). Although your actual costs
may be higher or lower, based on these assumptions, your costs would
be:
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YEAR |
EXPENSES |
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1 |
$56 |
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3 |
$191 |
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5 |
$339 |
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10 |
$768 |
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PORTFOLIO
TURNOVER
The Fund will pay transaction
costs, such as commissions, when it purchases and sells securities (or “turns
over” its portfolio). A higher portfolio turnover will cause the Fund to incur
additional transaction costs and may result in higher taxes when Fund Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the example, may affect the Fund’s performance. During
the most recent fiscal year, the Fund’s portfolio turnover rate was
35% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The Fund normally invests at
least 80% of its total assets in common stocks and American depositary receipts
(“ADRs”) of companies involved in the environmental services industry. The NYSE
Arca Environmental Services Index is designed to measure the performance of
widely held, highly capitalized companies engaged in business activities that
may benefit from the global increase in demand for consumer waste disposal,
removal and storage of industrial by-products, and the management of
associated
resources. Such companies may include small- and medium-capitalization
companies. As of December 31, 2022, the NYSE Arca Environmental Services Index
included 24 securities of companies with a market capitalization range of
between approximately $382 million and $64.3 billion and a weighted average
market capitalization of $20.6 billion. These amounts are subject to change. The
Fund’s 80% investment policy is non-fundamental and may be changed without
shareholder approval upon 60 days’ prior written notice to shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the NYSE Arca Environmental Services Index by
investing in a portfolio of securities that generally replicates the NYSE Arca
Environmental Services Index. Unlike many investment companies that try to
“beat” the performance of a benchmark index, the Fund does not try to “beat” the
NYSE Arca Environmental Services Index and does not seek temporary defensive
positions that are inconsistent with its investment objective of seeking to
replicate the NYSE Arca Environmental Services Index. The Fund will normally
invest at least 80% of its assets in securities that comprise the NYSE Arca
Environmental Services Index.
The
Fund is classified as a non-diversified fund under the Investment Company Act of
1940, as amended (the “Investment Company Act of 1940”) and, therefore, may
invest a greater percentage of assets in a particular issuer. The Fund may concentrate its
investments in a particular industry or group of industries to the extent that
the NYSE Arca Environmental Services Index concentrates in an industry or group
of industries. As of September 30, 2022, each of the industrials, basic
materials and environmental services industry sectors represented a significant
portion of the Fund.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Environmental
Services Industry Risk. Companies
in the environmental services industry are engaged in a variety of activities
related to environmental services and consumer and industrial waste management.
These companies may be adversely affected by a global decrease in demand for
consumer waste disposal, removal and storage of industrial by-products, and the
management of associated resources. Competitive pressures may have a significant
effect on the financial condition of such companies. These prices may fluctuate
substantially over short periods of time so the Fund may be more volatile than
other types of investments. Environmental services companies must comply with
various regulations and the terms of their operating permits and licenses.
Failure to comply, failure to renew permits and licenses or changes in
government regulations can adversely impact their operations. Waste management
companies are also affected by demand cycles, world events, increased
outsourcing and economic conditions. In addition, these companies are subject to
liability for environmental damage claims.
Certain
companies in which the Fund may invest are non-U.S. issuers whose securities are
listed on U.S. exchanges. These securities involve risks beyond those associated
with investments in U.S. securities, including greater market volatility, higher
transactional costs, the possibility that the liquidity of such securities could
be impaired because of future political and/or economic developments, taxation
by foreign governments, political instability and the possibility that foreign
governmental restrictions may be adopted which might adversely affect such
securities.
Equity Securities Risk. The
value of the equity securities held by the Fund may fall due to general market
and economic conditions, perceptions regarding the markets in which the issuers
of securities held by the Fund participate, or factors relating to specific
issuers in which the Fund invests. Equity securities are subordinated to
preferred securities and debt in a company’s capital structure with respect to
priority to a share of corporate income, and therefore will be subject to
greater dividend risk than preferred securities or debt instruments. In
addition, while broad market measures of equity securities have historically
generated higher average returns than fixed income securities, equity securities
have generally also experienced significantly more volatility in those
returns.
Basic
Materials Sector Risk. The
Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition of the basic materials sector. Companies engaged in
the production and distribution of basic materials may be adversely affected by
changes in world events, political and economic conditions, energy conservation,
environmental policies, commodity price volatility, changes in exchange rates,
imposition of import controls, increased competition, depletion of resources and
labor relations.
Industrials
Sector Risk. The
industrials sector comprises companies who produce capital goods used in
construction and manufacturing, such as companies that make and sell machinery,
equipment and supplies that are used to produce other goods. Companies in the
industrials sector may be adversely affected by changes in government
regulation, world events and economic conditions. In addition, companies in the
industrials sector be adversely affected by environmental damages, product
liability claims and exchange rates.
Depositary Receipts
Risk.
The Fund may invest in depositary receipts (including American Depositary
Receipts), which involve similar risks to those associated with investments in
foreign securities. Depositary receipts are receipts listed on U.S. or foreign
exchanges issued by banks or trust companies that entitle the holder to all
dividends and capital gains that are paid out on the
underlying
foreign shares. The issuers of certain depositary receipts are under no
obligation to distribute shareholder communications to the holders of such
receipts, or to pass through to them any voting rights with respect to the
deposited securities. Investments in depositary receipts may be less liquid than
the underlying shares in their primary trading market. The issuers of depositary
receipts may discontinue issuing new depositary receipts and withdraw existing
depositary receipts at any time, which may result in costs and delays in the
distribution of the underlying assets to the Fund and may negatively impact the
Fund’s performance.
Micro-Capitalization
Companies Risk.
Micro-capitalization companies are subject to substantially greater risks of
loss and price fluctuations because their earnings and revenues tend to be less
predictable (and some companies may be experiencing significant losses), and
their share prices tend to be more volatile and their markets less liquid than
companies with larger market capitalizations. The shares of micro-capitalization
companies tend to trade less frequently than those of larger, more established
companies, which can adversely affect the pricing of these securities and the
future ability to sell those securities.
Small-
and Medium-Capitalization Companies Risk. The
Fund may invest in small- and medium-capitalization companies and, therefore
will be subject to certain risks associated with small- and medium-
capitalization companies. These companies are often subject to less analyst
coverage and may be in early and less predictable periods of their corporate
existences, with little or no record of profitability. In addition, these
companies often have greater price volatility, lower trading volume and less
liquidity than larger more established companies. These companies tend to have
smaller revenues, narrower product lines, less management depth and experience,
smaller shares of their product or service markets, fewer financial resources
and less competitive strength than large-capitalization companies. Returns on
investments in securities of small- and medium-capitalization companies could
trail the returns on investments in securities of larger companies.
Issuer-Specific
Changes Risk. The
value of individual securities in the Fund’s portfolio can be more volatile than
the market as a whole and can perform differently from the value of the market
as a whole, which may have a greater impact if the Fund’s portfolio is
concentrated in a country, region, market, industry, sector or asset class. A
change in the financial condition, market perception or the credit rating of an
issuer of securities included in the Fund’s Index may cause the value of its
securities to decline.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including 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 system failures.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (to the extent the Fund effects creations and redemptions in
cash) raising cash to meet redemptions or deploying cash in connection with
newly created Creation Units. Transaction costs, including brokerage costs, will
decrease the Fund’s net asset value to the extent not offset by the transaction
fee payable by an Authorized Participant.
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 Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards, a lack of liquidity in markets in which such securities
trade, potential adverse tax consequences or other regulatory reasons (such as
diversification requirements). To the extent the Fund utilizes depositary
receipts, the purchase of depositary receipts may negatively affect the Fund’s
ability to track the performance of the Index and increase tracking error,
which
may be exacerbated if the issuer of the depositary receipt discontinues issuing
new depositary receipts or withdraws existing depositary receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to changes to the Index and high turnover of the Index.
When markets are volatile, the ability to sell securities at fair value prices
may be adversely impacted and may result in additional trading costs and/or
increase the index tracking risk. The Fund may also need to rely on borrowings
to meet redemptions, which may lead to increased expenses. For tax efficiency
purposes, the Fund may sell certain securities, and such sale may cause the Fund
to realize a loss and deviate from the performance of the Index. In light of the
factors discussed above, the Fund’s return may deviate significantly from the
return of the Index. Changes to the composition of the Index in connection with
a rebalancing or reconstitution of the Index may cause the Fund to experience
increased volatility, during which time the Fund’s index tracking risk may be
heightened.
Authorized
Participant Concentration Risk. The
Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk.
There can be no assurance that an active trading market for the Shares will
develop or be maintained, as applicable. Further, secondary markets may be
subject to irregular trading activity, wide bid/ask spreads and extended trade
settlement periods in times of market stress because market makers and
Authorized Participants may step away from making a market in the Shares and in
executing creation and redemption orders, which could cause a material deviation
in the Fund’s market price from its net asset value.
Trading
Issues Risk.
Trading in shares on the exchange may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in shares inadvisable.
In addition, trading in shares on the exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the relevant exchange’s
“circuit breaker” rules. If a trading halt or unanticipated early close of the
exchange occurs, a shareholder may be unable to purchase or sell Shares of the
Fund. There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk. Unlike
many investment companies, the Fund is not “actively” managed. Therefore, unless
a specific security is removed from its Index, the Fund generally would not sell
a security because the security’s issuer is in financial trouble. If a specific
security is removed from the Fund’s Index, the Fund may be forced to sell such
security at an inopportune time or for prices other than at current market
values. An investment in the Fund involves risks similar to those of investing
in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares.
