The Advisors’ Inner Circle Fund III

 

Rayliant Quantamental China Equity ETF

Rayliant Quantamental Emerging Market Equity ETF

Rayliant Quantitative Developed Market Equity ETF

 

ANNUAL REPORT

SEPTEMBER 30, 2023

 

Investment Adviser:

Rayliant Asset Management

 

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

TABLE OF CONTENTS

Letter to Shareholders

1

Schedules of Investments

14

Statements of Assets and Liabilities

31

Statements of Operations

32

Statements of Changes in Net Assets

33

Financial Highlights

36

Notes to Financial Statements

39

Report of Independent Registered Public Accounting Firm

59

Trustees and Officers of the Advisors’ Inner Circle Fund III

62

Disclosure of Fund Expenses

70

Notice to Shareholders

72

 

The Funds file their complete schedules of investments with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Funds’ Form N-PORT reports are available on the SEC’s website at http://www.sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to fund securities, as well as information relating to how the Funds voted proxies relating to fund securities during the most recent 12-month period ended June 30, is available (i) without charge, upon request, by calling 1- 866-392-2626; and (ii) on the SEC’s website at http://www.sec.gov.

 

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

CHINA EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

Letter to Shareholders

 

Dear Shareholders,

 

We are pleased to provide the third annual report for the Rayliant Quantamental China Equity Fund, covering the period October 1, 2022 to September 30, 2023.

 

In 2023, the A share market experienced notable fluctuations, initially trending upward on the back of anticipated domestic economic revival and supportive fiscal policies extending from the end of 2022. Despite a decent performance in the first quarter, however, the market reversed course in the second and third quarters due to uncertainties in the global economic environment and less favorable adjustments in domestic macroeconomic policies.

 

Two years ago, China's economy, historically driven by a robust housing boom, faced a crisis as the government attempted to deleverage its property sector by imposing restrictions on developers' borrowing. Since then, real estate, which once accounted for up to 30% of the economy, has witnessed a significant downturn, with property investments declining and no full bailout in sight from Beijing. This ongoing property slump poses a substantial threat to China's growth prospects for the next few years, requiring a slow and challenging adjustment period to align housing supply with reduced demand due to an aging population.

 

Despite a roughly 17% decline in China's domestic stock market from January 1, 2023 to September 30, 2023, the country has witnessed its IPO market emerge as the largest globally in terms of capital raised, totaling $41 billion, which is more than double the amount raised in the United States. Notably, these new listings have concentrated in sectors deemed strategically significant by President Xi and the Communist party, such as electric vehicles and the semiconductor industry. This signals a deliberate shift in the direction of the Chinese economy this cycle relative to past experience, coinciding with a pronounced exodus of foreign investors from the country over the past two years.

 

Entering the fourth quarter, while mainland sentiment—toward both the stock market and the domestic economy—has been near rock bottom, we finally see signs of improvement. First, we note that third-quarter GDP surpassing expectations at 4.9% year-over-year, as robust consumer spending managed to more than offset weak investment and real estate performance. On the policy front, support for manufacturing and infrastructure projects was beginning to show up in China’s growth numbers, and approval at the start of Q4 for an additional issuance of CNY 1 trillion in central government bonds suggests policy support will continue into next year. Beijing, in our view, has finally recognized that mere promises of stimulus to come wouldn’t do the job of rekindling consumers’ and companies’ confidence, and we believe continued fiscal support will deliver positive surprises through the end of this year and into 2024.

 

1

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

CHINA EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

Simultaneously, with respect to international relations—another area giving investors anxiety over the last year—China and the U.S. have rekindled high-level discussions, culminating in Presidents Biden and Xi meeting during the APEC summit in November. We hope these discussions will serve to minimize tensions and ensure dialogue continues between the world number one and two economic powers, as there really is no way for either to function without the other, with plenty of opportunity for win-win, if a more stable ‘coop-etition’ can be reached between the two sides.

 

Amidst a challenging landscape in 2023, the Fund’s core strategy aimed to identify high-quality companies and leverage market mispricings driven by behavioral biases in China’s retail-centric market. Given macro headwinds that confounded a number of the strategy’s core factors, the past year witnessed underperformance, mostly arising from weak stock selections across sectors spanning Industrials, IT, Materials, Health Care, and Information Technology. The benchmark CSI 300 Index experienced a -3.40% decline by the fiscal year ending September 30, 2023, whereas the Fund fell by -17.64%, trailing the benchmark. While some positive contribution came from allocation effects, like overweight positions in IT and underweight Real Estate, factor-level performance was weaker. Stocks emphasizing strong fundamentals suffered amidst a sentiment-driven market, with value stocks consistently outperforming.

 

Although the alpha opportunity in China is compelling, we expect periods in which market irrationality persists for months at a time. We believe 2023’s market turbulence, while frustrating in the short run, create mispricings that ultimately reward investors in high-quality firms whose valuations are misunderstood by domestic retail traders and foreign fund managers who lack local knowledge. As such, we remain steadfast in our fundamental approach, with high conviction that ongoing market turbulence and macroeconomic uncertainties will eventually give way to favorable outcomes as policy shifts reflect in companies' financials and market conditions stabilize. We thank you for your allocation to the Fund and look forward to continuing as your trusted partner in China equity investing.

 

Sincerely,

 

Jason Hsu, PhD

Chairman & CIO

Rayliant Global Advisors

Phillip Wool, PhD

Managing Director

Head of Investment Solutions
Rayliant Global Advisors

 

Mark Schlarbaum

Managing Director

Head of Trading & Capital Markets

Rayliant Global Advisors

2

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

CHINA EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

Definition of the Comparative Index

 

CSI 300 Index is a capitalization-weighted index designed to track the performance of the largest 300 stocks traded on the Shanghai and Shenzhen Stock Exchanges.

 

Comparison of Change in the Value of a $10,000 Investment in the Rayliant Quantamental China Equity ETF versus the CSI 300 Index (USD) (TR).

 

AVERAGE ANNUAL TOTAL RETURN FOR

THE YEAR ENDED SEPTEMBER 30, 2023

 

One Year

Return

Annualized to

Inception Date*

Rayliant Quantamental China Equity ETF

-17.64%

-17.38%

CSI 300 Index (USD) (TR)

-3.40%

-12.76%

 

 

* The Rayliant Quantamental China Equity ETF commenced operations on December 30, 2020.

 

Fee waivers were in effect during the period; if they had not been in effect, performance would have been lower.

 

The performance data quoted herein represents past performance and the return and value of an investment in the Fund will fluctuate so that, when redeemed, may be worth less than its original cost.

 

3

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

CHINA EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

The Fund’s performance assumes the reinvestment of dividends and capital gains. Index returns assume reinvestment of dividends and, unlike a fund’s returns, do not reflect any fees or expenses. If such fees and expenses were included in the index returns, the performance would have been lower.

 

Please note that one cannot invest directly in an unmanaged index.

 

There are no assurances that the Fund will meet its stated objectives.

 

The Fund’s holdings and allocations are subject to change because it is actively managed and should not be considered recommendations to buy individual securities.

 

Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

See definition of comparative index on page 3.

 

4

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

Letter to Shareholders

 

Dear Shareholders,

 

We are pleased to provide the second annual report for the Rayliant Quantamental Emerging Market Equity Fund, covering the period from October 1, 2022 to September 30, 2023.

 

In 2023, Emerging Market equities faced a bumpy ride marked by significant challenges, as the asset class grappled with uncertainties and macroeconomic setbacks that weighed on investors’ nerves. The third quarter was particularly difficult, with Emerging Market equities suffering a -2.9% decline, bringing year-to-date returns to a modest 1.8%. One of the key headwinds facing global emerging markets in 2023 was China’s faltering economic recovery, pushing the market off its January highs by nearly a quarter of its value by the end of Q3. Chinese stocks had been riding high going into the beginning of the year, as policymakers shifted gears, rapidly moving away from the much-maligned ‘zero-COVID’ strategy to reopen its economy. Unfortunately, business and consumer confidence was slow to recover, and Beijing was slow to enact large fiscal stimulus, leading the market to weaken by late in the year.

 

More broadly, Emerging Market equities witnessed turbulence in 2023 arising from uncertainties surrounding a range of issues, from global monetary policy to geopolitical tensions, with worries that central bankers and international conflict would combine to dampen growth, disproportionately affecting emerging economies. These factors led to a highly volatile environment, adding to investors’ burden navigating an always-complex Emerging Market landscape. Beginning late in the third quarter, a sudden surge in Treasury yields punctuated the headwind facing many emerging markets, as rising US rates and a strengthening US dollar made things that much harder for developing economies, which tend to be especially sensitive to Fed policy and FX effects.

 

Yet, despite the recent increase in risk aversion among Emerging Market investors, we agree with a growing set of market observers who see positive signs in the outlook for emerging market equities going into 2024 and beyond. For one thing, Emerging Market stocks sold off long before developed markets did as the Fed began its aggressive campaign of rate hikes. That has created very compelling valuations across Emerging Markets, especially when compared to growth stocks in developed markets, which appear increasingly stretched. Likewise, central banks in emerging economies were faster to raise rates themselves and many got a firmer handle on inflation, putting them in a position to ease now and in the year ahead. We are also encouraged by the intrinsic growth in countries that hold key positions within innovative sectors and tech supply chains, as well as markets with growing and increasingly wealthy populations moving toward stronger domestic consumption—all of which creates opportunity for Emerging

 

5

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

Market equity investors. Attractive valuations and strong growth represent a rare combination, and we think that bodes well for emerging markets going forward.

 

As for the past year, the fund managed to outperform its benchmark by 2.02%, with a total return of 13.72% compared to 11.70% for the MSCI Emerging Markets Index. The fund’s outperformance relative to its benchmark over this period was principally a result of positive selection effects, with stock picks within Taiwan, Saudi Arabia, and India, as well as within the Information Technology sector and among Communication Services, yielding the best performance. Selections were weakest among Energy stocks, and within South Africa and South Korea, where fundamental stock picking has been particularly challenging throughout 2023. Allocation effects were once again a positive in 2023, with an overweight to Energy—a sector which benefited from rising oil prices over the last year—and underweight to Consumer Discretionary providing the biggest boost to relative performance. At the factor level, the portfolio’s tilt toward stocks with positive sentiment was by far the biggest winner, while stocks featuring lower levels of risk and those with strong firm fundamentals showed weak performance in the past year and recently.

 

In October 2023, the fund made a shift in its strategy, transitioning from a Global Emerging Markets universe to an approach focusing exclusive on Emerging Markets ex-China. This shift reflects a recognition of China’s evolution over the last two decades, as its economy has risen to become the second largest in the world, and its equity market grew to nearly 30% of overall market cap in the MSCI Emerging Markets Index. Considering the sheer size of China’s market, along with unique features of the market—including state ownership, highly segmented share classes, unique accounting rules, and an idiosyncratic regulatory framework—we are among many who feel that Chinese stocks have become their own asset class, in the same we often think of the U.S. relative to developed ex-U.S. stocks. In addition to this economic rationale for separating China from the rest of emerging markets, there is an equally strong case to be made from a portfolio construction perspective. Specifically, we have observed a trend on the part of asset owners and other allocators toward wanting more flexibility in terms of how they treat allocations to China. This strategy change makes that possible.

 

Looking ahead, we expect Emerging Markets ex-China stocks will continue to represent an important source of growth and diversification for global investors. We further believe 2023’s market turbulence, while frustrating in the short run, create mispricings that ultimately reward investors in high-quality firms whose valuations are misunderstood by domestic retail traders and foreign fund managers who lack local knowledge. We thank you for your allocation to the Fund and look forward to continuing as your trusted partner in emerging markets equity investing.

 

6

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

Sincerely,

 

Jason Hsu, PhD

Chairman & CIO

Rayliant Global Advisors

Phillip Wool, PhD

Managing Director

Head of Investment Solutions
Rayliant Global Advisors

 

Mark Schlarbaum

Managing Director

Head of Trading & Capital Markets

Rayliant Global Advisors

 

Definition of the Comparative Index

 

The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Market countries. With 1,387 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. Emerging Market countries include: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

 

Comparison of Change in the Value of a $10,000 Investment in the Rayliant Quantamental Emerging Market Equity ETF versus the MSCI Emerging Markets Index (Net) (USD).

