ck0001467831-20210930
ETFMG
Prime Junior Silver
Miners ETF (SILJ)
ETFMG
Prime 2x Daily Junior Silver
Miners ETF (SILX)
ETFMG Prime 2x Daily Inverse Junior Silver Miners
ETF (SINV))
Listed
on NYSE Arca, Inc.
Each
Fund is a series of ETF Managers Trust
PROSPECTUS
January
31, 2022
THE
SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
About
This Prospectus
This
prospectus has been arranged into different sections so that you can easily
review this important information. For detailed information about the Fund,
please see:
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ETFMG
Prime Junior Silver
Miners
ETF - FUND SUMMARY |
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ETFMG
Prime 2x Daily Junior Silver
Miners
ETF - FUND SUMMARY |
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ETFMG
Prime 2x Daily Inverse Junior Silver Miners ETF - FUND
SUMMARY |
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Summary
Information about Purchases, Sales, Taxes, and Financial Intermediary
Compensation |
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ETFMG
PRIME JUNIOR SILVER MINERS ETF — FUND SUMMARY
Investment Objective
The
ETFMG Prime Junior Silver Miners
ETF
(the “Fund” or the “Junior Silver ETF”) seeks to provide investment results
that, before fees and expenses, correspond generally to the total return of the
Prime Junior Silver Miners & Explorers Index (the
“Index”).
Fees and Expenses
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
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Management
Fee |
0.69 |
% |
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Distribution
and Service (12b-1) Fees |
None |
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Total
Annual Fund Operating Expenses |
0.69 |
% |
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Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. This
Example does not take into account the brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your cost would be:
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1
Year |
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3
Years |
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5
Years |
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10
Years |
$70 |
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$221 |
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$384 |
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$859 |
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when the Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. For the fiscal year ended
September 30, 2021, the Fund’s portfolio turnover rate was 26% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund uses a “passive” or indexing approach to try to achieve the Fund’s
investment objective. Unlike many investment companies, the Fund does not try to
“beat” the Index and does not seek temporary defensive positions when markets
decline or appear overvalued.
The
Fund generally expects to use a replication strategy. A replication strategy is
an indexing strategy that involves investing in the securities of the Index in
approximately the same proportions as in the Index. However, the Fund may
utilize a representative sampling strategy with respect to the Index when a
replication strategy might be detrimental to shareholders, such as when there
are practical difficulties or substantial costs involved in compiling a
portfolio of equity securities to follow the Index, in instances in which a
security in the Index becomes temporarily illiquid, unavailable or less liquid,
or as a result of legal restrictions or limitations (such as tax diversification
requirements) that apply to the Fund but not the Index.
The
Index tracks the performance of the equity securities (or corresponding American
Depositary Receipts (“ADRs”) or Global Depositary Receipts (“GDRs”)) of
small-capitalization companies actively engaged in silver refining, mining, or
exploration (“Junior Silver Companies”). “Junior” is a term used in reference to
small capitalization exploration companies. Junior Silver Companies include pure
play companies that generate more than 50% of their revenue from silver mining
activities and non-pure play companies that generate 50% or less of their
revenue from silver mining activities. The stocks are weighted according to a
modified market capitalization that is based upon the percentage of company
revenues generated from silver mining activities such that, when weighting
Junior Silver Companies, the market cap of a pure play company is multiplied by
a factor of three and the market cap of a non-pure play company is multiplied by
a factor of one. The five stocks with the highest adjusted market capitalization
are assigned a weight of 13%, 11%, 9%, 7%, and 5% respectively with all
remaining stocks weighted pro rata based on their relative adjusted market
capitalization, subject to a cap of 4.5%. The securities of each company in the
Index must also be listed on a securities exchange.
The
initial universe of Junior Silver Companies is determined based on proprietary
research and analysis conducted by Prime Indexes, (the “Index Provider”), an
independent index provider that is not affiliated with the Fund’s investment
adviser. The Index Provider uses a variety of publicly available resources for
such analysis, including financial statements and other reports published by
issuers to determine whether a company is actively engaged as a Junior Silver
Company.