The market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in
stressed
market conditions, the market for the Fund’s Shares may become less liquid in
response to deteriorating liquidity in the markets for the Fund’s underlying
portfolio holdings and a shareholder may be unable to sell his or her Shares.
Non-Diversified
Risk. The Fund is classified as a “non-diversified”
fund under the Investment Company Act of 1940. The Fund is subject to the risk
that it will be more volatile than a diversified fund because the Fund may
invest a relatively high percentage of its assets in a smaller number of issuers
or may invest a larger proportion of its assets in a single issuer. Moreover,
the gains and losses on a single investment may have a greater impact on the
Fund’s net asset value and may make the Fund more volatile than more diversified
funds. The Fund may be particularly vulnerable to this risk if its Index is
comprised of securities of a limited number of
companies.
Industry
Concentration Risk. The
Fund’s assets are concentrated in an industry or group of industries. As such,
the Fund will be subject to the risk that economic, political or other
conditions that have a negative effect on such groups of industries may
negatively impact the Fund to a greater extent than if the Fund’s assets were
invested in a wider variety of groups of
industries.
PERFORMANCE
The bar chart that follows
shows how the Fund performed for the calendar years shown. The table below the
bar chart shows the Fund’s average annual returns (before and after taxes).
The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s benchmark index and a
broad measure of market performance. All returns assume
reinvestment of dividends and distributions. 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.vaneck.com.
Annual Total Returns (%)—Calendar
Years
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| Best
Quarter: |
21.29% |
4Q
2020 |
| Worst
Quarter: |
-27.52% |
1Q
2020 |
Average Annual Total Returns for the Periods
Ended December 31, 2022
The after-tax returns presented
in the table below are calculated using the highest historical individual
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 below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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Past
One Year |
Past
Five Years |
Past
Ten Years |
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VanEck Environmental Services ETF
(return before taxes) |
-10.77% |
9.88% |
11.05% |
|
|
VanEck Environmental Services ETF
(return after taxes on distributions) |
-10.86% |
9.79% |
10.86% |
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|
VanEck Environmental Services ETF
(return after taxes on distributions and sale of Fund
Shares) |
-6.32% |
7.83% |
9.13% |
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NYSE Arca Environmental Services Index
(reflects no deduction for
fees, expenses or taxes) |
-10.46% |
10.29% |
11.52% |
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S&P
500®
Index (reflects no deduction for fees, expenses or
taxes) |
-18.11% |
9.42% |
12.56% |
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See “License Agreements
and Disclaimers” for important information.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Manager.
The following individual is primarily responsible for the day-to-day management
of the Fund’s portfolio:
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Name |
Title
with Adviser |
Date
Began Managing the Fund |
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Peter
H. Liao |
Portfolio
Manager |
October
2006 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT OBJECTIVE
VanEck®
Gaming ETF
(the
“Fund”) seeks to replicate as closely as possible, before fees and expenses, the
price and yield performance of the MVIS®
Global Gaming Index (the “Gaming Index” or the
“Index”).
FUND FEES AND EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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Management
Fee |
0.50 |
% |
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Other
Expenses |
0.15 |
% |
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Total
Annual Fund Operating Expenses(a) |
0.65 |
% |
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Fee
Waivers and Expense Reimbursement(a) |
0.00 |
% |
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Total
Annual Fund Operating Expenses After Fee Waivers and Expense
Reimbursement(a) |
0.65 |
% |
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(a) Van Eck Associates
Corporation (the “Adviser”) has agreed to waive fees and/or pay Fund expenses to
the extent necessary to prevent the operating expenses of the Fund (excluding
acquired fund fees and expenses, interest expense, trading expenses, taxes and
extraordinary expenses) from exceeding 0.65% of the Fund’s average daily net
assets per year until at least February 1,
2024. During such time, the expense limitation is expected to
continue until the Fund’s Board of Trustees acts to discontinue all or a portion
of such expense limitation.
EXPENSE EXAMPLE
This example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of the
Fund.
The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell or hold all of
your Shares at the end of those periods. The example also assumes that your
investment has a 5% annual return and that the Fund’s operating expenses remain
the same (except that the example incorporates the fee waivers and/or expense
reimbursement arrangement for only the first year). Although your actual costs
may be higher or lower, based on these assumptions, your costs would
be:
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YEAR |
EXPENSES |
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1 |
$66 |
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3 |
$208 |
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5 |
$362 |
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|
10 |
$810 |
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PORTFOLIO TURNOVER
The Fund will pay transaction
costs, such as commissions, when it purchases and sells securities (or “turns
over” its portfolio). A higher portfolio turnover will cause the Fund to incur
additional transaction costs and may result in higher taxes when Fund Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the example, may affect the Fund’s performance. During
the most recent fiscal year, the Fund’s portfolio turnover rate was
16% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The Fund normally invests at
least 80% of its total assets in securities that comprise the Fund’s benchmark
index. To be initially eligible for the Gaming Index, companies must generate at
least 50% of their revenues from gaming. Gaming includes casinos and casino
hotels, sports betting (including internet gambling and racetracks) and lottery
services as well as gaming services, gaming technology and gaming equipment.
Such companies may include small- and medium-capitalization companies and
foreign companies that are listed on a U.S. or foreign exchanges. As of December
31, 2022, the Gaming Index included 36 securities of
companies
with a market capitalization range of between approximately $1.1 billion and
$36.7 billion and a weighted average market capitalization of $16.2 billion.
These amounts are subject to change. As of September 30, 2022, a significant
portion of the Fund’s assets was invested in securities of Australian issuers.
The Fund’s 80% investment policy is non-fundamental and may be changed without
shareholder approval upon 60 days’ prior written notice to
shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Gaming Index by investing in a portfolio of
securities that generally replicates the Gaming Index. Unlike many investment
companies that try to “beat” the performance of a benchmark index, the Fund does
not try to “beat” the Gaming Index and does not seek temporary defensive
positions that are inconsistent with its investment objective of seeking to
replicate the Gaming Index.
The
Fund is classified as a non-diversified fund under the Investment Company Act of
1940, as amended (the “Investment Company Act of 1940”) and, therefore, may
invest a greater percentage of its assets in a particular issuer. The Fund may concentrate its
investments in a particular industry or group of industries to the extent that
the Gaming Index concentrates in an industry or group of industries. As of
September 30, 2022, the consumer discretionary and real estate sectors
represented a significant portion of the
Fund.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Gaming
Industry Risk. Companies
in the gaming industry include those engaged in casino operations,
race track operations, sports and horse race betting operations, online gaming
operations and/or the provision of related equipment and technologies. Companies
in the gaming industry face intense competition, both domestically and
internationally. Companies in the gaming industry are also highly
regulated, and state and Federal legislative or regulatory changes and licensing
issues (as well as the laws of other countries) can significantly impact their
ability to operate in certain jurisdictions, the activities in which such
companies are allowed to engage and the profitability of companies in the
industry. Certain companies in the gaming industry are highly
leveraged and have recently experienced financial difficulty. As a result, the
securities of gaming companies owned by the Fund may react similarly to, and
move in unison with, one another. The gaming industry may also be
negatively affected by changes in economic conditions, consumer tastes and
discretionary income levels, intense competition, technological developments
that may cause these companies to become obsolete quickly, financial resources,
markets or personnel. In addition, the gaming industry is
characterized by the use of various forms of intellectual property, which are
dependent upon patented technologies, trademarked brands and proprietary
information. Companies operating in the gaming industry are subject to
the risk of significant litigation regarding intellectual property rights, which
may adversely affect and financially harm companies in which the Fund may
invest. Furthermore, certain jurisdictions may impose additional restrictions on
securities issued by gaming companies organized or operated in such
jurisdictions that may be held by the Fund.
Equity Securities Risk. The
value of the equity securities held by the Fund may fall due to general market
and economic conditions, perceptions regarding the markets in which the issuers
of securities held by the Fund participate, or factors relating to specific
issuers in which the Fund invests. Equity securities are subordinated to
preferred securities and debt in a company’s capital structure with respect to
priority to a share of corporate income, and therefore will be subject to
greater dividend risk than preferred securities or debt instruments. In
addition, while broad market measures of equity securities have historically
generated higher average returns than fixed income securities, equity securities
have generally also experienced significantly more volatility in those
returns.
Consumer Discretionary Sector
Risk.
The consumer discretionary sector comprises companies whose
businesses are sensitive to economic cycles, such as manufacturers of high-end
apparel and automobile and leisure companies. Companies in
the consumer discretionary sector are subject to
fluctuations in supply and demand. These companies may also be adversely
affected by changes in consumer spending as a result of world events, political
and economic conditions, commodity price volatility, changes in exchange rates,
imposition of import controls, increased competition, depletion of resources and
labor relations.
Real
Estate Sector Risk.