 

 

AVERAGE ANNUAL TOTAL RETURN FOR

THE YEAR ENDED SEPTEMBER 30, 2023

 

One Year

Return

Annualized to

Inception Date*

Rayliant Quantamental Emerging Market Equity ETF

13.72%

-5.79%

MSCI Emerging Markets Index (Net) (USD)

11.70%

-10.07%

 

7

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

 

* The Rayliant Quantamental Emerging Market Equity ETF commenced operations on December 15, 2021.

 

Fee waivers were in effect during the period; if they had not been in effect, performance would have been lower.

 

The performance data quoted herein represents past performance and the return and value of an investment in the Fund will fluctuate so that, when redeemed, may be worth less than its original cost.

 

The Fund’s performance assumes the reinvestment of dividends and capital gains. Index returns assume reinvestment of dividends and, unlike a fund’s returns, do not reflect any fees or expenses. If such fees and expenses were included in the index returns, the performance would have been lower.

 

Please note that one cannot invest directly in an unmanaged index.

 

There are no assurances that the Fund will meet its stated objectives.

 

The Fund’s holdings and allocations are subject to change because it is actively managed and should not be considered recommendations to buy individual securities.

 

Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

8

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

See definition of comparative index on page 7.

 

9

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

Letter to Shareholders

 

Dear Shareholders,

 

We are pleased to provide the second annual report for the Rayliant Quantitative Developed Equity Fund, covering the period October 1, 2022 to September 30, 2023.

 

In 2023, developed markets were something of a mixed bag. The United States, for example, demonstrated remarkable resilience, despite grappling with high inflation and stringent monetary policy throughout 2023. The labor market remained tight, characterized by consistent job additions, and consumer spending was remarkably robust, given the Fed’s campaign of aggressive rate hikes. Generally, investors’ attention was on promising signs of disinflation, as the trajectory of the CPI’s return to the Fed's 2% target is understood to determine the course and timing of future policy adjustments—including eventual easing. Going into the end of this year, consensus forecasts reflect the positive data so far in 2023, with expectations for roughly 100 bps in cuts by the end of 2024.

 

By contrast, the Eurozone has faced a more challenging landscape. While inflation seems to have peaked, the absence of substantial fiscal stimulus, compounded by Ukraine-induced energy price shocks and ECB rate hikes, placed the region on the verge of recession. Indeed, at the time of writing, pundits put the oddes of a downturn at 50%, exacerbated by the swift transmission of rising interest rates, particularly impacting areas like Germany's energy-intensive industries. Efforts to diversify energy sources and enhance competitiveness aim to alleviate these challenges, though concerns linger over consumer confidence, income disparities compared to the U.S., and the potential rise of political extremism amid economic stagnation and ongoing immigration issues.

 

Japan, meanwhile, has grappled with recalibrating its monetary policy, long among the easiest in the world, gradually moving away from so-called ‘yield curve control’ protocols and contemplating an end to its negative interest rate policy. Positive indicators in wage growth and a tight labor market signify progress in generating inflation—quite different from the objectives of Western developed economies—yet demographic hurdles persist. Despite initiatives to bolster female workforce participation and augment immigration, Japan faces a shrinking GDP due to an aging population, necessitating sustained policy adaptations to address such fundamental challenges.

 

As we approach the end of 2023, the developed market environment has been marked by a notable shift in equity performance, especially during the last quarter. After a strong start to the year, major indices reversed course, succumbing to a sharp ‘risk-off’ in the face of surging Treasury yields. The United States observed a downturn of -3.3% in the third quarter, though that drop was less severe than in other developed markets, partly due to the strengthening of the dollar driven by a more aggressive stance on interest

 

10

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

rates by the Federal Reserve. Amidst increasing risk aversion, there was a pivot from growth to value, with the energy sector emerging as a standout performer, capitalizing on a surge in oil prices. Sectors sensitive to interest rates, such as real estate, utilities, and technology, encountered notable losses during this time. The impressive performance of the "Magnificent 7" stocks, which had been instrumental in driving the S&P 500's earlier strong returns, faltered collectively, ending the quarter down -1.3%.

 

Over the last year, the Fund realized a sizable gain of 16.44%, though that lagged MSCI World Index performance of 21.95%, resulting in an underperformance of -5.51% for the year. The fund’s underperformance relative to its benchmark in the first quarter was primarily a result of weak stock selection, with negative selection effects most pronounced within the Information Technology, Health Care, and Industrial sectors, and among U.S. stocks; selection effects within the Financials and Utilities sectors added the most alpha for the year. Allocation effects were slightly positive for the year, with overweights to Information Technology and Consumer Discretionary sector somewhat offsetting by an overweight position in Health Care stocks; region allocation effects were slightly positive for the year, overall. At the factor level, value and quality-oriented signals were the greatest contributors to alpha, while tilts toward stocks with positive sentiment, and lower levels of risk were the largest detractors for the past year.

 

Looking ahead, we expect positions established during 2023 dislocations to outperform as markets have time to process rising rates and the central banks’ effort to combat inflation and engineer a soft landing. Only time will tell whether the Fed will manage to avoid a downturn, though in the meantime, we believe 2023’s market turbulence will create mispricings that ultimately reward investors who continue to apply a disciplined, scientific approach to stock selection within the developed market space. We thank you for your allocation to the Fund, and we look forward to continuing as your trusted partner in developed equity investing.

 

Sincerely,

 

Jason Hsu, PhD

Chairman & CIO

Rayliant Global Advisors

Phillip Wool, PhD

Managing Director

Head of Investment Solutions
Rayliant Global Advisors

 

Mark Schlarbaum        

Managing Director    

Head of Trading & Capital Markets    

Rayliant Global Advisors

 

11

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

Definition of the Comparative Index

 

The MSCI World Index captures large and mid cap representation across 23 Developed Markets (DM) countries. With 1,517 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. DM countries include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the UK and the US.

 

Comparison of Change in the Value of a $10,000 Investment in the Rayliant Quantitative Developed Market Equity versus the MSCI World Index (Net) (USD).

 

AVERAGE ANNUAL TOTAL RETURN FOR

THE YEAR ENDED SEPTEMBER 30, 2023

 

One Year

Return

Annualized to

Inception Date*

Rayliant Quantitative Developed Market Equity

16.44%

-2.86%

MSCI World Index (Net) (USD)

21.95%

-4.20%

 

 

* The Rayliant Quantitative Developed Market Equity commenced operations on December 15, 2021.

 

Fee waivers were in effect during the period; if they had not been in effect, performance would have been lower.

 

12

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

SEPTEMBER 30, 2023

(UNAUDITED)

 

The performance data quoted herein represents past performance and the return and value of an investment in the Fund will fluctuate so that, when redeemed, may be worth less than its original cost.

 

The Fund’s performance assumes the reinvestment of dividends and capital gains. Index returns assume reinvestment of dividends and, unlike a fund’s returns, do not reflect any fees or expenses. If such fees and expenses were included in the index returns, the performance would have been lower.

 

Please note that one cannot invest directly in an unmanaged index.

 

There are no assurances that the Fund will meet its stated objectives.

 

The Fund’s holdings and allocations are subject to change because it is actively managed and should not be considered recommendations to buy individual securities.

 

Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

 

See definition of comparative index on page 12.

 

13

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

CHINA EQUITY ETF

SEPTEMBER 30, 2023

 

SECTOR WEIGHTINGS (Unaudited)

 

 

Percentages are based on total investments.

SCHEDULE OF INVESTMENTS

COMMON STOCK — 99.6%

   

Shares

   

Value

 

CHINA — 99.6%

       

Communication Services — 2.0%

       

Focus Media Information Technology, Cl A

    1,682,772     $ 1,651,418  
              1,651,418  

Consumer Discretionary — 7.2%

       

Beijing Roborock Technology, Cl A

    5,600       227,021  

BYD, Cl A

    29,571       960,705  

Fuyao Glass Industry Group, Cl A

    24,700       125,165  

Gree Electric Appliances of Zhuhai, Cl A

    76,200       379,653  

Hisense Home Appliances Group, Cl A

    361,000       1,165,883  

Huayu Automotive Systems, Cl A

    212,700       547,971  

Midea Group, Cl A

    289,640       2,205,569  

Oppein Home Group, Cl A

    16,000       210,581  
              5,822,548  

Consumer Staples — 16.5%

       

Anhui Gujing Distillery, Cl A

    32,900       1,227,358  

Eastroc Beverage Group, Cl A

    6,600       165,658  

Jiangsu King's Luck Brewery JSC, Cl A

    185,185       1,491,240  

Kweichow Moutai, Cl A

    21,372       5,275,862  

Luzhou Laojiao, Cl A

    37,800       1,124,026  

Muyuan Foods, Cl A

    45,400       236,106  

Proya Cosmetics, Cl A

    48,600       677,728  

Shanxi Xinghuacun Fen Wine Factory, Cl A

    69,669       2,290,186  

Tsingtao Brewery, Cl A

    36,900       442,957  

 

The accompanying notes are an integral part of the financial statements.

14

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

CHINA EQUITY ETF

SEPTEMBER 30, 2023

 

SCHEDULE OF INVESTMENTS

COMMON STOCK (continued)

 

 

Shares

   

Value

 

CHINA (continued)

       

Consumer Staples (continued)

       

Wuliangye Yibin, Cl A

    31,800     $ 681,327  
              13,612,448  

Energy — 1.1%

       

Offshore Oil Engineering, Cl A

    1,029,710       915,832  
              915,832  

Financials — 18.9%

       

Bank of Beijing, Cl A

    798,100       507,182  

Bank of Chengdu, Cl A

    236,000       445,714  

Bank of Hangzhou, Cl A

    155,500       238,188  

Bank of Jiangsu, Cl A

    1,245,730       1,227,649  

Bank of Ningbo, Cl A

    101,100       372,859  

Bank of Suzhou, Cl A

    346,900       328,057  

China CITIC Bank, Cl A

    241,100       189,286  

China Merchants Bank, Cl A

    884,198       4,001,236  

China Pacific Insurance Group, Cl A

    313,915       1,231,833  

Chongqing Rural Commercial Bank, Cl A

    296,900       163,003  

Huaxia Bank, Cl A

    417,900       328,091  

Jiangsu Changshu Rural Commercial Bank, Cl A

    172,300       173,110  

New China Life Insurance, Cl A

    318,200       1,608,524  

People's Insurance Group of China, Cl A

    495,889       401,571  

Ping An Bank, Cl A

    330,400       507,907  

Ping An Insurance Group of China, Cl A

    497,500       3,298,116  

Postal Savings Bank of China, Cl A

    666,400       454,587  
              15,476,913  

Health Care — 7.8%

       

APT Medical, Cl A

    10,940       574,858  

Guangxi LiuYao Group, Cl A

    124,102       367,583  

Hubei Jumpcan Pharmaceutical, Cl A

    177,800       667,200  

Imeik Technology Development, Cl A

    16,200       867,773  

Jiangsu Hengrui Pharmaceuticals, Cl A

    180,080       1,110,770  

Shanghai MicroPort Endovascular MedTech Group, Cl A

    23,000       585,216  

Shenzhen Mindray Bio-Medical Electronics, Cl A

    39,956       1,479,673  

Sunflower Pharmaceutical Group, Cl A

    141,263       484,530  

WuXi AppTec, Cl A

    30,900       365,503  
              6,503,106  

Industrials — 21.9%

       

Beijing New Building Materials, Cl A

    200,700       827,785  

Beijing-Shanghai High Speed Railway, Cl A

    1,653,900       1,164,534  

China Railway Group, Cl A

    901,500       843,871  

Contemporary Amperex Technology, Cl A

    122,885       3,424,397  

Gongniu Group, Cl A

    61,932       881,664  

 

The accompanying notes are an integral part of the financial statements.