The
Index Provider may exclude companies that meet the criteria for inclusion in the
Index or include companies that do not meet such criteria if it determines that
including or excluding them would be contrary to the objective of the Index
(e.g.,
their inclusion would negatively affect the investibility of the Index, the
company’s economic fortunes are predominantly driven by a business not related
to that of a Junior Silver Company, the company is expected to meet the
inclusion criteria in the immediate future and plays an important role in the
junior silver industry).
The
Index has a quarterly review in March, June, September, and December of each
year at which times the Index is reconstituted and rebalanced by the Index
Provider. The composition of the Index and the constituent weights are
determined on the two Thursdays before the second Friday of each March, June,
September, and December (or the next business day if this is a non-business day)
(the “Selection Day”). Component changes are made after the market close on the
third Friday of March, June, September, and December (or the next business day
if the third Friday is not a business day) and become effective at the market
opening on the next trading day. The Index is developed and owned by the Index
Provider, and the Index is calculated and maintained by Solactive AG. The Index
Provider is independent of Solactive AG, the Fund, and the Fund’s investment
adviser.
Junior
Silver Companies are then screened as of the Selection Date for investibility to
determine initial inclusion (e.g.,
must not be listed on an exchange in a country which employs certain
restrictions on foreign capital investment), a minimum market capitalization of
$20 million, a maximum market capitalization of $3 billion, and an operating
company structure (as opposed to a pass-through security). The Index Provider
may include companies in the Index with a market capitalization within 5% of the
above thresholds as of the Selection Date to account for short term fluctuations
in market capitalization resulting from changes in a security’s price.
The
weightings of the constituents of the Index are further modified in that the
cumulative weight of all constituents with an individual weight of 5% or greater
may not in the aggregate account for more than 50% of the weight of the Index as
of the Selection Day. Further, the cumulative weight of all components with a
market capitalization of less than US $100 million may not in the aggregate
account for more than 10% of the weight of the Index as of the Selection Day.
As
of January 14, 2022, the Index had 55 constituents.
The
Fund invests at least 80% of its total assets in the component securities of the
Index and in ADRs and GDRs based on the component securities in the Index. The
Fund may invest up to 20% of its total assets in securities that are not in the
Fund’s Index to the extent that the Fund’s adviser believes such investments
should help the Fund’s overall portfolio track the Index.
The
Fund rebalances its portfolio in accordance with its Index, and, therefore, any
changes to the Index’s rebalance schedule will result in corresponding changes
to the Fund’s rebalance schedule.
Correlation:
Correlation
is the extent to which the values of different types of investments move in
tandem with one another in response to changing economic and market conditions.
An index is a theoretical financial calculation, while the Fund is an actual
investment portfolio. The performance of the Fund and the Index may vary
somewhat due to transaction costs, asset valuations, foreign currency
valuations, market impact, corporate actions (such as mergers and spin-offs),
legal restrictions or limitations, illiquid or unavailable securities, and
timing variances.
The
Fund’s investment adviser expects that, over time, the correlation between the
Fund’s performance and that of the Index, before fees and expenses, will exceed
95%. A correlation percentage of 100% would indicate perfect correlation. If the
Fund uses a replication strategy, it can be expected to have greater correlation
to the Index than if it uses a representative sampling strategy.
Industry
Concentration Policy: The
Fund will concentrate its investments (i.e.,
hold 25% or more of its net assets) in a particular industry or group of related
industries to approximately the same extent that the Index is concentrated. As
of January 14, 2022, the Index was concentrated in companies in the metals and
mining industries group.
Principal Risks
As with all funds, a shareholder is subject to the risk
that his or her investment could lose money. The principal risks
affecting shareholders’ investments in the Fund are set forth below.
An investment in the Fund is not a
bank deposit and is not insured or guaranteed by the FDIC or any government
agency.