Companies in the real estate sector include companies that invest in real
estate, such as REITs and real estate management and development companies. The
Fund will be sensitive to changes in, and its performance will depend to a
greater extent on, the overall condition of the real estate sector. Companies
that invest in real estate are subject to the risks of owning real estate
directly as well as to risks that relate specifically to the way that such
companies operate, including management risk (such companies are dependent upon
the management skills of a few key individuals and may have limited financial
resources). Adverse economic, business or political developments affecting real
estate could have a major effect on the values of the Fund’s investments.
Investing in real estate is subject to such risks as decreases in real estate
values, overbuilding, increased competition and other risks related to local or
general economic conditions, increases in operating costs and property taxes,
changes in zoning laws, casualty or condemnation losses, possible environmental
liabilities, regulatory limitations on rent, possible lack of availability of
mortgage financing, market saturation, fluctuations in rental income and the
value of underlying
properties
and extended vacancies of properties. Certain real estate securities have a
relatively small market capitalization, which may tend to increase the
volatility of the market price of these securities. Real estate securities have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. Real estate securities are
also subject to heavy cash flow dependency and defaults by borrowers or
tenants.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s investments.
Emerging
Market Issuers Risk.
Investments in securities of emerging market issuers involve risks not typically
associated with investments in securities of issuers in more developed countries
that may negatively affect the value of your investment in the Fund. Such
heightened risks may include, among others, expropriation and/or nationalization
of assets, restrictions on and government intervention in international trade,
confiscatory taxation, political instability, including authoritarian and/or
military involvement in governmental decision making, armed conflict, the impact
on the economy as a result of civil war, crime (including drug violence) and
social instability as a result of religious, ethnic and/or socioeconomic unrest.
Issuers in certain emerging market countries are subject to less stringent
requirements regarding accounting, auditing, financial reporting and record
keeping than are issuers in more developed markets, and therefore, all material
information may not be available or reliable. Emerging markets are also more
likely than developed markets to experience problems with the clearing and
settling of trades, as well as the holding of securities by local banks, agents
and depositories. Low trading volumes and volatile prices in less developed
markets may make trades harder to complete and settle, and governments or trade
groups may compel local agents to hold securities in designated depositories
that may not be subject to independent evaluation. Local agents are held only to
the standards of care of their local markets. In general, the less developed a
country’s securities markets are, the greater the likelihood of custody
problems. The Adviser may be limited in its ability to assess the Index
provider’s due diligence process over Index data prior to its use in Index
computation, construction and/or rebalancing. Additionally, each of the factors
described below could have a negative impact on the Fund’s performance and
increase the volatility of the Fund.
Securities
Markets. Securities
markets in emerging market countries are underdeveloped and are often considered
to be less correlated to global economic cycles than those markets located in
more developed countries. Securities markets in emerging market countries are
subject to greater risks associated with market volatility, lower market
capitalization, lower trading volume, illiquidity, inflation, greater price
fluctuations, uncertainty regarding the existence of trading markets,
governmental control and heavy regulation of labor and industry. These factors,
coupled with restrictions on foreign investment and other factors, limit the
supply of securities available for investment by the Fund. This will affect the
rate at which the Fund is able to invest in emerging market countries, the
purchase and sale prices for such securities and the timing of purchases and
sales. Emerging markets can experience high rates of inflation, deflation and
currency devaluation. The prices of certain securities listed on securities
markets in emerging market countries have been subject to sharp fluctuations and
sudden declines, and no assurance can be given as to the future performance of
listed securities in general. Volatility of prices may be greater than in more
developed securities markets. Moreover, securities markets in emerging market
countries may be closed for extended periods of time or trading on securities
markets may be suspended altogether due to political or civil unrest. Market
volatility may also be heightened by the actions of a small number of investors.
Brokerage firms in emerging market countries may be fewer in number and less
established than brokerage firms in more developed markets. Since the Fund may
need to effect securities transactions through these brokerage firms, the Fund
is subject to the risk that these brokerage firms will not be able to fulfill
their obligations to the Fund. This risk is magnified to the extent the Fund
effects securities transactions through a single brokerage firm or a small
number of brokerage firms. In addition, the infrastructure for the safe custody
of securities and for purchasing and selling securities, settling trades,
collecting dividends, initiating corporate actions, and following corporate
activity is not as well developed in emerging market countries as is the case in
certain more developed markets.
Political
and Economic Risk. Certain
emerging market countries have historically been subject to political
instability and their prospects are tied to the continuation of economic and
political liberalization in the region. Instability may result from factors such
as government or military intervention in decision making, terrorism, civil
unrest, extremism or hostilities between neighboring countries. Any of these
factors, including an outbreak of hostilities could negatively impact the Fund’s
returns. Limited political and democratic freedoms in emerging market countries
might cause significant social unrest. These factors may have a significant
adverse effect on an emerging market country’s economy.
Many
emerging market countries may be heavily dependent upon international trade and,
consequently, may continue to be negatively affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which it
trades. They also have been, and may continue to be, adversely affected by
economic conditions in the countries with which they
trade.
In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of certain emerging market countries’ exports and these economies are
particularly sensitive to fluctuations in commodity prices. Adverse economic
events in one country may have a significant adverse effect on other countries
of this region. In addition, most emerging market countries have experienced, at
one time or another, severe and persistent levels of inflation, including, in
some cases, hyperinflation. This has, in turn, led to high interest rates,
extreme measures by governments to keep inflation in check, and a generally
debilitating effect on economic growth.
Although
inflation in many countries has lessened, there is no guarantee it will remain
at lower levels. The political history of certain emerging market countries has
been characterized by political uncertainty, intervention by the military in
civilian and economic spheres, and political corruption. Such events could
reverse favorable trends toward market and economic reform, privatization, and
removal of trade barriers, and result in significant disruption in securities
markets in the region.
Also,
from time to time, certain issuers located in emerging market countries in which
the Fund invests may operate in, or have dealings with, countries subject to
sanctions and/or embargoes imposed by the U.S. Government and the United Nations
and/or countries identified by the U.S. Government as state sponsors of
terrorism. As a result, an issuer may sustain damage to its reputation if it is
identified as an issuer which operates in, or has dealings with, such countries.
The Fund, as an investor in such issuers, will be indirectly subject to those
risks.
The
economies of one or more countries in which the Fund may invest may be in
various states of transition from a planned economy to a more market oriented
economy. The economies of such countries differ from the economies of most
developed countries in many respects, including levels of government
involvement, states of development, growth rates, control of foreign exchange
and allocation of resources. Economic growth in these economies may be uneven
both geographically and among various sectors of their economies and may also be
accompanied by periods of high inflation. Political changes, social instability
and adverse diplomatic developments in these countries could result in the
imposition of additional government restrictions, including expropriation of
assets, confiscatory taxes or nationalization of some or all of the property
held by the underlying issuers of securities included in the Fund’s Index. There
is no guarantee that the governments of these countries will not revert back to
some form of planned or non-market oriented economy, and such governments
continue to be active participants in many economic sectors through ownership
positions and regulation. The allocation of resources in such countries is
subject to a high level of government control. Such countries’ governments may
strictly regulate the payment of foreign currency denominated obligations and
set monetary policy. Through their policies, these governments may provide
preferential treatment to particular industries or companies. The policies set
by the government of one of these countries could have a substantial effect on
that country’s economy.
Investment
and Repatriation Restrictions. The
government in an emerging market country may restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers
located or operating in such emerging market countries. These restrictions
and/or controls may at times limit or prevent foreign investment in securities
of issuers located or operating in emerging market countries and may inhibit the
Fund’s ability to track its Index. In addition, the Fund may not be able to buy
or sell securities or receive full value for such securities. Moreover, certain
emerging market countries may require governmental approval or special licenses
prior to investments by foreign investors and may limit the amount of
investments by foreign investors in a particular industry and/or issuer; may
limit such foreign investment to a certain class of securities of an issuer that
may have less advantageous rights than the classes available for purchase by
domiciliaries of such emerging market countries; and/or may impose additional
taxes on foreign investors. A delay in obtaining a required government approval
or a license would delay investments in those emerging market countries, and, as
a result, the Fund may not be able to invest in certain securities while
approval is pending. The government of certain emerging market countries may
also withdraw or decline to renew a license that enables the Fund to invest in
such country. These factors make investing in issuers located or operating in
emerging market countries significantly riskier than investing in issuers
located or operating in more developed countries, and any one of them could
cause a decline in the value of the Fund’s Shares.
Additionally,
investments in issuers located in certain emerging market countries may be
subject to a greater degree of risk associated with governmental approval in
connection with the repatriation of investment income, capital or the proceeds
of sales of securities by foreign investors. Moreover, there is the risk that if
the balance of payments in an emerging market country declines, the government
of such country may impose temporary restrictions on foreign capital
remittances. Consequently, the Fund could be adversely affected by delays in, or
a refusal to grant, required governmental approval for repatriation of capital,
as well as by the application to the Fund of any restrictions on investments.
Furthermore, investments in emerging market countries may require the Fund to
adopt special procedures, seek local government approvals or take other actions,
each of which may involve additional costs to the Fund.
Available
Disclosure About Emerging Market Issuers. Issuers
located or operating in emerging market countries are not subject to the same
rules and regulations as issuers located or operating in more developed
countries. Therefore, there may be less financial and other information publicly
available with regard to issuers located or operating in emerging market
countries and such issuers are not subject to the uniform accounting, auditing
and financial reporting standards applicable to issuers located or operating in
more developed countries.