15

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

CHINA EQUITY ETF

SEPTEMBER 30, 2023

 

SCHEDULE OF INVESTMENTS

COMMON STOCK (continued)

 

 

Shares

   

Value

 

CHINA (continued)

       

Industrials (continued)

       

Metallurgical Corp of China, Cl A

    2,052,300     $ 1,033,791  

Monalisa Group, Cl A

    127,774       294,455  

Ningbo Deye Technology, Cl A

    76,799       816,290  

Sany Heavy Industry, Cl A

    184,700       402,825  

SF Holding, Cl A

    80,900       453,038  

Shanghai M&G Stationery, Cl A

    87,200       436,853  

Shanghai Pudong Construction, Cl A

    1,066,200       1,017,066  

Shenzhen Inovance Technology, Cl A

    58,000       529,310  

Sichuan Road and Bridge Group, Cl A

    756,860       900,659  

Spring Airlines, Cl A *

    175,500       1,317,861  

Sungrow Power Supply, Cl A

    66,500       816,994  

Sunwoda Electronic, Cl A

    96,200       223,145  

Weichai Power, Cl A

    886,300       1,524,255  

Yutong Bus, Cl A

    579,045       1,051,472  
              17,960,265  

Information Technology — 16.5%

       

Advanced Micro-Fabrication Equipment China, Cl A

    70,307       1,452,797  

Anker Innovations Technology, Cl A

    35,900       461,996  

Foxconn Industrial Internet, Cl A

    145,100       392,337  

JA Solar Technology, Cl A

    151,160       530,717  

Jiangsu Pacific Quartz, Cl A

    123,715       1,811,300  

LONGi Green Energy Technology, Cl A *

    405,500       1,518,312  

Luxshare Precision Industry, Cl A

    170,900       699,480  

NAURA Technology Group, Cl A

    23,500       778,307  

Newland Digital Technology, Cl A

    202,500       529,475  

Qi An Xin Technology Group, Cl A *

    107,600       759,990  

Shanghai Aiko Solar Energy, Cl A

    83,420       255,444  

Shenzhen Transsion Holdings, Cl A

    100,826       2,016,866  

TCL Technology Group, Cl A *

    755,000       422,798  

Zhejiang Dahua Technology, Cl A

    230,300       703,947  

Zhejiang Jingsheng Mechanical & Electrical, Cl A

    202,099       1,323,425  
              13,657,191  

Materials — 5.8%

       

Anhui Huaheng Biotechnology, Cl A

    51,600       723,176  

Jiangsu Changbao Steeltube, Cl A

    1,194,200       1,086,717  

Jiangxi Copper, Cl A

    144,030       380,746  

Nanjing Cosmos Chemical, Cl A

    57,900       548,344  

Ningbo Boway Alloy Material, Cl A

    202,000       420,039  

Wanhua Chemical Group, Cl A

    60,500       733,399  

 

The accompanying notes are an integral part of the financial statements.

16

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

CHINA EQUITY ETF

SEPTEMBER 30, 2023

 

SCHEDULE OF INVESTMENTS

COMMON STOCK (continued)

 

 

Shares

   

Value

 

CHINA (continued)

       

Materials (continued)

       

Zijin Mining Group, Cl A

    514,900     $ 857,254  
              4,749,675  

Real Estate — 0.3%

       

Poly Developments and Holdings Group, Cl A

    142,800       249,703  
              249,703  

Utilities — 1.6%

       

China Yangtze Power, Cl A

    322,500       984,442  

GD Power Development, Cl A

    622,600       314,472  
              1,298,914  

TOTAL COMMON STOCK

               

(Cost $86,542,624)

    81,898,013  
                 

TOTAL INVESTMENTS— 99.6%

               

(Cost $86,542,624)

  $ 81,898,013  
                 
                 

 

 

Percentages are based on Net Assets of $82,204,658.

*

Non-income producing security.

 

Cl — Class

JSC — Joint Stock Company

 

As of September 30, 2023, all of the Fund's investments were considered Level 1, in accordance with the authoritative guidance on fair value measurements and disclosure under U.S. generally accepted accounting principles.

 

 

For more information on valuation inputs, see Note 2 — Significant Accounting Policies in the Notes to Financial Statements.

 

The accompanying notes are an integral part of the financial statements.

17

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

SECTOR WEIGHTINGS (Unaudited)

 

 

Percentages are based on total investments.

SCHEDULE OF INVESTMENTS

COMMON STOCK — 99.8%

   

Shares

   

Value

 

BRAZIL — 0.6%

       

TIM

    70,800     $ 211,472  
                 

CHINA — 39.0%

       

3SBio

    241,000       201,555  

Akeso *

    105,000       482,645  

Alibaba Group Holding *

    154,700       1,690,829  

Anker Innovations Technology, Cl A

    5,300       68,206  

BYD, Cl A

    11,100       360,618  

BYD Electronic International

    51,500       234,753  

China CITIC Bank, Cl H

    365,000       169,641  

China Communications Services, Cl H

    678,000       284,814  

China Overseas Property Holdings

    115,000       129,803  

CITIC

    202,000       185,703  

East Buy Holding *

    17,500       82,564  

Haidilao International Holding

    65,000       174,288  

Jiangsu Pacific Quartz, Cl A

    5,700       83,453  

Jiangxi Copper, Cl H

    43,000       67,422  

Kingsoft

    20,000       72,524  

Li Auto, Cl A *

    53,300       941,207  

Meituan, Cl B *

    28,900       422,881  

Newland Digital Technology, Cl A

    503,267       1,315,889  

Nongfu Spring, Cl H

    135,200       776,828  

People's Insurance Group of China, Cl H

    349,000       125,218  

PetroChina, Cl H

    912,000       687,041  

PICC Property & Casualty, Cl H

    796,000       1,022,461  

Sany Heavy Equipment International Holdings

    276,000       436,280  

Shenzhen Transsion Holdings, Cl A

    12,868       257,404  

Sinopharm Group, Cl H

    295,600       856,773  

Sinotruk Hong Kong

    191,000       367,765  

 

The accompanying notes are an integral part of the financial statements.

18

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

SCHEDULE OF INVESTMENTS

COMMON STOCK (continued)

 

 

Shares

   

Value

 

CHINA (continued)

       

Tencent Holdings

    37,800     $ 1,477,857  

Tongcheng Travel Holdings *

    42,400       93,117  

TravelSky Technology, Cl H

    160,000       277,431  

Vipshop Holdings ADR *

    15,017       240,422  

Yunnan Copper, Cl A

    42,000       67,850  

Yutong Bus, Cl A

    352,800       640,640  

Zhejiang Cfmoto Power, Cl A

    3,200       61,578  

ZTE, Cl H

    33,000       99,651  
              14,457,111  
                 

CZECH REPUBLIC — 0.2%

       

Komercni Banka

    2,013       58,804  
                 

GREECE — 0.9%

       

JUMBO *

    4,217       116,084  

Mytilineos

    6,129       226,339  
              342,423  
                 

HUNGARY — 1.6%

       

OTP Bank Nyrt

    16,478       597,522  
                 

INDIA — 11.8%

       

Bharat Petroleum

    31,050       129,597  

Colgate-Palmolive India

    4,463       107,787  

Dr Reddy's Laboratories

    2,853       191,949  

HDFC Bank

    15,598       286,692  

Hindustan Aeronautics

    26,010       603,931  

ICICI Bank

    46,060       527,985  

Indian Oil

    255,833       280,198  

Polycab India

    1,575       101,339  

Procter & Gamble Hygiene & Health Care

    932       201,487  

Reliance Industries

    12,971       366,288  

Tata Consultancy Services

    8,299       352,642  

Union Bank of India

    232,683       297,854  

Zydus Lifesciences

    123,749       916,480  
              4,364,229  
                 

MEXICO — 5.2%

       

Alsea *

    51,500       188,474  

Fomento Economico Mexicano

    12,400       135,556  

Grupo Aeroportuario del Centro Norte, Cl B

    39,200       427,335  

Grupo Comercial Chedraui

    153,300       899,943  

Kimberly-Clark de Mexico, Cl A

    130,800       261,171  
              1,912,479  
                 

 

The accompanying notes are an integral part of the financial statements.

19

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

SCHEDULE OF INVESTMENTS

COMMON STOCK (continued)

 

 

Shares

   

Value

 

POLAND — 0.6%

       

Budimex

    624     $ 62,114  

Powszechny Zaklad Ubezpieczen

    19,012       180,187  
              242,301  
                 

QATAR — 0.5%

       

Dukhan Bank

    187,984       205,027  
                 

RUSSIA — 0.0%

       

Gazprom Neft PJSC (A)

    111,970        

Novolipetsk Steel PJSC *(A)

    98,630        

PhosAgro PJSC GDR *(A)

    22,934        

Severstal PAO *(A)

    11,625        

SAUDI ARABIA — 3.0%

       

Abdullah Al Othaim Markets

    144,867       523,776  

Elm

    2,303       478,967  

Seera Group Holding *

    14,787       99,948  
              1,102,691  
                 

SOUTH AFRICA — 0.9%

       

Woolworths Holdings

    90,367       325,360  

SOUTH KOREA — 17.0%

       

BGF retail

    1,705       178,157  

DB Insurance

    7,170       475,024  

Doosan Bobcat

    13,943       526,970  

Hankook Tire & Technology

    6,961       204,280  

Hanwha Aerospace

    687       53,253  

HD Korea Shipbuilding & Offshore Engineering *

    2,383       196,023  

Hyundai Glovis

    1,575       215,229  

Hyundai Mobis

    2,472       440,578  

Hyundai Motor

    2,148       304,197  

Industrial Bank of Korea

    11,015       91,506  

JYP Entertainment

    1,127       93,791  

Kia

    13,801       832,519  

KT

    8,232       202,231  

LG

    3,551       220,523  

LG Electronics

    3,134       234,342  

LG Uplus

    26,012       199,707  

Meritz Financial Group

    2,342       95,804  

NH Investment & Securities

    9,750       73,844  

Samsung C&T

    2,845       226,858  

Samsung Electronics

    19,221       974,297  

Samsung Engineering *

    6,271       140,579  

 

The accompanying notes are an integral part of the financial statements.

20

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

SCHEDULE OF INVESTMENTS

COMMON STOCK (continued)

 

 

Shares

   

Value

 

SOUTH KOREA (continued)

       

Samsung Fire & Marine Insurance

    610     $ 117,760  

Samsung Heavy Industries *

    34,489       200,381  
              6,297,853  
                 

TAIWAN — 15.2%

       

Accton Technology

    13,000       198,541  

Chicony Electronics

    219,000       783,585  

Delta Electronics

    20,000       201,050  

Hon Hai Precision Industry

    129,000       415,607  

Lite-On Technology

    56,000       210,777  

Makalot Industrial

    70,000       728,613  

Radiant Opto-Electronics

    22,000       83,828  

Sinbon Electronics

    44,000       440,947  

Taiwan Semiconductor Manufacturing

    140,000       2,268,242  

Wiwynn

    7,000       324,190  
              5,655,380  
                 

TURKEY — 1.5%

       

Ford Otomotiv Sanayi

    9,762       300,889  

Tofas Turk Otomobil Fabrikasi

    24,302       261,946  
              562,835  
                 

UNITED ARAB EMIRATES — 1.8%

       

Air Arabia PJSC

    490,860       375,524  

Americana Restaurants International

    147,936       165,132  

Emirates NBD Bank PJSC

    27,745       134,455  
              675,111  
                 

TOTAL COMMON STOCK

               

(Cost $37,939,666)

    37,010,598  
                 

PREFERRED STOCK — 0.2%

                 

BRAZIL — 0.2%

       

Itausa (B)

    35,200       63,576  
                 

TOTAL PREFERRED STOCK

               

(Cost $63,524)

    63,576  
                 

TOTAL INVESTMENTS— 100.0%

               

(Cost $38,003,190)

  $ 37,074,174  
                 
                 

 

 

Percentages are based on Net Assets of $37,075,527.

*

Non-income producing security.

 

The accompanying notes are an integral part of the financial statements.

21

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

(A)

Level 3 security in accordance with fair value hierarchy.

(B)

There is currently no rate available.