Silver
Exploration and Production Industry Concentration Risk:
The
Fund concentrates its assets in an industry or group of related industries to
the extent that the Index is so concentrated. Because the Index is expected to
concentrate in the Silver Exploration & Production sub-industry of the
Metals & Mining industry (in the Natural Resources/Minerals sector), the
Fund’s assets will be concentrated in, and will be more affected by the
performance of, that sub-industry than a fund that is more diversified. The
profitability of companies in the Silver Exploration & Production
sub-industry is related to, among other things, the worldwide price of silver
and the costs of extraction and production. Worldwide silver prices may
fluctuate substantially over short periods of time, so the Fund’s share price
may be more volatile than other types of investments. Companies in the
sub-industry may be adversely affected by economic conditions, tax treatment,
government regulation and intervention, and world events in the regions in which
the companies operate (e.g.,
expropriation, nationalization, confiscation of assets and property,
repatriation of capital, military coups, social unrest). The price of the equity
securities of silver mining companies and silver may not always be closely
correlated. Investing in a silver company involves certain risks unrelated to an
investment in silver as a commodity, including production costs, operational
and
managerial risk, and the possibility that the company will take measures to
hedge or minimize its exposure to the volatility of the market price of silver.
Smaller
Companies Risk:
The Fund’s Index may be composed primarily of, or have significant exposure to,
securities of smaller companies. Smaller companies may be more vulnerable to
adverse business or economic events than larger, more established companies, and
may underperform other segments of the market or the equity market as a whole.
The securities of smaller companies also tend to be bought and sold less
frequently and at significantly lower trading volumes than the securities of
larger companies. As a result, it may be more difficult for the Fund to buy or
sell a significant amount of the securities of a smaller company without an
adverse impact on the price of the company’s securities, or the Fund may have to
sell such securities in smaller quantities over a longer period of time, which
may increase the Fund’s tracking error.
Non-Diversification
Risk:
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a small number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer or a small number of
issuers could cause the Fund’s overall value to decline to a greater degree than
if the Fund held a more diversified portfolio. This may increase the Fund’s
volatility and have a greater impact on the Fund’s performance.
Foreign
Investment Risk:
Returns on investments in foreign stocks could be more volatile than, or trail
the returns on, investments in U.S. stocks. Since foreign exchanges may be open
on days when the Fund does not price its Shares, the value of the securities in
the Fund’s portfolio may change on days when shareholders will not be able to
purchase or sell the Shares. Conversely, Shares may trade on days when foreign
exchanges are closed. Because securities held by the Fund trade on foreign
exchanges that are closed when the Fund’s primary listing exchange is open, the
Fund is likely to experience premiums and discounts greater than those of
domestic ETFs. Each of these factors can make investments in the Fund more
volatile and potentially less liquid than other types of
investments.
Currency
Risk:
Indirect and direct exposure to foreign currencies subjects the Fund to the risk
that currencies will decline in value relative to the U.S. dollar. Currency
rates in foreign countries may fluctuate significantly over short periods of
time for a number of reasons, including changes in interest rates and the
imposition of currency controls or other political developments in the U.S. or
abroad.
Depositary
Receipts Risk:
The
Fund may invest in depositary receipts. Investment in ADRs and GDRs may be less
liquid than the underlying shares in their primary trading market and GDRs, many
of which are issued by companies in emerging markets, may be more volatile and
less liquid than depositary receipts issued by companies in more developed
markets.
Emerging
Markets Securities Risk:
The Fund’s investments may expose the Fund’s portfolio to the risks of investing
in emerging markets. Investments in emerging markets are subject to greater risk
of loss than investments in developed markets. This is due to, among other
things, greater market volatility, lower trading volume, political and economic
instability, greater risk of market shutdown and more governmental limitations
on foreign investments than typically found in developed markets.
Foreign
Market and Trading Risk:
The trading markets for many foreign securities are not as active as U.S.
markets and may have less governmental regulation and oversight. Foreign markets
also may have clearance and settlement procedures that make it difficult for the
Fund to buy and sell securities. These factors could result in a loss to the
Fund by causing the Fund to be unable to dispose of an investment or to miss an
attractive investment opportunity, or by causing Fund assets to be uninvested
for some period of time.
Foreign
Securities Risk:
The Fund invests a significant portion of its assets directly in securities of
issuers based outside of the U.S., or in depositary receipts that represent such
securities. Investments in securities of non-U.S. issuers involve certain risks
that may not be present with investments in securities of U.S. issuers, such as
risk of loss due to foreign currency fluctuations or to political or economic
instability, as well as varying regulatory requirements applicable to
investments in non-U.S. issuers. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may also
be subject to different regulatory, accounting, auditing, financial reporting
and investor protection standards than U.S. issuers.