Foreign
Currency Considerations. The
Fund’s assets that are invested in securities of issuers in emerging market
countries will generally be denominated in foreign currencies, and the proceeds
received by the Fund from these investments will be principally in foreign
currencies. The value of an emerging market country’s currency may be subject to
a high degree of fluctuation. This fluctuation may be due to changes in interest
rates, the effects of monetary policies issued by the United States, foreign
governments, central banks or supranational entities, the imposition of currency
controls or other national or global political or economic developments. The
economies of certain emerging market countries can be significantly affected by
currency devaluations. Certain emerging market countries may also have managed
currencies which are maintained at artificial levels relative to the U.S. dollar
rather than at levels determined by the market. This type of system can lead to
sudden and large adjustments in the currency which, in turn, can have a
disruptive and negative effect on foreign investors.
The
Fund’s exposure to an emerging market country’s currency and changes in value of
such foreign currencies versus the U.S. dollar may reduce the Fund’s investment
performance and the value of your investment in the Fund. Meanwhile, the Fund
will compute and expects to distribute its income in U.S. dollars, and the
computation of income will be made on the date that the income is earned by the
Fund at the foreign exchange rate in effect on that date. Therefore, if the
value of the respective emerging market country’s currency falls relative to the
U.S. dollar between the earning of the income and the time at which the Fund
converts the relevant emerging market country’s currency to U.S. dollars, the
Fund may be required to liquidate certain positions in order to make
distributions if the Fund has insufficient cash in U.S. dollars to meet
distribution requirements under the Internal Revenue Code. The liquidation of
investments, if required, could be at disadvantageous prices or otherwise have
an adverse impact on the Fund’s performance.
Certain
emerging market countries also restrict the free conversion of their currency
into foreign currencies, including the U.S. dollar. There is no significant
foreign exchange market for many such currencies and it would, as a result, be
difficult for the Fund to engage in foreign currency transactions designed to
protect the value of the Fund’s interests in securities denominated in such
currencies. Furthermore, if permitted, the Fund may incur costs in connection
with conversions between U.S. dollars and an emerging market country’s currency.
Foreign exchange dealers realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a dealer
normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell
that currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into forward, futures or options contracts to purchase or
sell foreign currencies.
Operational
and Settlement Risk. In
addition to having less developed securities markets, emerging market countries
have less developed custody and settlement practices than certain developed
countries. Rules adopted under the Investment Company Act of 1940 permit the
Fund to maintain its foreign securities and cash in the custody of certain
eligible non-U.S. banks and securities depositories. Banks in emerging market
countries that are eligible foreign sub-custodians may be recently organized or
otherwise lack extensive operating experience. In addition, in certain emerging
market countries there may be legal restrictions or limitations on the ability
of the Fund to recover assets held in custody by a foreign sub-custodian in the
event of the bankruptcy of the sub-custodian. Because settlement systems in
emerging market countries may be less organized than in other developed markets,
there may be a risk that settlement may be delayed and that cash or securities
of the Fund may be in jeopardy because of failures of or defects in the systems.
Under the laws in many emerging market countries, the Fund may be required to
release local shares before receiving cash payment or may be required to make
cash payment prior to receiving local shares, creating a risk that the Fund may
surrender cash or securities without ever receiving securities or cash from the
other party. Settlement systems in emerging market countries also have a higher
risk of failed trades and back to back settlements may not be
possible.
The
Fund may not be able to convert a foreign currency to U.S. dollars in time for
the settlement of redemption requests. In the event of a redemption request from
an Authorized Participant, the Fund will be required to deliver U.S. dollars to
the Authorized Participant on the settlement date. In the event that the Fund is
not able to convert the foreign currency to U.S. dollars in time for settlement,
which may occur as a result of the delays described above, the Fund may be
required to liquidate certain investments and/or borrow money in order to fund
such redemption. The liquidation of investments, if required, could be at
disadvantageous prices or otherwise have an adverse impact on the Fund’s
performance (e.g.,
by causing the Fund to overweight foreign currency denominated holdings and
underweight other holdings which were sold to fund redemptions). In addition,
the Fund will incur interest expense on any borrowings and the borrowings will
cause the Fund to be leveraged, which may magnify gains and losses on its
investments.
In
certain emerging market countries, the marketability of investments may be
limited due to the restricted opening hours of trading exchanges, and a
relatively high proportion of market value may be concentrated in the hands of a
relatively small number of investors. In addition, because certain emerging
market countries’ trading exchanges on which the Fund’s portfolio securities may
trade are open when the relevant Exchanges are closed, the Fund may be subject
to heightened risk associated with market movements. Trading volume may be lower
on certain emerging market countries’ trading exchanges than on more developed
securities markets and securities may be generally less liquid. The
infrastructure for clearing, settlement and registration on the primary and
secondary markets of certain emerging market countries are less
developed
than in certain other markets and under certain circumstances this may result in
the Fund experiencing delays in settling and/or registering transactions in the
markets in which it invests, particularly if the growth of foreign and domestic
investment in certain emerging market countries places an undue burden on such
investment infrastructure. Such delays could affect the speed with which the
Fund can transmit redemption proceeds and may inhibit the initiation and
realization of investment opportunities at optimum times.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer’s securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before and, in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent the Fund from buying
or selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the block cannot be removed. As a result of the
ramifications of voting ballots in markets that allow share blocking, the
Adviser, on behalf of the Fund, reserves the right to abstain from voting
proxies in those markets.
Corporate
and Securities Laws. Securities
laws in emerging market countries are relatively new and unsettled and,
consequently, there is a risk of rapid and unpredictable change in laws
regarding foreign investment, securities regulation, title to securities and
securityholders rights. Accordingly, foreign investors may be adversely affected
by new or amended laws and regulations. In addition, the systems of corporate
governance to which emerging market issuers are subject may be less advanced
than those systems to which issuers located in more developed countries are
subject, and therefore, securityholders of issuers located in emerging market
countries may not receive many of the protections available to securityholders
of issuers located in more developed countries. In circumstances where adequate
laws and securityholders rights exist, it may not be possible to obtain swift
and equitable enforcement of the law. In addition, the enforcement of systems of
taxation at federal, regional and local levels in emerging market countries may
be inconsistent and subject to sudden change. The Fund has limited rights and
few practical remedies in emerging markets and the ability of U.S. authorities
to bring enforcement actions in emerging markets may be limited.
Foreign Currency Risk. The
Fund’s exposure to foreign currencies and changes in the value of foreign
currencies versus the U.S. dollar may result in reduced returns for the Fund,
and the value of certain foreign currencies may be subject to a high degree of
fluctuation. The Fund may also incur costs in connection with conversions
between U.S. dollars and foreign currencies.
Special
Risk Considerations of Investing in Asian Issuers.
Investments in securities of Asian issuers involve risks and special
considerations not typically associated with investments in the U.S. securities
markets. Certain Asian economies have experienced over-extension of credit,
currency devaluations and restrictions, high unemployment, high inflation,
decreased exports and economic recessions. Economic events in any one Asian
country can have a significant effect on the entire Asian region as well as on
major trading partners outside Asia, and any adverse effect on some or all of
the Asian countries and regions in which the Fund invests. The securities
markets in some Asian economies are relatively underdeveloped and may subject
the Fund to higher action costs or greater uncertainty than investments in more
developed securities markets. Such risks may adversely affect the value of the
Fund’s investments.
Special
Risk Considerations of Investing in Australian Issuers.
Investments in securities of Australian issuers involve risks and special
considerations not typically associated with investments in the U.S. securities
markets. The Australian economy is heavily dependent on exports from the
agricultural and mining sectors. As a result, the Australian economy is
susceptible to fluctuations in the commodity markets. The Australian economy is
also dependent on trading with key trading partners.
Special
Risk Considerations of Investing in European Issuers. Investments
in securities of European issuers involve risks and special considerations not
typically associated with investments in the U.S. securities markets. The
Economic and Monetary Union of the European Union requires member countries to
comply with restrictions on inflation rates, deficits, interest rates, debt
levels and fiscal and monetary controls, each of which may significantly affect
every country in Europe. Decreasing imports or exports, changes in governmental
or European Union regulations on trade, changes in the exchange rate of the
euro, the default or threat of default by a European Union member country on its
sovereign debt, and/or an economic recession in an European Union member country
may have a significant adverse effect on the economies of other European Union
countries and on major trading partners outside Europe. If any member country
exits the Economic and Monetary Union, the departing country would face the
risks of currency devaluation and its trading partners and banks and others
around the world that hold the departing country’s debt would face the risk of
significant losses. The European financial markets have previously experienced,
and may continue to experience, volatility and have been adversely affected, and
may in the future be affected, by concerns about economic downturns, credit
rating downgrades, rising government debt levels and possible default on or
restructuring of government debt in several European countries. These events
have adversely affected, and may in the future affect, the value and exchange
rate of the euro and may continue to significantly affect the economies of every
country in Europe, including European Union member countries that do not use the
euro and non-European Union member countries. In a referendum held on June 23,
2016, voters in the United Kingdom voted to leave the European Union, creating
economic and political uncertainty in its wake. On January 31,
2020,
the United Kingdom officially withdrew from the European Union and the United
Kingdom entered a transition period which ended on December 31, 2020. On
December 30, 2020, the European Union and United Kingdom signed the EU-UK Trade
and Cooperation Agreement, an agreement on the terms governing certain aspects
of the European Union’s and the United Kingdom’s relationship following the end
of the transition period. Notwithstanding the EU-UK Trade and Cooperation
Agreement, following the transition period, there is likely to be considerable
uncertainty as to the United Kingdom’s post-transition framework.