 

ADR — American Depositary Receipt

Cl — Class

GDR — Global Depositary Receipt

PJSC — Public Joint Stock Company

 

The following is a summary of the inputs used as of September 30, 2023 when valuing the Fund's investments:

 

Investments in Securities

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Common Stock

Brazil

  $ 211,472     $     $     $ 211,472  

China

    14,457,111                   14,457,111  

Czech Republic

    58,804                   58,804  

Greece

    342,423                   342,423  

Hungary

    597,522                   597,522  

India

    4,364,229                   4,364,229  

Mexico

    1,912,479                   1,912,479  

Poland

    242,301                   242,301  

Qatar

    205,027                   205,027  

Russia

                ^      

Saudi Arabia

    1,102,691                   1,102,691  

South Africa

    325,360                   325,360  

South Korea

    6,297,853                   6,297,853  

Taiwan

    5,655,380                   5,655,380  

Turkey

    562,835                   562,835  

United Arab Emirates

    675,111                   675,111  

Total Common Stock

    37,010,598                   37,010,598  

Preferred Stock

Brazil

    63,576                   63,576  

Total Preferred Stock

    63,576                   63,576  

Total Investments in Securities

  $ 37,074,174     $     $     $ 37,074,174  

 

A reconciliation of Level 3 investments and disclosures of significant unobservable inputs are presented when the Portfolio has a significant amount of Level 3 investments at the beginning and/or end of the period in relation to net assets. Management has concluded that Level 3 investments are not material in relation to net assets.

 

For the year ended September 30, 2023, there were no transfers into/out of Level 3. As of September 30, 2023, the unrealized appreciation/(depreciation) on these investments was $(1,352,976). These securities were impacted by the invasion of Ukraine and sanctions on market conditions in Russia. From the start of the conflict in Ukraine until September 30, 2023, Russian-held investments were deemed to be worthless due to sanctions and inaccessibility of the market.

 

The accompanying notes are an integral part of the financial statements.

22

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

^ Includes Securities in which the fair value is $0 or has been rounded to $0.

 

Amounts designated as “—“ are $0 or have been rounded to $0.

 

For more information on valuation inputs, see Note 2 — Significant Accounting Policies in the Notes to Financial Statements.

 

The accompanying notes are an integral part of the financial statements.

23

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

SECTOR WEIGHTINGS (Unaudited)

 

Percentages are based on total investments.

SCHEDULE OF INVESTMENTS

COMMON STOCK — 99.4%

   

Shares

   

Value

 

AUSTRALIA — 1.5%

       

Data#3

    35,917     $ 164,120  

Helia Group

    63,692       143,462  

Neuren Pharmaceuticals *

    35,196       251,233  

Pilbara Minerals

    32,164       89,262  

Rio Tinto

    3,157       231,361  
              879,438  
                 

AUSTRIA — 0.6%

       

Strabag

    8,283       327,984  
                 

BERMUDA — 2.2%

       

Cool

    22,558       309,300  

SiriusPoint *

    95,960       975,913  
              1,285,213  
                 

BRAZIL — 1.2%

       

MercadoLibre *

    525       665,637  
                 

CANADA — 1.7%

       

Constellation Software

    200       414,803  

Fairfax Financial Holdings

    300       246,029  

Shawcor *

    25,600       300,876  
              961,708  
                 

DENMARK — 0.7%

       

Danske Bank

    8,084       188,637  

Novo Nordisk, Cl B

    1,114       101,843  

Pandora

    1,003       104,185  
              394,665  
                 

FINLAND — 1.9%

       

Kemira

    15,122       235,993  

 

The accompanying notes are an integral part of the financial statements.

24

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

SCHEDULE OF INVESTMENTS

COMMON STOCK (continued)

 

 

Shares

   

Value

 

FINLAND (continued)

       

Kempower *

    17,029     $ 875,871  
              1,111,864  
                 

FRANCE — 1.8%

       

ESI Group *

    2,830       453,934  

Orange

    24,503       281,736  

Verallia

    7,214       284,738  
              1,020,408  
                 

GEORGIA — 2.2%

       

Bank of Georgia Group

    12,300       553,973  

TBC Bank Group

    19,122       696,682  
              1,250,655  
                 

GERMANY — 2.4%

       

Atoss Software

    4,874       1,011,428  

Bayerische Motoren Werke

    3,491       356,230  
              1,367,658  
                 

ISRAEL — 0.2%

       

Check Point Software Technologies *

    1,053       140,344  
                 

ITALY — 0.3%

       

Ferrari

    594       175,551  
                 

JAPAN — 4.0%

       

Chubu Electric Power

    8,317       106,286  

Kansai Electric Power

    8,800       122,513  

Macnica Holdings

    5,900       277,949  

Nintendo

    11,600       484,289  

Shionogi

    2,500       112,012  

Toyoda Gosei

    54,400       1,170,935  
              2,273,984  
                 

NETHERLANDS — 3.0%

       

Koninklijke Ahold Delhaize

    11,772       355,462  

Shell

    43,226       1,396,078  
              1,751,540  
                 

NEW ZEALAND — 1.0%

       

Air New Zealand

    1,011,755       443,776  

Xero *

    1,678       121,760  
              565,536  
                 

NORWAY — 1.3%

       

Kitron

    177,627       591,765  

 

The accompanying notes are an integral part of the financial statements.

25

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

SCHEDULE OF INVESTMENTS

COMMON STOCK (continued)

 

 

Shares

   

Value

 

NORWAY (continued)

       

MPC Container Ships

    95,857     $ 157,061  
              748,826  
                 

SINGAPORE — 0.5%

       

BW LPG

    17,037       215,667  

Singapore Airlines

    17,900       84,720  
              300,387  
                 

SWEDEN — 4.3%

       

Betsson, Cl B

    162,007       1,792,423  

Camurus *

    16,955       485,044  

Paradox Interactive

    9,305       196,648  
              2,474,115  
                 

SWITZERLAND — 0.9%

       

Ypsomed Holding

    1,701       501,114  
                 

UNITED KINGDOM — 2.5%

       

4imprint Group

    7,947       509,237  

Centrica

    69,971       131,906  

Domino's Pizza Group

    119,353       548,327  

Rolls-Royce Holdings *

    97,696       263,408  
              1,452,878  
                 

UNITED STATES — 65.2%

       

A O Smith

    1,542       101,973  

AbbVie

    10,086       1,503,419  

Altria Group

    20,266       852,185  

A-Mark Precious Metals

    2,879       84,441  

Amazon.com *

    1,066       135,510  

Aon, Cl A

    2,420       784,612  

Apple

    17,531       3,001,483  

Arista Networks *

    1,554       285,827  

Atlassian, Cl A *

    1,046       210,779  

Autodesk *

    2,394       495,343  

Booking Holdings *

    422       1,301,427  

Booz Allen Hamilton Holding, Cl A

    1,532       167,402  

Broadcom

    965       801,510  

Bunge

    1,752       189,654  

Cardinal Health

    2,912       252,820  

Cencora, Cl A

    1,962       353,101  

Centene *

    2,997       206,433  

Chipotle Mexican Grill, Cl A *

    229       419,489  

Chubb

    3,183       662,637  

Church & Dwight

    2,300       210,749  

 

The accompanying notes are an integral part of the financial statements.

26

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

SCHEDULE OF INVESTMENTS

COMMON STOCK (continued)

 

 

Shares

   

Value

 

UNITED STATES (continued)

       

Cisco Systems

    19,841     $ 1,066,652  

Clorox

    1,400       183,484  

Corcept Therapeutics *

    6,995       190,579  

Cricut, Cl A *

    26,569       246,826  

eBay

    3,309       145,894  

Electronic Arts

    2,916       351,086  

Eli Lilly

    2,976       1,598,499  

Etsy *

    1,442       93,124  

Extreme Networks *

    41,345       1,000,962  

Fair Isaac *

    288       250,137  

Fortinet *

    7,385       433,352  

Frontdoor *

    16,703       510,945  

Gilead Sciences

    14,810       1,109,861  

Goldman Sachs Group

    934       302,214  

HCA Healthcare

    2,375       584,203  

Hubbell, Cl B

    486       152,317  

Humana

    1,454       707,400  

Incyte *

    2,262       130,676  

J M Smucker

    1,154       141,838  

John B Sanfilippo & Son

    9,500       938,600  

Kimberly-Clark

    4,108       496,452  

Kroger

    7,910       353,973  

Lamb Weston Holdings

    1,670       154,408  

LPL Financial Holdings

    558       132,609  

Manhattan Associates *

    702       138,757  

Markel Group *

    152       223,819  

MarketAxess Holdings

    405       86,524  

Mastercard, Cl A

    1,297       513,495  

McKesson

    1,388       603,572  

Meta Platforms, Cl A *

    3,422       1,027,319  

Microsoft

    3,662       1,156,277  

Molson Coors Beverage, Cl B

    2,157       137,164  

Mondelez International, Cl A

    1,632       113,261  

NetApp

    2,333       177,028  

Netflix *

    246       92,890  

NVIDIA

    5,101       2,218,884  

O'Reilly Automotive *

    696       632,566  

Otis Worldwide

    5,103       409,822  

PACCAR

    6,210       527,974  

Palo Alto Networks *

    2,620       614,233  

Powell Industries

    5,506       456,447  

PulteGroup

    2,714       200,972  

 

The accompanying notes are an integral part of the financial statements.

27

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

SCHEDULE OF INVESTMENTS

COMMON STOCK (continued)

 

 

Shares

   

Value

 

UNITED STATES (continued)

       

Royal Caribbean Cruises *

    2,651     $ 244,263  

St. Joe

    7,334       398,456  

Starbucks

    1,129       103,044  

Stellantis

    15,765       303,947  

Titan Cement International

    20,405       372,017  

UnitedHealth Group

    1,215       612,591  

VeriSign *

    1,057       214,074  

Verisk Analytics, Cl A

    1,634       386,016  

Vertex Pharmaceuticals *

    795       276,453  

VMware, Cl A *

    2,644       440,173  

Walgreens Boots Alliance

    8,652       192,420  

Walmart

    1,136       181,680  

Weatherford International *

    2,955       266,925  

Winmark

    411       153,356  

WW Grainger

    527       364,600  

Yum! Brands

    1,733       216,521  
              37,354,425  
                 

TOTAL COMMON STOCK

               

(Cost $55,588,659)

    57,003,930  
                 

RIGHT — 0.0%

      Number of
Rights
   

Value

 

CANADA — 0.0%

       

Constellation Software, Expires 10/02/2023 *

    200        

TOTAL RIGHT

               

(Cost $–)

     
                 
                 

WARRANT — 0.0%

      Number of
Warrants
         

CANADA — 0.0%

       

Constellation Software, Expires 08/22/2028 *

    200        

TOTAL WARRANT

               

(Cost $—)

     

TOTAL INVESTMENTS— 99.4%

               

(Cost $55,588,659)

  $ 57,003,930  

 

The accompanying notes are an integral part of the financial statements.

28

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

 

Percentages are based on Net Assets of $57,329,572.

*

Non-income producing security.

 

Cl — Class

 

The following is a summary of the inputs used as of September 30, 2023 when valuing the Fund's investments:

Investments in Securities

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Common Stock

Australia

  $ 879,438     $     $     $ 879,438  

Austria

    327,984                   327,984  

Bermuda

    1,285,213                   1,285,213  

Brazil

    665,637                   665,637  

Canada

    961,708                   961,708  

Denmark

    394,665                   394,665  

Finland

    1,111,864                   1,111,864  

France

    1,020,408                   1,020,408  

Georgia

    1,250,655                   1,250,655  

Germany

    1,367,658                   1,367,658  

Israel

    140,344                   140,344  

Italy

    175,551                   175,551  

Japan

    2,273,984                   2,273,984  

Netherlands

    1,751,540                   1,751,540  

New Zealand

    565,536                   565,536  

Norway

    748,826                   748,826  

Singapore

    300,387                   300,387  

Sweden

    2,474,115                   2,474,115  

Switzerland

    501,114                   501,114  

United Kingdom

    1,452,878                   1,452,878  

United States

    37,354,425                   37,354,425  

Total Common Stock

    57,003,930                   57,003,930  

Right

Canada

    ^                  

Total Right

                       

Warrant

Canada

          ^            

Total Warrant

                       

Total Investments in Securities

  $ 57,003,930     $     $     $ 57,003,930  

 

^ Includes Securities in which the fair value is $0 or has been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

29

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

SEPTEMBER 30, 2023

 

Amounts designated as “ —” are $0 or have been rounded to $0.