Political
and Economic Risk:
The Fund is subject to foreign political and economic risk not associated with
U.S. investments, meaning that political events, social and economic events and
natural disasters occurring in a country where the Fund invests could cause the
Fund’s investments in that country to experience gains or losses. The Fund also
could be unable to enforce its ownership rights or pursue legal remedies in
countries where it invests.
Geographic
Concentration Risk:
To
the extent the Fund invests a significant portion of its assets, directly or
indirectly, in the securities of companies of a single country or region, it is
more likely to be impacted by events or conditions affecting that country or
region.
Canada-Specific
Risk:
Because investments in the Silver Exploration & Production sub-industry may
be geographically concentrated in Canadian companies or companies that have a
significant presence in Canada, investment results could be dependent on the
financial condition of the Canadian economy. The Canadian economy is reliant on
the sale of natural resources and commodities, which can pose risks such as the
fluctuation of prices and the variability of demand for exportation of such
products. Changes in spending on Canadian products by the economies of other
countries or changes in any of these economies may cause a significant impact on
the Canadian economy.
The
remaining risks are presented in alphabetical order. Each risk summarized below
is considered a “principal risk” of investing in the Fund, regardless of the
order in which it appears.
Concentration
Risk: The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. To the extent the Fund invests more
heavily in particular industries, groups of industries, or sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those industries, groups of industries, or sectors of the
economy, and the value of Fund shares may rise and fall more than the value of
shares that invest in securities of companies in a broader range of industries
or sectors.
Equity
Market Risk:
The equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests such as
political, market and economic developments, as well as events that impact
specific issuers. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, acts of terrorism or other events
could result in increased premiums or discounts to the Fund’s NAV.
ETF
Risks:
Absence
of an Active Market: Although
the Fund’s shares are approved for listing on the NYSE Arca, Inc. (the
“Exchange”), there can be no assurance that an active trading market will
develop and be maintained for Fund shares. There can be no assurance that the
Fund will grow to or maintain an economically viable size, in which case the
Fund may experience greater tracking error to its Index than it otherwise would
at higher asset levels or the Fund may ultimately liquidate.
Authorized
Participants (“APs”), Market Makers, and Liquidity Providers
Concentration: The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to net asset value (“NAV”) and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
Costs
of Buying or Selling Shares: Investors
buying or selling Fund shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of shares.
Fluctuation
of NAV: The
NAV of Fund shares will generally fluctuate with changes in the market value of
the Fund’s securities holdings. The market prices of shares will generally
fluctuate in accordance with changes in the Fund’s NAV and supply and demand of
shares on the Exchange. It cannot be predicted whether Fund shares will trade
below, at or above their NAV. During periods of unusual volatility or market
disruptions, market prices of Fund shares may deviate significantly from the
market value of the Fund’s securities holdings or the NAV of Fund shares. As a
result, investors in the Fund may pay significantly more or receive
significantly less for Fund shares than the value of the Fund’s underlying
securities or the NAV of Fund shares.
Market
Trading:
An investment in the Fund faces numerous market trading risks, including the
potential lack of an active market for Fund shares, losses from trading in
secondary markets, periods of high volatility and disruption in the
creation/redemption process of the Fund. Any of these factors, among others, may
lead to the Fund’s shares trading at a premium or discount to NAV. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, there may be deviations between the
current price of a security and the security’s last quoted price from the closed
foreign market. This may result in premiums and discounts that are greater than
those experienced by purely domestic ETFs.
Trading
Issues:
Although
Fund shares are listed for trading on the Exchange, there can be no assurance
that an active trading market for such shares will develop or be maintained.
Trading in Fund shares may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in shares inadvisable. There can
be no assurance that the requirements of the Exchange necessary to maintain the
listing of any Fund will continue to be met or will remain unchanged or that the
shares will trade with any volume, or at all. Further, secondary markets may be
subject to erratic trading activity, wide bid/ask spreads and extended trade
settlement periods in times of market stress because market makers and APs may
step away from making a market in Fund shares and in executing creation and
redemption orders, which could cause a material deviation in the Fund’s market
price from its NAV.