Depositary Receipts
Risk.
The Fund may invest in depositary receipts (including American Depositary
Receipts), which involve similar risks to those associated with investments in
foreign securities. Depositary receipts are receipts listed on U.S. or foreign
exchanges issued by banks or trust companies that entitle the holder to all
dividends and capital gains that are paid out on the underlying foreign shares.
The issuers of certain depositary receipts are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities. Investments
in depositary receipts may be less liquid than the underlying shares in their
primary trading market. The issuers of depositary receipts may discontinue
issuing new depositary receipts and withdraw existing depositary receipts at any
time, which may result in costs and delays in the distribution of the underlying
assets to the Fund and may negatively impact the Fund’s
performance.
Small-
and Medium-Capitalization Companies Risk.
The Fund may invest in small- and medium-capitalization companies and, therefore
will be subject to certain risks associated with small- and medium-
capitalization companies. These companies are often subject to less analyst
coverage and may be in early and less predictable periods of their corporate
existences, with little or no record of profitability. In addition, these
companies often have greater price volatility, lower trading volume and less
liquidity than larger more established companies. These companies tend to have
smaller revenues, narrower product lines, less management depth and experience,
smaller shares of their product or service markets, fewer financial resources
and less competitive strength than large-capitalization companies. Returns on
investments in securities of small- and medium-capitalization companies could
trail the returns on investments in securities of larger companies.
Cash
Transactions Risk.
Unlike other ETFs, the Fund expects to effect its creations and redemptions at
least partially for cash, rather than wholly for in-kind securities. Therefore,
it may be required to sell portfolio securities and subsequently incur brokerage
costs and/or recognize gains or losses on such sales that the Fund might not
have recognized if it were to distribute portfolio securities in kind. As such,
investments in Shares may be less tax-efficient than an investment in a
conventional ETF. Transaction costs, including brokerage costs, will decrease
the Fund’s net asset value to the extent not offset by the transaction fee
payable by an Authorized Participant.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including 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 system failures.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (to the extent the Fund effects creations and redemptions in
cash) raising cash to meet redemptions or deploying cash in connection with
newly created Creation Units. Transaction costs, including brokerage costs, will
decrease the Fund’s net asset value to the extent not offset by the transaction
fee payable by an Authorized Participant.
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 Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in
them
in the exact proportions in which they are represented in the Index. The Fund’s
performance may also deviate from the return of the Index for various reasons,
including legal restrictions or limitations imposed by the governments of
certain countries, certain exchange listing standards, a lack of liquidity in
markets in which such securities trade, potential adverse tax consequences or
other regulatory reasons (such as diversification requirements). To the extent
the Fund utilizes depositary receipts, the purchase of depositary receipts may
negatively affect the Fund’s ability to track the performance of the Index and
increase tracking error, which may be exacerbated if the issuer of the
depositary receipt discontinues issuing new depositary receipts or withdraws
existing depositary receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to changes to the Index and high turnover of the Index.
When markets are volatile, the ability to sell securities at fair value prices
may be adversely impacted and may result in additional trading costs and/or
increase the index tracking risk. The Fund may also need to rely on borrowings
to meet redemptions, which may lead to increased expenses. For tax efficiency
purposes, the Fund may sell certain securities, and such sale may cause the Fund
to realize a loss and deviate from the performance of the Index. In light of the
factors discussed above, the Fund’s return may deviate significantly from the
return of the Index. Changes to the composition of the Index in connection with
a rebalancing or reconstitution of the Index may cause the Fund to experience
increased volatility, during which time the Fund’s index tracking risk may be
heightened.
Authorized
Participant Concentration Risk. The
Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk.
There can be no assurance that an active trading market for the Shares will
develop or be maintained, as applicable. Further, secondary markets may be
subject to irregular trading activity, wide bid/ask spreads and extended trade
settlement periods in times of market stress because market makers and
Authorized Participants may step away from making a market in the Shares and in
executing creation and redemption orders, which could cause a material deviation
in the Fund’s market price from its net asset value.
Trading
Issues Risk.
Trading in shares on the exchange may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in shares inadvisable.
In addition, trading in shares on the exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the relevant exchange’s
“circuit breaker” rules. If a trading halt or unanticipated early close of the
exchange occurs, a shareholder may be unable to purchase or sell Shares of the
Fund. There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from its Index, the Fund generally would
not sell a security because the security’s issuer is in financial trouble. If a
specific security is removed from the Fund’s Index, the Fund may be forced to
sell such security at an inopportune time or for prices other than at current
market values. An investment in the Fund involves risks similar to those of
investing in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares.
The market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time
when
the market price is at a discount to the net asset value, the shareholder may
pay significantly more or receive significantly less than the underlying value
of the Shares. The securities held by the Fund may be traded in markets that
close at a different time than the exchange on which the Shares are traded.
Liquidity in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Non-Diversified
Risk. The Fund is classified as a “non-diversified”
fund under the Investment Company Act of 1940. The Fund is subject to the risk
that it will be more volatile than a diversified fund because the Fund may
invest a relatively high percentage of its assets in a smaller number of issuers
or may invest a larger proportion of its assets in a single issuer. Moreover,
the gains and losses on a single investment may have a greater impact on the
Fund’s net asset value and may make the Fund more volatile than more diversified
funds. The Fund may be particularly vulnerable to this risk if its Index is
comprised of securities of a limited number of companies.
Industry
Concentration Risk.
The Fund’s assets are concentrated in an industry or group of industries. As
such, the Fund will be subject to the risk that economic, political or other
conditions that have a negative effect on such groups of industries may
negatively impact the Fund to a greater extent than if the Fund’s assets were
invested in a wider variety of groups of
industries.
PERFORMANCE
The bar chart that follows
shows how the Fund performed for the calendar years shown. The table below the
bar chart shows the Fund’s average annual returns (before and after taxes).
The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s benchmark index and a
broad measure of market performance. All returns assume
reinvestment of dividends and distributions. 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.vaneck.com.
Annual Total Returns (%)—Calendar
Years
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| Best
Quarter: |
29.22% |
2Q
2020 |
| Worst
Quarter: |
-38.32% |
1Q
2020 |
Average Annual Total Returns for the Periods
Ended December 31, 2022
The after-tax returns presented
in the table below are calculated using the highest historical individual
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 below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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Past
One Year |
Past
Five Years |
Past
Ten Years |
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|
VanEck Gaming ETF (return before
taxes) |
-12.63% |
-2.12% |
3.12% |
|
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VanEck Gaming ETF (return after taxes
on distributions) |
-12.72% |
-2.55% |
2.45% |
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VanEck Gaming ETF (return after taxes
on distributions and sale of Fund Shares) |
-7.41% |
-1.66% |
2.30% |
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MVIS®
Global
Gaming Index (reflects no deduction for
fees, expenses or taxes, except withholding
taxes) |
-12.13% |
-1.72% |
3.64% |
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S&P
500®
Index (reflects no deduction for fees, expenses or
taxes) |
-18.11% |
9.42% |
12.56% |
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See “License Agreements
and Disclaimers” for important information.
PORTFOLIO
MANAGEMENT
Investment
Adviser. Van
Eck Associates Corporation.
Portfolio
Manager.
The following individual is primarily responsible for the day-to-day management
of the Fund’s portfolio:
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Name |
Title
with Adviser |
Date
Began Managing the Fund |
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Peter
H. Liao |
Portfolio
Manager |
January
2008 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT OBJECTIVE
VanEck® Pharmaceutical ETF (the
“Fund”) seeks to replicate as closely as possible, before fees and expenses, the
price and yield performance of the MVIS®
US Listed Pharmaceutical 25 Index (the “Pharmaceutical Index” or the
“Index”).
FUND FEES AND EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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Management
Fee |
0.35 |
% |
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Other
Expenses(a) |
0.01 |
% |
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Total
Annual Fund Operating Expenses(a) |
0.36 |
% |
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(a) Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, except for the
fee payment under the investment management agreement, acquired fund fees and
expenses, interest expense, offering costs, trading expenses, taxes and
extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to
pay the offering costs until at least February 1,
2024.
EXPENSE EXAMPLE
This example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of the
Fund.