 

For more information on valuation inputs, see Note 2 — Significant Accounting Policies in the Notes to Financial Statements.

 

The accompanying notes are an integral part of the financial statements.

30

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

STATEMENTS OF ASSETS AND LIABILITIES

 

   

Rayliant Quantamental China Equity ETF

   

Rayliant Quantamental Emerging Market Equity ETF

   

Rayliant Quantitative Developed Market Equity ETF

 

Assets:

                       

Investments, at Value (Cost $86,542,624, $38,003,190 and $55,588,659)

  $ 81,898,013     $ 37,074,174     $ 57,003,930  

Foreign Currency, at Value (Cost $4,216, $14,097 and $14,409)

    4,230       14,002       14,759  

Cash

    286,625       25,482       222,752  

Receivable for Capital Shares Sold

    69,355              

Receivable from Investment Adviser

    10,674       13,423       10,366  

Dividend and Interest Receivable

          58,238       94,165  

Reclaim Receivable

          2,193       38,186  

Total Assets

    82,268,897       37,187,512       57,384,158  

Liabilities:

                       

Audit Fees Payable

    26,755       26,755       26,755  

Custody Fees Payable

    11,424       12,987       7,089  

Payable to Administrator

    10,274       9,041       9,041  

Printing Fees Payable

    8,111       3,713       5,812  

Chief Compliance Officer Fees Payable

    1,328       608       951  

Payable to Trustees

    212       97       152  

Payable for Foreign Capital Gains Tax

          53,299        

Unrealized Loss on Foreign Currency Spot Contracts

                115  

Other Accrued Expenses and Other Payables

    6,135       5,485       4,671  

Total Liabilities

    64,239       111,985       54,586  

Commitments and Contingencies

                       

Net Assets

  $ 82,204,658     $ 37,075,527     $ 57,329,572  

Net Assets Consist of:

                       

Paid-in Capital

  $ 125,793,264     $ 42,724,375     $ 63,740,456  

Total Accumulated Losses

    (43,588,606 )     (5,648,848 )     (6,410,884 )

Net Assets

  $ 82,204,658     $ 37,075,527     $ 57,329,572  

Outstanding Shares of beneficial interest (unlimited authorization — no par value)

    5,700,000       1,750,000       2,450,000  

Net Asset Value, Offering and Redemption Price Per Share

  $ 14.42     $ 21.19     $ 23.40  

 

See Note 5 in the Notes to the Financial Statements.

Amounts designated as “ —” are $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

31

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

FOR THE YEAR ENDED

SEPTEMBER 30, 2023

 

Statements of Operations

 

   

Rayliant Quantamental China Equity ETF

   

Rayliant Quantamental Emerging Market Equity ETF

   

Rayliant Quantitative Developed Market Equity ETF

 
                         

Investment Income:

                       

Dividends

  $ 2,583,202     $ 979,513     $ 1,243,161  

Less: Foreign Taxes Withheld

    (252,958 )     (136,708 )     (66,976 )

Total Investment Income

    2,330,244       842,805       1,176,185  

Expenses:

                       

Investment Advisory Fees (Note 5)

    566,156       153,346       366,581  

Administration Fees (Note 4)

    122,646       108,800       108,800  

Trustees' Fees

    20,873       4,415       12,051  

Chief Compliance Officer Fees (Note 3)

    6,314       2,445       3,351  

Custodian Fees

    91,068       112,479       76,571  

Legal Fees

    73,841       534       27,820  

Printing Fees

    39,129       9,893       15,977  

Audit Fees

    27,440       27,440       27,440  

Registration and Filing Fees

    14,966       12,917       10,145  

Insurance Fees

    12,992       3,781       6,797  

Pricing Fees

    3,728       3,325       3,048  

Total Expenses

    979,153       439,375       658,581  

Less:

                       

Waiver of Investment Advisory Fees

    (224,093 )     (153,346 )     (207,405 )

Waiver - Reimbursement from Adviser

          (83,515 )      

Net Expenses

    755,060       202,514       451,176  

Net Investment Income

    1,575,184       640,291       725,009  

Net Realized Gain (Loss) on:

                       

Investments

    (27,791,968 )     (332,435 )     568,236  

Capital Gains Tax

          (166,618 )      

Foreign Currency Transactions

    (58,351 )     18,350       (61,087 )

Net Realized Gain/(Loss)

    (27,850,319 )     (480,703 )     507,149  

Net Change in Unrealized Appreciation (Depreciation) on:

                       

Investments

    8,272,929       1,806,347       6,993,019  

Capital Gains Tax

          (7,965 )      

Foreign Currency Translation

    (39 )     15       2,942  

Net Change in Unrealized Appreciation

    8,272,890       1,798,397       6,995,961  

Net Realized and Unrealized Gain/(Loss)

    (19,577,429 )     1,317,694       7,503,110  

Net Increase/Decrease in Net Assets Resulting from Operations

  $ (18,002,245 )   $ 1,957,985     $ 8,228,119  

 

Amounts designated as “ —” are $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

32

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

CHINA EQUITY ETF

 

STATEMENTS OF CHANGES IN NET ASSETS

 

   

Year
Ended
September 30, 2023

   

Year
Ended
September 30, 2022

 

Operations:

               

Net Investment Income

  $ 1,575,184     $ 1,709,817  

Net Realized Loss

    (27,850,319 )     (10,638,778 )

Net Change in Unrealized Appreciation (Depreciation)

    8,272,890       (11,403,391 )

Net Decrease in Net Assets Resulting From Operations

    (18,002,245 )     (20,332,352 )

Distributions

    (1,556,945 )     (357,445 )

Capital Share Transactions:

               

Issued

    8,695,077       86,856,354  

Redeemed

    (7,070,729 )     (5,881,465 )

Net Increase in Net Assets From Capital Share Transactions

    1,624,348       80,974,889  

Total Increase (Decrease) in Net Assets

    (17,934,842 )     60,285,092  

Net Assets:

               

Beginning of Year

    100,139,500       39,854,408  

End of Year

  $ 82,204,658     $ 100,139,500  

Shares Transactions:

               

Issued

    475,000       4,300,000  

Redeemed

    (400,000 )     (275,000 )

Net Increase in Shares Outstanding From Share Transactions

    75,000       4,025,000  
                 

 

The accompanying notes are an integral part of the financial statements.

33

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

 

STATEMENTS OF CHANGES IN NET ASSETS

 

   

Year
Ended
September 30, 2023

   

Period
Ended
September 30, 2022*

 

Operations:

               

Net Investment Income

  $ 640,291     $ 1,024,180  

Net Realized Loss

    (480,703 )     (4,821,275 )

Net Change in Unrealized Appreciation (Depreciation)

    1,798,397       (2,780,988 )

Net Increase (Decrease) in Net Assets Resulting From Operations

    1,957,985       (6,578,083 )

Distributions

    (1,018,970 )     (9,780 )

Capital Share Transactions:

               

Issued

    17,440,971       33,933,341  

Redeemed

          (8,649,937 )

Net Increase in Net Assets From Capital Share Transactions

    17,440,971       25,283,404  

Total Increase in Net Assets

    18,379,986       18,695,541  

Net Assets:

               

Beginning of Year/Period

    18,695,541        

End of Year/Period

  $ 37,075,527     $ 18,695,541  

Shares Transactions:

               

Issued

    800,000       1,350,000  

Redeemed

          (400,000 )

Net Increase in Shares Outstanding From Share Transactions

    800,000       950,000  
                 

 

*Commenced operations on December 15, 2021.

Amounts designated as “ —” are $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

34

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

 

STATEMENTS OF CHANGES IN NET ASSETS

 

   

Year
Ended
September 30, 2023

   

Period
Ended
September 30, 2022*

 

Operations:

               

Net Investment Income

  $ 725,009     $ 743,906  

Net Realized Gain (Loss)

    507,149       (8,786,173 )

Net Change in Unrealized Appreciation (Depreciation)

    6,995,961       (5,581,446 )

Net Increase (Decrease) in Net Assets Resulting From Operations

    8,228,119       (13,623,713 )

Distributions

    (761,063 )     (12,688 )

Capital Share Transactions:

               

Issued

    570,202       96,498,794  

Redeemed

    (1,654,779 )     (31,915,300 )

Net Increase (Decrease) in Net Assets From Capital Share Transactions

    (1,084,577 )     64,583,494  

Total Increase in Net Assets

    6,382,479       50,947,093  

Net Assets:

               

Beginning of Year/Period

    50,947,093        

End of Year/Period

  $ 57,329,572     $ 50,947,093  

Shares Transactions:

               

Issued

    25,000       3,950,000  

Redeemed

    (75,000 )     (1,450,000 )

Net Increase (Decrease) in Shares Outstanding From Share Transactions

    (50,000 )     2,500,000  
                 

 

*Commenced operations on December 15, 2021.

Amounts designated as “ —” are $0 or have been rounded to $0.

The accompanying notes are an integral part of the financial statements.

35

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

CHINA EQUITY ETF

 

FINANCIAL HIGHLIGHTS

Selected Per Share Data & Ratios

For a Share Outstanding

Throughout the Year/Period

   

Year
Ended
September 30, 2023

   

Year
Ended
September 30, 2022

   

Period Ended
September 30, 2021*

 

Net Asset Value, Beginning of Year

  $ 17.80     $ 24.91     $ 25.00  

Income (Loss) from Investment Operations:

                       

Net Investment Income

    0.28       0.52       0.39  

Net Realized and Unrealized Loss

    (3.38 )     (7.42 )     (0.48 )

Total from Investment Operations

    (3.10 )     (6.90 )     (0.09 )

Dividends and Distributions:

                       

Net Investment Income

    (0.28 )     (0.21 )      

Total Dividends and Distributions

    (0.28 )     (0.21 )      

Net Asset Value, End of Year

  $ 14.42     $ 17.80     $ 24.91  

Total Return

    (17.64 )%     (27.93 )%     (0.36 )%

Ratios and Supplemental Data

                       

Net Assets, End of Year (Thousands)

  $ 82,205     $ 100,140     $ 39,854  

Ratio of Expenses to Average Net Assets

    0.80 %     0.80 %     0.80 %

Ratio of Expenses to Average Net Assets (Excluding Waivers and Reimbursements)

    1.04 %     1.13 %     2.43 %

Ratio of Net Investment Loss to Average Net Assets

    1.67 %     2.45 %     1.97 %

Portfolio Turnover Rate

    325 %     255 %     199

 

*

Commenced operations on December 30, 2020.

Per share calculations were performed using average shares for the period.

Annualized.

Total return is for the period indicated and has not been annualized. Returns shown do not reflect the deductions of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

§

Portfolio turnover is for the period indicated and has not been annualized.

 

Amounts designated as “—” are either not applicable, $0 or have been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

36

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTAMENTAL

EMERGING MARKET EQUITY ETF

 

FINANCIAL HIGHLIGHTS

Selected Per Share Data & Ratios

For a Share Outstanding

Throughout the Period

   

Year
Ended
September 30, 2023

   

Period Ended
September 30, 2022*

 

Net Asset Value, Beginning of Year

  $ 19.68     $ 25.00  

Income (Loss) from Investment Operations:

               

Net Investment Income

    0.56       0.98  

Net Realized and Unrealized Gain (Loss)

    2.02       (6.20 )

Total from Investment Operations

    2.58       (5.22 )

Dividends and Distributions:

               

Net Investment Income

    (1.07 )     (0.10 )

Total Dividends and Distributions

    (1.07 )     (0.10 )

Net Asset Value, End of Year

  $ 21.19     $ 19.68  

Total Return

    13.72 %     (20.97 )%

Ratios and Supplemental Data

               

Net Assets, End of Year (Thousands)

  $ 37,076     $ 18,696  

Ratio of Expenses to Average Net Assets

    0.86 %     0.80 %

Ratio of Expenses to Average Net Assets (Excluding Waivers and Reimbursements)

    1.86 %     1.83 %

Ratio of Net Investment Loss to Average Net Assets

    2.71 %     5.53 %

Portfolio Turnover Rate

    367 %     295

 

*

Commenced operations on December 15, 2021.