Management
Risk: While
the Fund is not actively managed, the Fund is subject to the risks associated
with decisions made by the Fund’s investment adviser if the Fund utilizes a
representative sampling strategy or to the extent the Fund’s investment adviser
makes decisions regarding the investment of collateral from securities on loan.
Models
and Data Risk: The
Index relies heavily on proprietary models as well as information and data
supplied by third parties (“Models and Data”). When Models and Data prove to be
incorrect or incomplete, any decisions by the Index made in reliance thereon
expose the Fund to potential risks as the Fund tracks the Index.
Natural
Disaster/Epidemic Risk:
Natural or environmental disasters, such as earthquakes, fires, floods,
hurricanes, tsunamis and other severe weather-related phenomena generally, and
widespread disease, including pandemics and epidemics, have been and may be
highly
disruptive to economies and markets, adversely impacting individual companies,
sectors, industries, markets, currencies, interest and inflation rates, credit
ratings, investor sentiment, and other factors affecting the value of the Fund’s
investments. Given the increasing interdependence among global economies and
markets, conditions in one country, market, or region are increasingly likely to
adversely affect markets, issuers, and/or foreign exchange rates in other
countries, including the U.S. Any such events could have a significant adverse
impact on the value of the Fund’s investments.
Passive
Investment Risk:
The Fund is not actively managed and therefore would not sell an equity security
due to current or projected underperformance of a security, industry or sector,
unless that security is removed from the Index. Unlike with an actively managed
fund, the Fund’s investment adviser does not use techniques or defensive
strategies designed to lessen the effects of market volatility or to reduce the
impact of periods of market decline. This means that, based on market and
economic conditions, the Fund’s performance could be lower than other types of
funds that may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline.
Reliance
on Trading Partners Risk:
The Fund invests in some economies that are heavily dependent upon trading with
key partners. Any reduction in this trading may cause an adverse impact on the
economy in which the Fund invests.
Tax
Risk:
To qualify for the favorable tax treatment generally available to regulated
investment companies, the Fund must satisfy certain diversification requirements
under the Internal Revenue Code of 1986, as amended (the “Code”). In particular,
the Fund generally may not acquire a security if, as a result of the
acquisition, more than 50% of the value of the Fund’s assets would be invested
in (a) issuers in which the Fund has, in each case, invested more than 5%
of the Fund’s assets and (b) issuers more than 10% of whose outstanding
voting securities are owned by the Fund. When the Index is concentrated in a
relatively small number of securities, it may not be possible for the Fund to
fully implement a replication strategy or a representative sampling strategy
while satisfying these diversification requirements. The Fund’s efforts to
satisfy the diversification requirements may cause the Fund’s return to deviate
from that of the Index, and the Fund’s efforts to replicate the Index may cause
it inadvertently to fail to satisfy the diversification requirements. If the
Fund were to fail to qualify as a regulated investment company, it would be
taxed in the same manner as an ordinary corporation, and distributions to its
shareholders would not be deductible by the Fund in computing its taxable
income.
Tracking
Error Risk:
The Fund’s return may not match or achieve a high degree of correlation with the
return of the Index. To the extent the Fund utilizes a sampling approach, it may
experience tracking error to a greater extent than if the Fund sought to
replicate the Index. In addition, in order to minimize the market impact of an
Index rebalance, the Fund may begin trading to effect the rebalance in advance
of the effective date of the rebalance and continue trading after the effective
date of the rebalance, which may contribute to tracking error.
Valuation
Risk: The sales price that the Fund could
receive for a security may differ from the Fund’s valuation of the security and
may differ from the value used by the Index, particularly for securities that
trade in low volume or volatile markets or that are valued using a fair value
methodology. In addition, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell the
Fund’s shares.
Performance
Information
The following
information provides some indication of the risks of investing in the
Fund. The bar chart shows the annual return for the Fund. The
table shows how the Fund’s average annual returns for one year, five years, and
since inception compare with those of the Index and a broad measure of market
performance. The Fund’s past performance,
before and after taxes, is not necessarily an indication of how the Fund will
perform in the future. Updated performance information is
available on the Fund’s website at www.etfmg.com.
Calendar Year Total Returns as of December
31
During the period of time shown
in the bar chart, the Fund’s highest return for a calendar
quarter was 77.11% (quarter ended June 30, 2020) and the
Fund’s lowest return for a calendar
quarter was -45.33% (quarter ended March 31,
2020).