The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell or hold all of
your Shares at the end of those periods. The example also assumes that your
investment has a 5% annual return 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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YEAR |
EXPENSES |
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1 |
$37 |
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3 |
$116 |
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5 |
$202 |
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10 |
$456 |
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PORTFOLIO TURNOVER
The Fund will pay transaction
costs, such as commissions, when it purchases and sells securities (or “turns
over” its portfolio). A higher portfolio turnover will cause the Fund to incur
additional transaction costs and may result in higher taxes when Fund Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the example, may affect the Fund’s performance. During
the most recent fiscal year, the Fund’s portfolio turnover rate was
23% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The Fund normally invests at
least 80% of its total assets in securities that comprise the Fund’s benchmark
index. The Pharmaceutical Index includes common stocks and depositary receipts
of U.S. exchange-listed companies in the pharmaceutical industry. Such companies
may include medium-capitalization companies and foreign companies that are
listed on a U.S. exchange. To be initially eligible for the Pharmaceutical
Index, companies must generate at least 50% of their revenues from
pharmaceuticals. Pharmaceuticals include companies engaged primarily in research
(including research contractors) and development as well as production,
marketing and sales of pharmaceuticals (excluding pharmacies). Of the largest 50
stocks in the pharmaceutical industry by full market capitalization, the top 25
by free-float market capitalization (i.e., includes only shares that are readily
available for trading in the market) and three month average daily trading
volume are included in the Pharmaceutical Index. As of December 31, 2022, the
Pharmaceutical Index included 25 securities of companies with a market
capitalization
range of between approximately $2.2 billion and $461.8 billion and a weighted
average market capitalization of $164.8 billion. These amounts are subject to
change. The Fund’s 80% investment policy is non-fundamental and may be changed
without shareholder approval upon 60 days’ prior written notice to
shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Pharmaceutical Index by investing in a
portfolio of securities that generally replicates the Pharmaceutical Index.
Unlike many investment companies that try to “beat” the performance of a
benchmark index, the Fund does not try to “beat” the Pharmaceutical Index and
does not seek temporary defensive positions that are inconsistent with its
investment objective of seeking to replicate the Pharmaceutical
Index.
The
Fund is classified as a non-diversified fund under the Investment Company Act of
1940, as amended (the “Investment Company Act of 1940”) and, therefore, may
invest a greater percentage of its assets in a particular issuer. The Fund may concentrate its
investments in a particular industry or group of industries to the extent that
the Pharmaceutical Index concentrates in an industry or group of industries. As
of September 30, 2022, the pharmaceutical industry represented a significant
portion of the Fund.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Pharmaceutical
Industry Risk.
The success of companies in the pharmaceutical industry is highly dependent on
the development, procurement and marketing of drugs. The values of
pharmaceutical companies are also dependent on the development, protection and
exploitation of intellectual property rights and other proprietary information,
and the profitability of pharmaceutical companies may be significantly affected
by such things as the limited number of products, expiration of patents or the
loss of, or the inability to enforce, intellectual property rights. The research
and other costs associated with developing or procuring new drugs and the
related intellectual property rights can be significant, and the results of such
research and expenditures are unpredictable. In addition, pharmaceutical
companies may be susceptible to product obsolescence. Many pharmaceutical
companies face intense competition from new products and less costly generic
products. Moreover, the process for obtaining regulatory approval by the Food
and Drug Administration or other governmental regulatory authorities is long and
costly and there can be no assurance that the necessary approvals will be
obtained or maintained.
Companies
in the pharmaceutical industry may also be subject to expenses and losses from
extensive litigation based on intellectual property, product liability and
similar claims. Companies in the pharmaceutical industry may be adversely
affected by government regulation and changes in reimbursement rates. The
ability of many pharmaceutical companies to commercialize current and any future
products depends in part on the extent to which reimbursement for the cost of
such products and related treatments are available from third party payors, such
as Medicare, Medicaid and other government sponsored programs, private health
insurance plans and health maintenance organizations.
The
international operations of many pharmaceutical companies expose them to risks
associated with instability and changes in economic and political conditions,
foreign currency fluctuations, changes in foreign regulations and other risks
inherent to international business. Such companies also may be characterized by
thin capitalization and limited markets, financial resources or personnel, as
well as dependence on wholesale distributors. A pharmaceutical company’s
valuation can be adversely affected if one of its products proves unsafe,
ineffective or unprofitable. The stock prices of companies in the pharmaceutical
industry have been and will likely continue to be extremely volatile, in part
due to the prevalence of merger and acquisition activity in the pharmaceutical
industry. Some pharmaceutical companies are engaged in other lines of business
unrelated to pharmaceuticals, and they may experience problems with these lines
of business which could adversely affect their operating results. The operating
results of these companies may fluctuate as a result of these additional risks
and events in the other lines of business. In addition, a company’s ability to
engage in new activities may expose it to business risks with which it has less
experience than it has with the business risks associated with its traditional
businesses. Despite a company’s possible success in traditional pharmaceutical
activities, there can be no assurance that the other lines of business in which
these companies are engaged will not have an adverse effect on a company’s
business or financial condition.
Certain
companies in which the Fund may invest are non-U.S. issuers whose securities are
listed on U.S. exchanges. These securities involve risks beyond those associated
with investments in U.S. securities, including greater market volatility, higher
transactional costs, the possibility that the liquidity of such securities could
be impaired because of future political and/or economic developments, taxation
by foreign governments, political instability, the possibility that foreign
governmental restrictions may be adopted which might adversely affect such
securities and that the selection of such securities may be more difficult
because there may be less publicly available information concerning such
non-U.S. issuers or the accounting, auditing and financial reporting standards,
practices and requirements applicable to non-U.S. issuers may differ from those
applicable to U.S. issuers.
Equity Securities Risk. The
value of the equity securities held by the Fund may fall due to general market
and economic conditions, perceptions regarding the markets in which the issuers
of securities held by the Fund participate, or factors relating to specific
issuers in which the Fund invests. Equity securities are subordinated to
preferred securities and debt in a company’s capital structure with respect to
priority to a share of corporate income, and therefore will be subject to
greater dividend risk than preferred securities or debt instruments. In
addition, while broad market measures of equity securities have historically
generated higher average returns than fixed income securities, equity securities
have generally also experienced significantly more volatility in those
returns.
Depositary Receipts
Risk. The
Fund may invest in depositary receipts (including American Depositary Receipts),
which involve similar risks to those associated with investments in foreign
securities. Depositary receipts are receipts listed on U.S. or foreign exchanges
issued by banks or trust companies that entitle the holder to all dividends and
capital gains that are paid out on the underlying foreign shares. The issuers of
certain depositary receipts are under no obligation to distribute shareholder
communications to the holders of such receipts, or to pass through to them any
voting rights with respect to the deposited securities. Investments in
depositary receipts may be less liquid than the underlying shares in their
primary trading market. The issuers of depositary receipts may discontinue
issuing new depositary receipts and withdraw existing depositary receipts at any
time, which may result in costs and delays in the distribution of the underlying
assets to the Fund and may negatively impact the Fund’s
performance.
Special
Risk Considerations of Investing in European Issuers. Investments
in securities of European issuers involve risks and special considerations not
typically associated with investments in the U.S. securities markets. The
Economic and Monetary Union of the European Union requires member countries to
comply with restrictions on inflation rates, deficits, interest rates, debt
levels and fiscal and monetary controls, each of which may significantly affect
every country in Europe. Decreasing imports or exports, changes in governmental
or European Union regulations on trade, changes in the exchange rate of the
euro, the default or threat of default by a European Union member country on its
sovereign debt, and/or an economic recession in an European Union member country
may have a significant adverse effect on the economies of other European Union
countries and on major trading partners outside Europe. If any member country
exits the Economic and Monetary Union, the departing country would face the
risks of currency devaluation and its trading partners and banks and others
around the world that hold the departing country’s debt would face the risk of
significant losses. The European financial markets have previously experienced,
and may continue to experience, volatility and have been adversely affected, and
may in the future be affected, by concerns about economic downturns, credit
rating downgrades, rising government debt levels and possible default on or
restructuring of government debt in several European countries. These events
have adversely affected, and may in the future affect, the value and exchange
rate of the euro and may continue to significantly affect the economies of every
country in Europe, including European Union member countries that do not use the
euro and non-European Union member countries. In a referendum held on June 23,
2016, voters in the United Kingdom voted to leave the European Union, creating
economic and political uncertainty in its wake. On January 31, 2020, the United
Kingdom officially withdrew from the European Union and the United Kingdom
entered a transition period which ended on December 31, 2020. On December 30,
2020, the European Union and United Kingdom signed the EU-UK Trade and
Cooperation Agreement, an agreement on the terms governing certain aspects of
the European Union’s and the United Kingdom’s relationship following the end of
the transition period. Notwithstanding the EU-UK Trade and Cooperation
Agreement, following the transition period, there is likely to be considerable
uncertainty as to the United Kingdom’s post-transition framework.
Special
Risk Considerations of Investing in United Kingdom Issuers. Investments
in securities of United Kingdom issuers, including issuers located outside of
the United Kingdom that generate significant revenues from the United Kingdom,
involve risks and special considerations not typically associated with
investments in the U.S. securities markets. Investments in United Kingdom
issuers may subject the Fund to regulatory, political, currency, security and
economic risks specific to the United Kingdom. The British economy relies
heavily on the export of financials to the United States and other European
countries. The British economy, along with the United States and certain other
European Union economies, experienced a significant economic slowdown during the
recent financial crisis. In a referendum held on June 23, 2016, voters in the
United Kingdom voted to leave the European Union, creating economic and
political uncertainty in its wake. On January 31, 2020, the United Kingdom
officially withdrew from the European Union. On December 30, 2020, the European
Union and United Kingdom signed the EU-UK Trade and Cooperation Agreement, an
agreement on the terms governing certain aspects of the European Union’s and the
United Kingdom’s relationship following the end of the transition period.
Notwithstanding the EU-UK Trade and Cooperation Agreement, following the
transition period, there is likely to be considerable uncertainty as to the
United Kingdom’s post-transition framework.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s
investments.
Foreign Currency Risk.