Per share calculations were performed using average shares for the period.

Annualized.

Total return is for the period indicated and has not been annualized. Returns shown do not reflect the deductions of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

§

Portfolio turnover is for the period indicated and has not been annualized.

 

Amounts designated as “—” are either not applicable, $0 or have been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

37

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT QUANTITATIVE

DEVELOPED MARKET EQUITY ETF

 

FINANCIAL HIGHLIGHTS

Selected Per Share Data & Ratios

For a Share Outstanding

Throughout the Period

   

Year
Ended
September 30, 2023

   

Period Ended
September 30, 2022*

 

Net Asset Value, Beginning of Year

  $ 20.38     $ 25.00  

Income (Loss) from Investment Operations:

               

Net Investment Income

    0.29       0.21  

Net Realized and Unrealized Gain (Loss)

    3.04       (4.83 )

Total from Investment Operations

    3.33       (4.62 )

Dividends and Distributions:

               

Net Investment Income

    (0.31 )     ^

Total Dividends and Distributions

    (0.31 )      

Net Asset Value, End of Year

  $ 23.40     $ 20.38  

Total Return

    16.44 %     (18.47 )%

Ratios and Supplemental Data

               

Net Assets, End of Year (Thousands)

  $ 57,330     $ 50,947  

Ratio of Expenses to Average Net Assets

    0.80 %     0.80 %

Ratio of Expenses to Average Net Assets (Excluding Waivers and Reimbursements)

    1.17 %     1.05 %

Ratio of Net Investment Loss to Average Net Assets

    1.29 %     1.17 %

Portfolio Turnover Rate

    286 %     235

 

*

Commenced operations on December 15, 2021.

Per share calculations were performed using average shares for the period.

Annualized.

Total return is for the period indicated and has not been annualized. Returns shown do not reflect the deductions of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

^

Amount represents less than $0.005 per share.

§

Portfolio turnover is for the period indicated and has not been annualized.

 

Amounts designated as “—” are either not applicable, $0 or have been rounded to $0.

 

The accompanying notes are an integral part of the financial statements.

38

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

NOTES TO FINANCIAL STATEMENTS

 

1. Organization:

 

The Advisors’ Inner Circle Fund III (the “Trust”) is organized as a Delaware statutory trust under a Declaration of Trust dated December 4, 2013. The Trust is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company with 66 funds. The financial statements herein are those of the Rayliant Quantamental China Equity ETF, the Rayliant Quantamental Emerging Market Equity ETF, and the Rayliant Quantitative Developed Market Equity ETF (the “Funds”). The investment objective of each of the Funds is to seek long-term capital appreciation. Each of the Funds is classified as a non-diversified investment company. Rayliant Asset Management serves as the investment adviser (the “Adviser”) to each of the Funds. The Adviser has registered with the National Futures Association as a “Commodity Pool Operator” under the Commodities Exchange Act with respect to each of the Funds. The Rayliant Quantamental China Equity ETF commenced operations on December 30, 2020; the Rayliant Quantamental Emerging Market Equity ETF and the Rayliant Quantitative Developed Market Equity ETF each commenced operations on December 15, 2021. The financial statements of the remaining funds of the Trust are presented separately. The assets of each fund are segregated, and a shareholder’s interest is limited to the funds in which shares are held.

 

2. Significant Accounting Policies:

 

The following are significant accounting policies, which are consistently followed in the preparation of the financial statements of the Funds. The Funds are each investment companies that apply the accounting and reporting guidance issued in Topic 946 by the U.S. Financial Accounting Standards Board (“FASB”).

 

Use of Estimates — The preparation of financial statements, in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates and such differences could be material.

 

Security Valuation — Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on an exchange or market (foreign or domestic) on which they are traded or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ official closing

 

39

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

price will be used. The prices for foreign securities are reported in local currency and converted to U.S. dollars using currency exchange rates. Prices for most securities held in the Funds are provided daily by recognized independent pricing agents. If a security price cannot be obtained from an independent, third-party pricing agent, the Funds seeks to obtain a bid price from at least one independent broker.

 

Securities for which market prices are not “readily available” are required to be fair valued under the 1940 Act.

 

In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, establishing requirements to determine fair value in good faith for purposes of the 1940 Act. The rule permits fund boards to designate a fund's investment adviser to perform fair-value determinations, subject to board oversight and certain other conditions. The rule also defines when market quotations are "readily available" for purposes of the 1940 Act and requires a fund to fair value a portfolio investment when a market quotation is not readily available. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair-value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 was September 8, 2022.

 

Effective September 8, 2022, and pursuant to the requirements of Rule 2a-5, the Trust’s Board of Trustees designated the Adviser as the Board’s valuation designee to perform fair-value determinations for the Funds through a Fair Value Committee established by the Adviser and approved new Adviser Fair Value Procedures for the Funds. Prior to September 8, 2022, fair-value determinations were performed in accordance with the Trust’s Fair Value Procedures established by the Funds’ Board of Trustees and were implemented through a Fair Value Committee designated by the Board.

 

Some of the more common reasons that may necessitate that a security be valued using Fair Value Procedures include: the security’s trading has been halted or suspended; the security has been de-listed from a national exchange; the security’s primary trading market is temporarily closed at a time when under normal conditions it would be open; the security has not been traded for an extended period of time; the security’s primary pricing source is not able or willing to provide a price; or trading of the security is subject to local government imposed restrictions. When a security is valued in accordance with the Fair Value Procedures, the Committee will determine the value after taking into consideration relevant information reasonably available to the Committee.

 

For securities that principally trade on a foreign market or exchange, a significant gap in time can exist between the time of a particular security’s last trade and the time at which the Funds calculate its net asset value. The closing prices of such

 

40

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

securities may no longer reflect their market value at the time the Funds calculate its net asset value if an event that could materially affect the value of those securities (a “Significant Event”) has occurred between the time of the security’s last close and the time that the Funds calculate net asset value. A Significant Event may relate to a single issuer or to an entire market sector. If the Adviser of the Funds become aware of a Significant Event that has occurred with respect to a security or group of securities after the closing of the exchange or market on which the security or securities principally trade, but before the time at which the Funds calculate its net asset value, it may request that a Committee meeting be called.

 

In accordance with U.S. GAAP, the Funds disclose fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).
Accordingly, the fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

 

 

Level 1 — Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Funds have the ability to access at the measurement date;

 

 

Level 2 — Other significant observable inputs (includes quoted prices for similar securities, interest rates, prepayment speeds, credit risk, referenced indices, quoted prices in inactive markets, adjusted quoted prices in active markets, adjusted quoted prices on foreign equity securities that were adjusted in accordance with pricing procedures approved by the Board, etc.); and

 

 

Level 3 — Prices, inputs or exotic modeling techniques which are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

Investments are classified within the level of the lowest significant input considered in determining fair value. Investments classified within Level 3 whose fair value measurement considers several inputs may include Level 1 or Level 2 inputs as components of the overall fair value measurement.

 

Federal Income Taxes It is the Funds’ intention to continue to qualify as a regulated investment company for Federal income tax purposes by complying with the appropriate provisions of Subchapter M of the Internal Revenue Code of 1986,

 

41

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

as amended. Accordingly, no provision for Federal income taxes has been made in the financial statements.

 

The Funds evaluate tax positions taken or expected to be taken in the course of preparing the Funds’ tax returns to determine whether it is “more-likely than-not” (i.e., greater than 50-percent) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. The Funds did not record any tax provision in the current period. However, management’s conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including, but not limited to, examination by tax authorities (i.e., from commencement of operations, as applicable), on-going analysis of and changes to tax laws, regulations and interpretations thereof.

 

As of and during the year ended September 30, 2023, the Funds did not have a liability for any unrecognized tax benefits. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period, the Funds did not incur any interest or penalties.

 

Security Transactions and Investment IncomeSecurity transactions are accounted for on the trade date. Costs used in determining realized gains and losses on the sale of investment securities are based on the specific identification method. Dividend income and expense are recorded on the ex-dividend date. Dividend income is recorded net of unrecoverable withholding tax. Interest income is recognized on the accrual basis from settlement date. Certain dividends and expenses from foreign securities will be recorded as soon as the Funds are informed of the dividend if such information is obtained subsequent to the ex-dividend date.

 

Foreign Currency TranslationThe books and records of the Funds are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars on the date of valuation. The Funds do not isolate that portion of realized or unrealized gains and losses resulting from changes in the foreign exchange rate from fluctuations arising from changes in the market prices of the securities. These gains and losses are included in net realized and unrealized gains and losses on investments on the Statement of Operations. Net realized and unrealized gains and losses on foreign currency transactions represent net foreign exchange gains or losses from foreign currency exchange contracts, disposition of foreign currencies, currency gains or losses realized between trade and settlement dates on securities transactions and the difference between the amount of the investment income and foreign withholding

 

42

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

taxes recorded on the Funds’ books and the U.S. dollar equivalent of the amounts actually received or paid.

 

Classes Class specific expenses are borne by that class of shares. Income, realized and unrealized gains (losses), and non-class specific expenses are allocated to the respective class on basis of relative daily net assets.

 

ExpensesMost expenses of the Trust can be directly attributed to a particular fund. Expenses which cannot be directly attributed to a particular fund are apportioned among the funds of the Trust based on the number of funds and/or relative net assets.

 

Cash — Idle cash may be swept into various time deposit accounts and is classified as cash on the Statement of Assets and Liabilities. The Fund maintains cash in bank deposit accounts which, at times may exceed United States federally insured limits. Amounts invested are available on the same business day.

 

Dividends and Distributions to ShareholdersAny net realized capital gains are distributed annually. All distributions are recorded on the ex-dividend date.

 

Creation Units — The Funds issue and redeems Shares at Net Asset Value (“NAV”) and only in large blocks of Shares (each block of Shares for the Funds are a Creation Unit of 25,000, 50,000 and 25,000 Shares for Rayliant Quantamental China Equity ETF, Rayliant Quantamental Emerging Market Equity ETF and Rayliant Quantitative Developed Market Equity ETF, respectively, or multiples thereof). Except when aggregated in Creation Units, Shares are not redeemable securities of the Funds. Shares of Funds may only be purchased or redeemed by certain Authorized Participants. An Authorized Participant is either (i) a broker-dealer or other participant in the clearing process through the Continuous Net Settlement System of the National Securities Clearing Corporation or (ii) a Depository Trust Company (‘‘DTC’’) participant and, in each case, must have executed a Participant Agreement with the Distributor. Most retail investors will not qualify as Authorized Participants or have the resources to buy and sell whole Creation Units. Therefore, they will be unable to purchase or redeem the Shares directly from Funds. Rather, most retail investors will purchase Shares in the secondary market with the assistance of a broker and will be subject to customary brokerage commissions or fees when buying or selling Shares. If a Creation Unit is purchased or redeemed for cash, a higher transaction fee will be charged.

 

 

 

43

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

The following table discloses the value/cost of one creation unit, creation transaction fee and redemption transaction fee for each transaction in a Creation Unit as of September 30, 2023:

 

   

Creation Unit Shares

   

Creation Transaction Fee

   

Value

   

Redemption Transaction Fee

 

Rayliant Quantamental China Equity ETF

    25,000     $ 1,000     $ 360,500     $ 1,000  

Rayliant Quantamental Emerging Market Equity ETF

    50,000     $ 2,500     $ 1,059,500     $ 2,500  

Rayliant Quantitative Developed Market Equity ETF

    25,000     $ 1,000     $ 585,000     $ 1,000  

 

3. Transactions with Affiliates:

 

Certain officers of the Trust are also employees of SEI Investments Global Funds Services (the “Administrator”), a wholly owned subsidiary of SEI Investments Company, and/or SEI Investments Distribution Co. (the “Distributor”). Such officers are paid no fees by the Trust, other than the Chief Compliance Officer (“CCO”) as described below, for serving as officers of the Trust.

 

The services provided by the CCO and his staff are paid for by the Trust as incurred. The services include regulatory oversight of the Trust’s Advisors and service providers as required by SEC regulations. The CCO’s services and fees have been approved by and are reviewed by the Board.