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Average
Annual Total Returns (for
the periods ended
December 31, 2021) |
1
Year |
5
Years |
Since
Inception
11/28/2012 |
ETFMG
Prime Junior Silver Miners ETF |
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Return Before
Taxes |
-22.75% |
1.72% |
-4.22% |
Return After Taxes on
Distributions |
-22.81% |
1.36% |
-4.54% |
Return After Taxes on Distributions and
Sale of Fund Shares |
-13.41% |
1.18% |
-3.21% |
ISE
Junior Silver (Small Cap Miners/Explorers)
Index
/ Prime Junior Silver Miners & Explorers Index1
(reflects no deduction for
fees, expenses or taxes) |
-22.89% |
2.37% |
-3.36% |
S&P
500 Index
(reflects no deduction for fees, expenses or
taxes) |
28.71% |
18.47% |
16.61% |
1 The
table reflects performance of the ISE Junior Silver (Small Cap
Miners/Explorers)TM
Index through August 1, 2017 and the Prime Junior Silver Miners & Explorers
Index thereafter.
After-tax returns are
calculated using the highest historical individual federal marginal income tax
rates and do not reflect the impact of state and local taxes.
Actual after-tax returns
depend on your tax situation and may differ from those shown and are not
relevant if you hold your shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. In some cases, the return
after taxes may exceed the return before taxes due to an assumed tax benefit
from any losses on a sale of Fund shares at the end of the measurement
period.
Investment
Adviser
ETF
Managers Group LLC (the “Adviser”) serves as the investment adviser to the Fund.
Portfolio
Managers
Samuel
R. Masucci, III, Chief Executive Officer of the Adviser, has been the Fund’s
portfolio manager since January 2018. Frank Vallario, Chief Investment Officer
of the Adviser, and Donal Bishnoi, Portfolio Manager of the Adviser, have been
the Fund's portfolio managers since September 2019. Devin Ryder, Portfolio
Manager of the Adviser, has been the Fund’s portfolio manager since May
2018.
For
important information about the purchase and sale of Fund shares, tax
information, and financial intermediary compensation, please turn to “Summary
Information about Purchases, Sales, Taxes, and Financial Intermediary
Compensation” on page 29 of the Prospectus.
ETFMG
Prime 2x Daily Junior Silver
Miners
ETF — FUND SUMMARY
Important
Information About the Fund
ETFMG
Prime 2x Daily Junior Silver
Miners
ETF (“2x Daily Junior Silver ETF” or the “Fund”) seeks daily investment results,
before fees and expenses, that correspond to two times (2x) the return of the
Prime Junior Silver Miners & Explorers Index (the “Index”) for
a single day,
not for any other period. A “single day” is measured from the time the Fund
calculates its net asset value (“NAV”) to the time of the Fund’s next NAV
calculation. The
return of the Fund for periods longer than a single day will be the result of
its return for each day compounded over the period. The Fund’s returns for
periods longer than a single day will very likely differ in amount, and possibly
even direction, from the Fund’s stated multiple (2x) times the return of the
Index for the same period. For periods longer than a single day, the Fund will
lose money if the Index’s performance is flat, and it is possible that the Fund
will lose money even if the level of the Index rises. Longer
holding periods, higher Index volatility, and greater leveraged exposure each
exacerbate the impact of compounding on an investor’s returns. During periods of
higher Index volatility, the volatility of the Index may affect the Fund’s
return as much as or more than the return of the Index.
The
Fund presents different risks than other types of funds. The Fund uses leverage
and is riskier than similarly benchmarked funds that do not use leverage. The
Fund may not be suitable for all investors and should be used only by
knowledgeable investors who understand the consequences of seeking daily
leveraged (2x) investment results, including the impact of compounding on Fund
performance. Investors in the Fund should actively manage and monitor their
investments, as frequently as daily. An investor in the Fund could potentially
lose the full principal value of their investment within a single
day.
Investment Objective
The
2x Daily Junior Silver ETF seeks to provide daily investment results that,
before fees and expenses, correspond to two times (2x) the daily total return of
the Index. The
Fund does not seek to achieve its stated investment objective over a period of
time greater than a single day.