The
Fund’s exposure to foreign currencies and changes in the value of foreign
currencies versus the U.S. dollar may result in reduced returns for the Fund,
and the value of certain foreign currencies may be subject to a high degree of
fluctuation. The Fund may also incur costs in connection with conversions
between U.S. dollars and foreign currencies.
Small-
and Medium-Capitalization Companies Risk.
The Fund may invest in small- and medium-capitalization companies and, therefore
will be subject to certain risks associated with small- and medium-
capitalization companies. These companies are often subject to less analyst
coverage and may be in early and less predictable periods of their corporate
existences, with little or no record of profitability. In addition, these
companies often have greater price volatility, lower trading volume and less
liquidity than larger more established companies. These companies tend to have
smaller revenues, narrower product lines, less management depth and experience,
smaller shares of their product or service markets, fewer financial resources
and less competitive strength than large-capitalization companies. Returns on
investments in securities of small- and medium-capitalization companies could
trail the returns on investments in securities of larger companies.
Issuer-Specific
Changes Risk. The
value of individual securities in the Fund’s portfolio can be more volatile than
the market as a whole and can perform differently from the value of the market
as a whole, which may have a greater impact if the Fund’s portfolio is
concentrated in a country, region, market, industry, sector or asset class. A
change in the financial condition, market perception or the credit rating of an
issuer of securities included in the Fund’s Index may cause the value of its
securities to decline.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including 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 system failures.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (to the extent the Fund effects creations and redemptions in
cash) raising cash to meet redemptions or deploying cash in connection with
newly created Creation Units. Transaction costs, including brokerage costs, will
decrease the Fund’s net asset value to the extent not offset by the transaction
fee payable by an Authorized Participant.
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 Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards, a lack of liquidity in markets in which such securities
trade, potential adverse tax consequences or other regulatory reasons (such as
diversification requirements). To the extent the Fund utilizes depositary
receipts, the purchase of depositary receipts may negatively affect the Fund’s
ability to track the performance of the Index and increase tracking error, which
may be exacerbated if the issuer of the depositary receipt discontinues issuing
new depositary receipts or withdraws existing depositary receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to changes to the Index and high turnover of the Index.
When markets are volatile, the ability to sell securities at fair value prices
may be adversely impacted and may result in additional trading costs and/or
increase the index tracking risk. The Fund may also need to rely on borrowings
to meet redemptions, which may lead to increased expenses. For tax efficiency
purposes, the Fund may sell certain securities, and such sale may cause the Fund
to realize a loss and deviate from the performance of the Index. In light of the
factors
discussed above, the Fund’s return may deviate significantly from the return of
the Index. Changes to the composition of the Index in connection with a
rebalancing or reconstitution of the Index may cause the Fund to experience
increased volatility, during which time the Fund’s index tracking risk may be
heightened.
Authorized
Participant Concentration Risk. The
Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk.
There can be no assurance that an active trading market for the Shares will
develop or be maintained, as applicable. Further, secondary markets may be
subject to irregular trading activity, wide bid/ask spreads and extended trade
settlement periods in times of market stress because market makers and
Authorized Participants may step away from making a market in the Shares and in
executing creation and redemption orders, which could cause a material deviation
in the Fund’s market price from its net asset value.
Trading
Issues Risk.
Trading in shares on the exchange may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in shares inadvisable.
In addition, trading in shares on the exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the relevant exchange’s
“circuit breaker” rules. If a trading halt or unanticipated early close of the
exchange occurs, a shareholder may be unable to purchase or sell Shares of the
Fund. There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk. Unlike
many investment companies, the Fund is not “actively” managed. Therefore, unless
a specific security is removed from its Index, the Fund generally would not sell
a security because the security’s issuer is in financial trouble. If a specific
security is removed from the Fund’s Index, the Fund may be forced to sell such
security at an inopportune time or for prices other than at current market
values. An investment in the Fund involves risks similar to those of investing
in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares.
The market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Non-Diversified
Risk. The Fund is classified as a “non-diversified”
fund under the Investment Company Act of 1940. The Fund is subject to the risk
that it will be more volatile than a diversified fund because the Fund may
invest a relatively high percentage of its assets in a smaller number of issuers
or may invest a larger proportion of its assets in a single issuer. Moreover,
the gains and losses on a single investment may have a greater impact on the
Fund’s net asset value and may make the Fund more volatile than more diversified
funds. The Fund may be particularly vulnerable to this risk if its Index is
comprised of securities of a limited number of
companies.
Industry
Concentration Risk. The
Fund’s assets are concentrated in an industry or group of industries. As such,
the Fund will be subject to the risk that economic, political or other
conditions that have a negative effect on such groups of industries may
negatively impact the Fund to a greater extent than if the Fund’s assets were
invested in a wider variety of groups of
industries.
PERFORMANCE
The bar chart that follows
shows how the Fund performed for the calendar years shown. The table below the
bar chart shows the Fund’s average annual returns (before and after taxes).
The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s benchmark index and a
broad measure of market performance. All returns assume
reinvestment of dividends and distributions. 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.vaneck.com.
Annual Total Returns (%)—Calendar
Years
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| Best
Quarter: |
16.46% |
4Q
2022 |
| Worst
Quarter: |
-15.01% |
1Q
2020 |
Average Annual Total Returns for the Periods
Ended December 31, 2022
The after-tax returns presented
in the table below are calculated using the highest historical individual
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 below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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Past
One Year |
Past
Five Years |
Past
Ten Years |
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VanEck Pharmaceutical ETF (return
before taxes) |
2.64% |
7.50% |
8.99% |
|
|
VanEck Pharmaceutical ETF (return after
taxes on distributions) |
2.26% |
7.03% |
8.48% |
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VanEck Pharmaceutical ETF (return after
taxes on distributions and sale of Fund Shares) |
1.82% |
5.82% |
7.25% |
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MVIS®
US
Listed Pharmaceutical 25 Index (reflects no deduction for
fees, expenses or taxes, except withholding
taxes) |
2.54% |
7.24% |
8.89% |
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S&P
500®
Index (reflects no deduction for fees, expenses or
taxes) |
-18.11% |
9.42% |
12.56% |
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See “License Agreements
and Disclaimers” for important information.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van
Eck Associates Corporation.
Portfolio
Manager.
The following individual is primarily responsible for the day-to-day management
of the Fund’s portfolio:
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Name |
Title
with Adviser |
Date
Began Managing the Fund |
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Peter
H. Liao |
Portfolio
Manager |
December
2011 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT OBJECTIVE
VanEck® Retail ETF (the “Fund”)
seeks to replicate as closely as possible, before fees and expenses, the price
and yield performance of the MVIS®
US Listed Retail 25 Index (the “Retail Index” or the
“Index”).
FUND FEES AND EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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Management
Fee |
0.35 |
% |
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Other
Expenses(a) |
0.00 |
% |
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Total
Annual Fund Operating Expenses(a) |
0.35 |
% |
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a) Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, except for the
fee payment under the investment management agreement, acquired fund fees and
expenses, interest expense, offering costs, trading expenses, taxes and
extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to
pay the offering costs until at least February 1,
2024.
EXPENSE EXAMPLE
This example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. This example does not take into account brokerage
commissions that you pay when purchasing or selling Shares of the
Fund.
The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell or hold all of
your Shares at the end of those periods. The example also assumes that your
investment has a 5% annual return 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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YEAR |
EXPENSES |
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1 |
$36 |
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3 |
$113 |
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5 |
$197 |
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10 |
$443 |
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PORTFOLIO TURNOVER
The Fund will pay transaction
costs, such as commissions, when it purchases and sells securities (or “turns
over” its portfolio). A higher portfolio turnover will cause the Fund to incur
additional transaction costs and may result in higher taxes when Fund Shares are
held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the example, may affect the Fund’s performance. During
the most recent fiscal year, the Fund’s portfolio turnover rate was
14% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund normally invests at least 80% of its total assets in securities that
comprise the Fund’s benchmark index. To be initially eligible for the Retail
Index, companies must generate at least 50% of their revenues from retail.
Retail includes companies engaged primarily in retail distribution; wholesalers;
online, direct mail and TV retailers; multi-line retailers; specialty retailers,
such as apparel, automotive, computer and electronics, drug, home improvement
and home furnishing retailers; and food and other staples retailers. Of the
largest 50 stocks in the retail industry by full market capitalization, the top
25 by free-float market capitalization (i.e.,
includes only shares that are readily available for trading in the market) and
three month average daily trading volume are included in the Retail Index. Such
companies may include foreign companies that are listed on a U.S. exchange. As
of December 31, 2022, the Retail Index included 25 securities of companies with
a market capitalization range of between approximately $2.6 billion and $856.9
billion and a weighted average market capitalization of $268.8 billion. These
amounts are
subject
to change. The Fund’s 80% investment policy is non-fundamental and may be
changed without shareholder approval upon 60 days’ prior written notice to
shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Retail Index by investing in a portfolio of
securities that generally replicates the Retail Index. Unlike many investment
companies that try to “beat” the performance of a benchmark index, the Fund does
not try to “beat” the Retail Index and does not seek temporary defensive
positions that are inconsistent with its investment objective of seeking to
replicate the Retail Index.