 

4. Administration, Distribution, Custodian, and Transfer Agent Agreements:

 

The Funds and the Administrator are parties to an Administration Agreement under which the Administrator provides administration services to the Funds. For these services, the Administrator is paid an asset-based fee, which will vary depending on the number of share classes and the average daily net assets of the Funds. For the year ended September 30, 2023, for the Rayliant Quantamental China Equity ETF, the Rayliant Quantamental Emerging Market Equity ETF and the Rayliant Quantitative Developed Market Equity ETF incurred $122,646, $108,800 and $108,800, respectively, for these services.

 

The Trust has adopted a Distribution Plan (the “Plan”) applicable to the Funds in accordance with the provisions of Rule 12b-1 under the 1940 Act, which regulates circumstances under which an investment company may directly or indirectly bear expenses relating to the distribution of its shares.

 

Under the Plan, the Distributor or financial intermediaries may receive up to 0.25% of the average daily net assets of each Fund as compensation for distribution and shareholder services. For the year ended September 30, 2023, the Funds did not incur any fees for these services.

 

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THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

Brown Brothers Harriman & Co. acts as custodian (the “Custodian”) for each of the Funds. The Custodian plays no role in determining the investment policies of any of the Funds or which securities are to be purchased or sold by the Funds.

 

Brown Brothers Harriman & Co. also serves as the transfer agent and dividend disbursing agent for each of the Funds under a transfer agency agreement with the Trust.

 

5. Investment Advisory Agreement:

 

Under the terms of an investment advisory agreement between the Trust, on behalf of the Funds, and the Adviser, the Adviser provides investment advisory services to Rayliant Quantamental China Equity ETF, Rayliant Quantamental Emerging Market Equity ETF and Rayliant Quantitative Developed Market Equity ETF at a fee calculated at an annual rate of 0.60%, 0.65% and 0.65%, respectively, of the Fund’s average daily net assets. The Adviser has contractually agreed to reduce fees and to reimburse expenses for each of the Funds to the extent necessary to keep total annual fund operating expenses after fee reductions and/or expense reimbursements (excluding any class specific expenses, dividend and interest expenses on securities sold short, interest, taxes, acquired fund fee expenses and non-routine expenses) from exceeding 0.80%, 0.88% and 0.80% of the Fund’s’ average daily net assets for Rayliant Quantamental China Equity ETF, Rayliant Quantamental Emerging Market Equity ETF and Rayliant Quantitative Developed Market Equity ETF, respectively, until January 31, 2024 (the “Expense Limitation”). The Adviser may recover all or a portion of the Adviser’s fee reductions or expense reimbursements in regard to each of the Funds, up to the expense cap in place at the time the expenses were waived, within a three-year period from the year in which the Adviser reduced the Adviser’s fee or reimbursed expenses if the Fund’s total annual funds operating expenses are below the Expense Limitation. This agreement may be terminated by the Trust for any reason at any time, or by the Adviser, upon ninety (90) days’ prior written notice to the Trust, effective as of the close of business on January 31, 2024. During the year ended September 30, 2023, the Funds did not recoup any previously waived fees.

 

As of September 30, 2023, the following amounts of waivers/reimbursements are subject to recoupment:

 

Period

 

Subject to Repayment until September 30:

   

Rayliant Quantamental China Equity ETF

   

Rayliant Quantamental Emerging Market Equity ETF

   

Rayliant Quantitative Developed Market Equity ETF

 

2021

    2024     $ 269,626     $     $  

2022

    2025       228,587       189,793       158,971  

2023

    2026       224,093       238,861       207,405  
            $ 722,306     $ 428,654     $ 366,376  

 

45

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

6. Investment Transactions:

 

For the year ended September 30, 2023, the Rayliant Quantamental China Equity ETF made purchases of $305,973,663 and sales of $304,584,480 in investment securities other than long-term U.S. Government and short-term securities.

 

For the year ended September 30, 2023, the Rayliant Quantamental Emerging Market Equity ETF made purchases of $104,970,373 and sales of $87,882,404 in investment securities other than long-term U.S. Government and short-term securities.

 

For the year ended September 30, 2023, the Rayliant Quantitative Developed Market Equity ETF made purchases of $161,776,461 and sales of $162,408,680 in investment securities other than long-term U.S. Government and short-term securities. The purchase and sales balances include the effect of securities received or delivered from processing in-kind creations of $535,300 and redemptions of $1,628,162 respectively, and have been properly excluded from the calculation of portfolio turnover within the Fund’s financial highlights. Realized gains on in-kind redemptions were $1,257.

 

7. Federal Tax Information:

 

The amount and character of income and capital gain distributions to be paid, if any, are determined in accordance with Federal income tax regulations, which may differ from U.S. GAAP. As a result, net investment income (loss) and net realized gain/(loss) on investment transactions for a reporting period may differ significantly from distributions during the year. Book/tax differences may be temporary or permanent.

 

The permanent differences are primary attributed to different treatment for gains and losses on REIT adjustments, PFIC adjustments, India capital gains tax and foreign currency transactions.

 

At September 30, 2023, the fund reclassifed the following permanent amount between capital paid-in and distributable earnings (accumulated losses), the reclassification is primarily related to In-Kind Redemptions:

 

   

Distributable Earnings (Accumulated Loss)

   

Paid-in Capital

 

Rayliant Quantitative Developed

Market Equity ETF

  $ 3,934     $ (3,934 )

 

46

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

The tax character of dividends and distributions paid during the year ended September 30, 2023 are as follows:

 

   

Ordinary Income

   

Total

 

Rayliant Quantamental

China Equity ETF

  $ 1,556,945     $ 1,556,945  

Rayliant Quantamental Emerging

Market Equity ETF

    1,018,970       1,018,970  

Rayliant Quantitative Developed

Market Equity ETF

    761,063       761,063  

 

As of September 30, 2023, the components of Distributable Earnings on a tax basis for the Funds were as follows:

 

   

Rayliant Quantamental China Equity ETF

   

Rayliant Quantamental Emerging Market Equity ETF

   

Rayliant Quantitative Developed Market Equity ETF

 

Undistributed Ordinary Income

  $ 1,625,717     $ 594,868     $ 873,662  

Capital Loss Carryforwards

    (38,648,981 )     (5,061,747 )     (8,529,072 )

Unrealized Appreciation (Depreciation)

    (6,565,340 )     (1,181,966 )     1,244,527  

Other Temporary Differences

    (2 )     (3 )     (1 )

Total Accumulated Losses

  $ (43,588,606 )   $ (5,648,848 )   $ (6,410,884 )

 

The fund has capital losses carried forward as follows:

 

   

Short-Term Loss

   

Long-Term Loss

   

Total

 

Rayliant Quantamental China Equity ETF

  $ 36,496,332     $ 2,152,649     $ 38,648,981  

Rayliant Quantamental Emerging Market Equity ETF

    5,061,747             5,061,747  

Rayliant Quantitative Developed Market Equity ETF

    8,529,072             8,529,072  

 

During the year ended September 30, 2023, Rayliant Quantitative Developed Market Equity ETF utilized $390,930 in capital loss carryforwards to offset capital gains.

 

 

47

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

For Federal income tax purposes, the difference between Federal tax cost and book cost primarily relates to wash sales and PFIC MTM adjustments. The Federal tax cost and aggregate gross unrealized appreciation and depreciation for investments held by the Fund at September 30, 2023 were as follows:

 

   

Federal Tax Cost

   

Aggregate Gross Unrealized Appreciation

   

Aggregate Gross Unrealized Depreciation

   

Net Unrealized Appreciation (Depreciation)

 

Rayliant Quantamental China Equity ETF

  $ 88,463,367     $ 1,168,371     $ (7,733,711 )   $ (6,565,340 )

Rayliant Quantamental Emerging Market Equity ETF

    38,202,565       1,742,451       (2,871,118 )     (1,128,667 )*

Rayliant Quantitative Developed Market Equity ETF

    55,758,648       3,232,185       (1,987,658 )     1,244,527  

 

*The difference in unrealized depreciation is attributable to Foreign Capital Gains Tax Payable.

 

8. Concentration of Risks:

 

As with all ETFs, there is no guarantee that the Funds will achieve their investment objectives. A Fund share is not a bank deposit and it is not insured or guaranteed by the FDIC or any government agency. Each Fund is subject to certain of the principal risks noted below. A more complete description of principal risks is included in each Fund’s prospectus under the heading “Principal Ricks”.

 

Risk of Investing in China - Since 1978, the Chinese government has been, and is expected to continue, reforming its economic policies, which has resulted in less direct central and local government control over the business and production activities of Chinese enterprises and companies. Notwithstanding the economic reforms instituted by the Chinese government and the Chinese Communist Party, actions of the Chinese central and local government authorities continue to have a substantial effect on economic conditions in China, which could affect the public and private sector companies in which the Rayliant Quantamental China Equity ETF invests. In the past, the Chinese government has from time to time taken actions that influence the prices at which certain goods may be sold, encourage companies to invest or concentrate in particular industries, induce mergers between companies in certain industries and induce private companies to publicly offer their securities to increase or continue the rate of economic growth, control the rate of inflation or otherwise regulate economic expansion. It may do so in the future as well. Such actions and a variety of other centrally planned or determined activities by the Chinese government could have a significant adverse effect

 

48

 

THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

SEPTEMBER 30, 2023

 

on economic conditions in China, the economic prospects for, and the market prices and liquidity of, the securities of Chinese companies and the payments of dividends and interest by Chinese companies.

 

Risk of Investing in Russia - Russia's military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict have had, and could continue to have, severe adverse effects on regional and global economies and could further increase volatility and uncertainty in the financial markets. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine.

 

The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that provide military or economic support to Russia. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion. To the extent that a Fund has exposure to Russian investments or investments in countries affected by the invasion, the Fund's ability to price, buy, sell, receive or deliver such investments may be impaired. In addition, any exposure that a Fund may have to counterparties in Russia or in countries affected by the invasion could negatively impact the Fund's investments. The extent and duration of military actions and the repercussions of such actions (including any retaliatory actions or countermeasures that may be taken by those subject to sanctions) are impossible to predict. These events have resulted in, and could continue to result in, significant market disruptions, including in certain industries or sectors such as the oil and natural gas markets, and may further strain global supply chains and negatively affect inflation and global growth. These and any related events could significantly impact a Fund's performance and the value of an investment in a Fund beyond any direct exposure a Fund may have to Russian issuers or issuers in other countries affected by the invasion.

 

Equity Market Risk - Because a Fund may invest in equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity markets have moved in cycles, and the value of the Fund’s securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. The market as a whole may not favor the types of investments a Fund makes. Many factors can adversely affect a security’s performance, including both general financial market conditions and factors related to a specific company, industry or geographic region. In addition, the impact of any epidemic, pandemic or natural disaster, or widespread fear that such

 

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THE ADVISORS’ INNER CIRCLE FUND III

RAYLIANT ETFs

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events may occur, could negatively affect the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the markets in general in significant and unforeseen ways. Any such impact could adversely affect the prices and liquidity of the securities and other instruments in which a Fund invests, which in turn could negatively impact the Fund’s performance and cause losses on your investment in the Fund. Recent examples include pandemic risks related to COVID-19 and aggressive measures taken worldwide in response by governments, including closing borders, restricting international and domestic travel, and the imposition of prolonged quarantines of large populations, and by businesses, including changes to operations and reducing staff. The impact of the COVID-19 pandemic may be short-term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession. During a general economic downturn in the securities markets, multiple asset classes may be negatively affected. In the case of foreign stocks, these fluctuations will reflect international economic and political events, as well as changes in currency valuations relative to the U.S. dollar. These factors contribute to price volatility, which is a principal risk of investing in a Fund.