The
Fund is classified as a non-diversified fund under the Investment Company Act of
1940, as amended (the “Investment Company Act of 1940”) and, therefore, may
invest a greater percentage of its assets in a particular issuer. The Fund may concentrate its
investments in a particular industry or group of industries to the extent that
the Retail Index concentrates in an industry or group of industries. As of
September 30, 2022, each of the consumer discretionary, consumer staples and
health care sectors represented a significant portion of the
Fund.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is not a deposit with a bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Retail
Companies Risk. Companies
involved in retail may be affected by the performance of the domestic and
international economy, interest rates, rates of inflation, exchange rates,
competition, consumer confidence and reputational damage. The success of
companies involved in retail depends heavily on disposable household income and
consumer spending, and changes in demographics and consumer preferences can
affect the success of retail companies. Certain retail companies have
historically been subject to significant seasonal and quarterly variations. The
success of retail companies may be strongly affected by fads, marketing
campaigns and other factors affecting supply and demand and a retail company’s
success can be tied to its ability to anticipate changing consumer tastes. These
companies may be subject to severe competition, which may have an adverse impact
on their profitability.
Certain
business segments of retail companies are highly cyclical, which may cause the
operating results of such retail companies to vary significantly. Retail
companies may be dependent on outside financing, which may be difficult to
obtain. Many of these companies are dependent on third party suppliers and
distribution systems and purchase merchandise both directly from brand owners
and indirectly from retailers and third party suppliers. Such companies may also
be dependent upon suppliers for the products used for their own brand name
merchandise. Reliance on third party suppliers subjects retail companies to
risks of delivery delays, price increases and receipt of nonconforming or poor
quality merchandise. Retail companies may be unable to protect their
intellectual property rights and may be liable for infringing the intellectual
property rights of others. Changes in labor laws and other labor issues, such as
increased labor costs, could adversely affect the financial performance of
retail companies. If retail companies do not maintain the security of
customer-related information, they could damage their reputations with
customers, incur substantial costs and become subject to litigation, all of
which could adversely affect the financial performance of such companies. The
international operations of certain retail companies expose them to risks
associated with instability and changes in economic and political conditions,
foreign currency fluctuations, changes in foreign regulations, tariffs and trade
disputes and other risks inherent to international business. Some of the
companies in the Retail Index are engaged in other lines of business unrelated
to retail, and they may experience problems with these lines of business which
could adversely affect their operating results. The operating results of these
companies may fluctuate as a result of these additional risks and events in the
other lines of business. In addition, a company’s ability to engage in new
activities may expose it to business risks with which it has less experience
than it has with the business risks associated with its traditional businesses.
Despite a company’s possible success in traditional retail activities, the other
lines of business in which these companies are engaged may have an adverse
effect on a company’s business or financial condition.
Retail
companies may also be exposed to online retail risk. Companies that operate in
the online marketplace are subject to fluctuating consumer demand. Unlike
traditional brick and mortar retailers, online marketplaces and retailers must
assume shipping costs or pass such costs to consumers. Consumer access to price
information for the same or similar products may cause companies that operate in
the online marketplace to reduce profit margins in order to compete. Due to the
nature of their business models, companies that operate in the online
marketplace may also be subject to heightened cybersecurity risk, including the
risk of theft or damage to vital hardware, software and information systems. The
loss or public dissemination of sensitive customer information or other
proprietary data may negatively affect the financial performance of such
companies to a greater extent than traditional brick and mortar retailers. As a
result of such companies being web-based and the fact that they process, store
and transmit large amounts of data, including personal information, for their
customers, failure to prevent or mitigate data loss or other security breaches,
including breaches of vendors’ technology and systems, could expose companies
that operate in the online marketplace or their customers to a risk of loss or
misuse of such information, adversely affect their operating results, result in
litigation or potential liability and otherwise harm their
businesses.
Certain
companies in which the Fund may invest are non-U.S. issuers whose securities are
listed on U.S. exchanges. These securities involve risks beyond those associated
with investments in U.S. securities, including greater market volatility, higher
transactional costs, the possibility that the liquidity of such securities could
be impaired because of future political and/or economic developments, taxation
by foreign governments, political instability, the possibility that foreign
governmental restrictions may be adopted which might adversely affect such
securities and that the selection of such securities may be more difficult
because there may be less publicly available information concerning such
non-U.S. issuers or the accounting, auditing and financial reporting standards,
practices and requirements applicable to non-U.S. issuers may differ from those
applicable to U.S. issuers.
Equity Securities Risk. The
value of the equity securities held by the Fund may fall due to general market
and economic conditions, perceptions regarding the markets in which the issuers
of securities held by the Fund participate, or factors relating to specific
issuers in which the Fund invests. Equity securities are subordinated to
preferred securities and debt in a company’s capital structure with respect to
priority to a share of corporate income, and therefore will be subject to
greater dividend risk than preferred securities or debt instruments. In
addition, while broad market measures of equity securities have historically
generated higher average returns than fixed income securities, equity securities
have generally also experienced significantly more volatility in those
returns.
Consumer Discretionary Sector
Risk.
The consumer discretionary sector comprises companies whose
businesses are sensitive to economic cycles, such as manufacturers of high-end
apparel and automobile and leisure companies. Companies in
the consumer discretionary sector are subject to
fluctuations in supply and demand. These companies may also be adversely
affected by changes in consumer spending as a result of world events, political
and economic conditions, commodity price volatility, changes in exchange rates,
imposition of import controls, increased competition, depletion of resources and
labor relations.
Consumer Staples Sector
Risk. The consumer staples sector comprises
companies whose businesses are less sensitive to economic cycles, such as
manufacturers and distributors of food and beverages and producers of
non-durable household goods and personal products. Companies in
the consumer staples sector may be adversely affected by
changes in the worldwide economy, consumer spending, competition, demographics
and consumer preferences, exploration and production spending. Companies in this
sector are also affected by changes in government regulation, world events and
economic conditions.
Health
Care Sector Risk.
Companies in the health care sector may be affected by extensive government
regulation, restrictions on government reimbursement for medical expenses,
rising costs of medical products and services, pricing pressure, an increased
emphasis on outpatient services, limited number of products, industry
innovation, changes in technologies and other market developments. Many health
care companies are heavily dependent on patent protection. The expiration of
patents may adversely affect the profitability of these companies. Many health
care companies are subject to extensive litigation based on product liability
and similar claims.
Depositary Receipts
Risk. The
Fund may invest in depositary receipts (including American Depositary Receipts),
which involve similar risks to those associated with investments in foreign
securities. Depositary receipts are receipts listed on U.S. or foreign exchanges
issued by banks or trust companies that entitle the holder to all dividends and
capital gains that are paid out on the underlying foreign shares. The issuers of
certain depositary receipts are under no obligation to distribute shareholder
communications to the holders of such receipts, or to pass through to them any
voting rights with respect to the deposited securities. Investments in
depositary receipts may be less liquid than the underlying shares in their
primary trading market. The issuers of depositary receipts may discontinue
issuing new depositary receipts and withdraw existing depositary receipts at any
time, which may result in costs and delays in the distribution of the underlying
assets to the Fund and may negatively impact the Fund’s
performance.
Medium-Capitalization
Companies Risk.
Medium-capitalization companies may be more volatile and more likely than
large-capitalization companies to have narrower product lines, fewer financial
resources, less management depth and experience and less competitive strength.
In addition, these companies often have greater price volatility, lower trading
volume and less liquidity than larger more established companies. Returns on
investments in securities of medium-capitalization companies could trail the
returns on investments in securities of large-capitalization
companies.
Issuer-Specific
Changes Risk.
The value of individual securities in the Fund’s portfolio can be more volatile
than the market as a whole and can perform differently from the value of the
market as a whole, which may have a greater impact if the Fund’s portfolio is
concentrated in a country, region, market, industry, sector or asset class. A
change in the financial condition, market perception or the credit rating of an
issuer of securities included in the Fund’s Index may cause the value of its
securities to decline.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including 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 system failures.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (to the extent the Fund effects creations and redemptions in
cash) raising cash to meet redemptions or deploying cash in connection with
newly created Creation Units. Transaction costs, including brokerage costs, will
decrease the Fund’s net asset value to the extent not offset by the transaction
fee payable by an Authorized Participant.
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 Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards, a lack of liquidity in markets in which such securities
trade, potential adverse tax consequences or other regulatory reasons (such as
diversification requirements). To the extent the Fund utilizes depositary
receipts, the purchase of depositary receipts may negatively affect the Fund’s
ability to track the performance of the Index and increase tracking error, which
may be exacerbated if the issuer of the depositary receipt discontinues issuing
new depositary receipts or withdraws existing depositary receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to changes to the Index and high turnover of the Index.
When markets are volatile, the ability to sell securities at fair value prices
may be adversely impacted and may result in additional trading costs and/or
increase the index tracking risk. The Fund may also need to rely on borrowings
to meet redemptions, which may lead to increased expenses. For tax efficiency
purposes, the Fund may sell certain securities, and such sale may cause the Fund
to realize a loss and deviate from the performance of the Index. In light of the
factors discussed above, the Fund’s return may deviate significantly from the
return of the Index. Changes to the composition of the Index in connection with
a rebalancing or reconstitution of the Index may cause the Fund to experience
increased volatility, during which time the Fund’s index tracking risk may be
heightened.
Authorized
Participant Concentration Risk. The
Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cas