 

Stock Connect Investing Risk – The Rayliant Quantamental China Equity ETF purchases of China A Shares through Stock Connect involve ownership rights that are exercised differently than those involved in U.S. securities markets. When the Rayliant Quantamental China Equity ETF buys a Shanghai Stock Exchange-listed or Shenzhen Stock Exchange-listed stock through Stock Connect, the Fund is purchasing a security registered under the name of the Hong Kong Securities Clearing Company Limited (“HKSCC”) that acts as a nominee holder for the beneficial owner of the Shanghai Stock Exchange-listed or Shenzhen Stock Exchange-listed stock. The Fund as the beneficial owner of the Shanghai Stock Exchange-listed or Shenzhen Stock Exchange-listed stock can exercise its rights through its nominee HKSCC. However, due to the indirect nature of holding its ownership interest through a nominee holder, the Fund might encounter difficulty in exercising or timely exercising its rights as the beneficial owner when trading through HKSCC under Stock Connect, and such difficulty may expose the Fund to risk of loss.

 

Foreign Securities Risk - Investments in securities of foreign companies (including direct investments as well as investments through certain depositary receipts) can be more volatile than investments in U.S. companies. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign companies. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. In addition, the value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Financial statements of foreign issuers are governed by different accounting, auditing, and financial reporting standards than the financial statements of U.S. issuers. Thus, there may be less information publicly available about foreign issuers than about most U.S.

 

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issuers. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising a Fund’s portfolio. Any spread of an infectious illness, public health threat or similar issue could reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the economies of the affected country and other countries with which it does business, which in turn could adversely affect a Fund's investments in that country and other affected countries. Additionally, periodic U.S. Government restrictions on investments in issuers from certain foreign countries may result in a Fund having to sell such prohibited securities at inopportune times. Such prohibited securities may have less liquidity as a result of such U.S. Government designation and the market price of such prohibited securities may decline, which may cause the Fund to incur losses.

 

Foreign Currency Risk - As a result of a Fund's investments in securities or other investments denominated in, and/or receiving revenues in, foreign currencies, the Fund will be subject to currency risk. Currency risk is the risk that foreign currencies will decline in value relative to the U.S. dollar, in which case the dollar value of an investment in a Fund would be adversely affected. Currency exchange rates may fluctuate in response to, among other things, changes in interest rates, intervention (or failure to intervene) by U.S. or foreign governments, central banks or supranational entities, or by the imposition of currency controls or other political developments in the United States or abroad.

 

Large Capitalization Risk - If valuations of large capitalization companies appear to be greatly out of proportion to the valuations of small or medium capitalization companies, investors may migrate to the stocks of small and medium-sized companies. Additionally, larger, more established companies may be unable to respond quickly to new competitive challenges such as changes in technology and consumer tastes. Larger companies also may not be able to attain the high growth rates of successful smaller companies.

 

Small and Medium Capitalization Issuers Risk - Investing in equity securities of small and medium capitalization companies often involves greater risk than is customarily associated with investments in larger capitalization companies. This increased risk may be due to the greater business risks of smaller size companies, limited markets and financial resources, narrow product lines and the frequent lack of depth of management. Stock prices of smaller companies may be based in substantial part on future expectations rather than current achievements. The securities of smaller companies are often traded over-the-counter and, even if listed on a national securities exchange, may not be traded in volumes typical for that exchange. Consequently, the securities of smaller companies may be less liquid, may have limited market stability and may be subject to more severe, abrupt or erratic market movements than securities of larger, more established companies or the market averages in general. Further, smaller

 

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companies may have less publicly available information and, when available, it may be inaccurate or incomplete.

 

Emerging Markets Securities Risk - Investments in emerging markets securities, including those outside of China, are considered speculative and subject to heightened risks in addition to the general risks of investing in foreign securities. Unlike more established markets, emerging markets may have governments that are less stable and economies that are less developed. Furthermore, future economic or political crises could lead to price controls, forced mergers, expropriation or confiscatory taxation, seizure, nationalization or creation of government monopolies.

 

Depositary Receipts Risk - American Depositary Receipts (“ADRs”) are typically trust receipts issued by a U.S. bank or trust company that evidence an indirect interest in underlying securities issued by a foreign entity. Global Depositary Receipts (“GDRs”), European Depositary Receipts (“EDRs”), and other types of depositary receipts (collectively, “Depositary Receipts”) are typically issued by non-U.S. banks or financial institutions to evidence an interest in underlying securities issued by either a U.S. or a non-U.S. entity. Investments in non-U.S. issuers through ADRs, GDRs, EDRs, and other types of Depositary Receipts generally involve risks applicable to other types of investments in non-U.S. issuers. Investments in Depositary Receipts may be less liquid and more volatile than the underlying securities in their primary trading market. If a Depositary Receipt is denominated in a different currency than its underlying securities, a Fund will be subject to the currency risk of both the investment in the Depositary Receipt and the underlying security. The values of Depositary Receipts may decline for a number of reasons relating to the issuers or sponsors of the Depositary Receipts, including, but not limited to, insolvency of the issuer or sponsor. Holders of Depositary Receipts may have limited or no rights to take action with respect to the underlying securities or to compel the issuer of the receipts to take action. The prices of Depositary Receipts may differ from the prices of securities upon which they are based. In addition, there is risk involved in investing in unsponsored depositary receipts, as there may be less information available about the underlying issuer than there is about an issuer of sponsored depositary receipts and the prices of unsponsored depositary receipts may be more volatile than those of sponsored depositary receipts.

 

Management Risk - Each Fund is subject to the risk that the Adviser’s judgments about the attractiveness, value, or potential appreciation of the Fund’s investments may prove to be incorrect. In addition, the prices of common stocks move up and down in response to corporate earnings and developments, economic and market conditions and anticipated events. Individual issuers may report poor results or be negatively affected by industry and/or economic trends and developments. A Fund’s investment success depends on the skill of the Adviser in evaluating, selecting and monitoring the portfolio assets. If the Adviser’s conclusions about growth rates or securities values are incorrect, the Fund may not perform as anticipated.

 

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Quantitative Investing Risk - A quantitative investment style generally involves the use of computers to implement a systematic or rules-based approach to selecting investments based on specific measurable factors. Due to the significant role technology plays in such strategies, they carry the risk of unintended or unrecognized issues or flaws in the design, coding, implementation or maintenance of the computer programs or technology used in the development and implementation of the quantitative strategy. These issues or flaws, which can be difficult to identify, may result in the implementation of a portfolio that is different from that which was intended, and could negatively impact investment returns. Such risks should be viewed as an inherent element of investing in an investment strategy that relies heavily upon quantitative models and computerization.

 

ETF Risks - The Funds are ETFs and, as a result of this structure, they are exposed to the following risks:

 

Trading Risk - Although Fund shares are listed for trading on a listing exchange, there can be no assurance that an active trading market for such shares will develop or be maintained. Secondary market trading in a Fund’s shares may be halted by a listing exchange because of market conditions or for other reasons. In addition, trading in a Fund’s shares is subject to trading halts caused by extraordinary market volatility pursuant to “circuit breaker” rules. There can be no assurance that the requirements necessary to maintain the listing of a Fund’s shares will continue to be met or will remain unchanged.

 

Shares of a Fund may trade at, above or below their most recent NAV. The per share NAV of a Fund is calculated at the end of each business day and fluctuates with changes in the market value of a Fund’s holdings since the prior most recent calculation. The trading prices of a Fund’s shares will fluctuate continuously throughout trading hours based on market supply and demand. The trading prices of a Fund’s shares may deviate significantly from NAV during periods of market volatility. These factors, among others, may lead to a Fund’s shares trading at a premium or discount to NAV. However, given that shares can be created and redeemed only in Creation Units at NAV, the Adviser does not believe that large discounts or premiums to NAV will exist for extended periods of time. While the creation/redemption feature is designed to make it likely that a Fund’s shares normally will trade close to a Fund’s NAV, exchange prices are not expected to correlate exactly with a Fund’s NAV due to timing reasons as well as market supply and demand factors. In addition, disruptions to creations and redemptions or the existence of extreme volatility may result in trading prices that differ significantly from NAV. If a shareholder purchases at a time when the market price of a Fund is at a premium to its NAV or sells at time when the market price is at a discount to the NAV, the shareholder may sustain losses.

 

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Where all or a portion of a Fund’s underlying securities trade in a market that is closed when the market in which the Fund’s shares are listed and trading in that market is open, there may be changes between the last quote from its closed foreign market and the value of such security during the Fund’s domestic trading day. This in turn could lead to differences between the market price of the Fund’s shares and the underlying value of those shares.

 

Investors buying or selling shares of a Fund in the secondary market will pay brokerage commissions or other charges imposed by brokers as determined by that broker. Brokerage commissions are often a fixed amount and may be a significant proportional cost for investors seeking to buy or sell relatively small amounts of shares. In addition, secondary market investors will also incur the cost of the difference between the price that an investor is willing to pay for shares (the “bid” price) and the price at which an investor is willing to sell shares (the “ask” price). This difference in bid and ask prices is often referred to as the “spread” or “bid/ask spread.” The bid/ask spread varies over time for shares based on trading volume and market liquidity, and is generally lower if a Fund’s shares have more trading volume and market liquidity and higher if a Fund’s shares have little trading volume and market liquidity. Further, increased market volatility may cause increased bid/ask spreads. Due to the costs of buying or selling shares of a Fund, including bid/ask spreads, frequent trading of such shares may significantly reduce investment results and an investment in a Fund’s shares may not be advisable for investors who anticipate regularly making small investments.

 

Cash Transactions Risk - Like other ETFs, a Fund sells and redeems its shares only in large blocks called Creation Units and only to “Authorized Participants.” Unlike many other ETFs, however, a Fund expects to effect its creations and redemptions at least partially for cash, rather than in-kind securities. Thus, an investment in a Fund may be less tax-efficient than an investment in other ETFs as a Fund may recognize a capital gain that it could have avoided by making redemptions in-kind. As a result, a Fund may pay out higher capital gains distributions than ETFs that redeem in-kind. Further, paying redemption proceeds at least partially in cash rather than through in-kind delivery of portfolio securities may require a Fund to dispose of or sell portfolio investments to obtain the cash needed to distribute redemption proceeds at an inopportune time.

 

Limited Authorized Participants, Market Makers and Liquidity Providers Risk - Only an Authorized Participant may engage in creation or redemption transactions directly with a Fund. A Fund has a limited number of financial institutions that may act as Authorized Participants. In addition, there may be a limited number of market makers and/or liquidity providers in the marketplace. To the extent either of the following events occur, Fund shares may trade at a material discount to NAV and possibly face delisting: (i) Authorized Participants exit the business or

 

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otherwise become unable to process creation and/or redemption orders and no other Authorized Participants step forward to perform these services, or (ii) market makers and/or liquidity providers exit the business or significantly reduce their business activities and no other entities step forward to perform their functions. An active trading market for shares of a Fund may not develop or be maintained, and, particularly during times of market stress, Authorized Participants or market makers may step away from their respective roles in making a market in shares of a Fund and in executing purchase or redemption orders. This could, in turn, lead to variances between the market price of a Fund’s shares and the value of its underlying securities.

 

Investments in Investment Companies Risk - A Fund may purchase shares of investment companies. When a Fund invests in an investment company, it will bear a pro rata portion of the investment company’s expenses in addition to directly bearing the expenses associated with its own operations. Such expenses may make owning shares of an investment company more costly than owning the underlying securities directly. In part because of these additional expenses, the performance of an investment company may differ from the performance a Fund would achieve if it invested directly in the underlying investments of the investment company. In addition, while the risks of owning shares of an investment company generally reflect the risks of owning the underlying investments of the investment company, a Fund may be subject to additional or different risks than if the Fund had invested directly in the underlying investments.

 

ETFs - ETFs are pooled investment vehicles whose shares are listed and traded on U.S. and non-U.S. stock exchanges. To the extent that a Fund invests in ETFs, the Fund will be subject to substantially the same risks as those associated with the direct ownership of the securities in which the ETF invests, and the value of the Fund’s investment will fluctuate in response to the performance of the ETF’s holdings. ETFs typically incur fees that are separate from those of the Fund. Accordingly, a Fund’s investments in ETFs will result in the layering of expenses such that shareholders will indirectly bear a proportionate share of the ETFs’ operating expenses, in addition to paying Fund expenses. Because the value of ETF shares depends on the demand in the market, shares may trade at a discount or premium to their NAV and the Adviser may not be able to liquidate the Fund’s holdings at the most optimal time, which could adversely affect the Fund’s performance.

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