Fees and Expenses
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
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Management
Fee |
0.95 |
% |
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Distribution
and Service (12b-1) Fees |
None |
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Other
Expenses1,
2 |
0.00 |
% |
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Total
Annual Fund Operating Expenses |
0.95 |
% |
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1
Based on estimated amounts
for the current fiscal year.
2
Other Expenses do not
reflect the costs of investing in swap agreements, including any fees paid to
the counterparty of the swap agreement. The estimated annual costs of investing
in swap agreements for the Fund are 1.60% of the Fund’s average daily net
assets. The performance of the Fund is net of all such costs of investing in
swap agreements.
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. This
Example does not take into account the brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your cost would be:
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when the Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. This rate excludes the value
of portfolio securities whose maturities or expiration dates at the time of
acquisition were one year or less. For the fiscal period June 15, 2021
(commencement of operations) through September 30, 2021, the portfolio turnover
rate was 0% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund invests in financial instruments, such as swap agreements, securities of
the Index, and exchange-traded funds (“ETFs”) that track the Index (including
affiliated ETFs), that provide daily leveraged exposure to the Index or to ETFs
that track the Index to seek returns equal to 200% of the daily return of the
Index. The financial instruments in which the Fund most commonly invests are
swap agreements which are intended to produce economically leveraged investment
results. The Fund expects that its cash balances maintained in connection with
the use of financial instruments will typically be held in money market
instruments.
The
Index tracks the performance of the equity securities (or corresponding American
Depositary Receipts (“ADRs”) or Global Depositary Receipts (“GDRs”)) of
small-capitalization companies actively engaged in silver refining, mining, or
exploration (“Junior Silver Companies”). “Junior” is a term used in reference to
small capitalization exploration companies. Junior Silver Companies include pure
play companies that generate more than 50% of their revenue from silver mining
activities and non-pure play companies that generate 50% or less of their
revenue from silver mining activities. The stocks are weighted according to a
modified market capitalization that is based upon the percentage of company
revenues generated from silver mining activities such that, when weighting
Junior Silver Companies, the market cap of a pure play company is multiplied by
a factor of three and the market cap of a non-pure play company is multiplied by
a factor of one. The five stocks with the highest adjusted market capitalization
are assigned a weight of 13%, 11%, 9%, 7%, and 5% respectively with all
remaining stocks weighted pro rata based on their relative adjusted market
capitalization, subject to a cap of 4.5%. The securities of each company in the
Index must also be listed on a securities exchange.
The
initial universe of Junior Silver Companies is determined based on proprietary
research and analysis conducted by Prime Indexes, (the “Index Provider”), an
independent index provider that is not affiliated with the Fund’s investment
adviser. The Index Provider uses a variety of publicly available resources for
such analysis, including financial statements and other reports published by
issuers to determine whether a company is actively engaged as a Junior Silver
Company.
The
Index Provider may exclude companies that meet the criteria for inclusion in the
Index or include companies that do not meet such criteria if it determines that
including or excluding them would be contrary to the objective of the Index
(e.g.,
their inclusion would negatively affect the investibility of the Index, the
company’s economic fortunes are predominantly driven by a business not related
to that of a Junior Silver Company, the company is expected to meet the
inclusion criteria in the immediate future and plays an important role in the
junior silver industry).
The
Index has a quarterly review in March, June, September, and December of each
year at which times the Index is reconstituted and rebalanced by the Index
Provider. The composition of the Index and the constituent weights are
determined on the two Thursdays before the second Friday of each March, June,
September, and December (or the next business day if this is a non-business day)
(the “Selection Day”). Component changes are made after the market close on the
third Friday of March, June, September, and December (or the next business day
if the third Friday is not a business day) and become effective at the market
opening on the next trading day.
Junior
Silver Companies are then screened as of the Selection Date for investibility to
determine initial inclusion (e.g.,
must not be listed on an exchange in a country which employs certain
restrictions on foreign capital investment), a minimum market capitalization of
$20 million, a maximum market capitalization of $3 billion, and an operating
company structure (as opposed to a pass-through security). The Index Provider
may include companies in the Index with a market capitalization within 5% of the
above thresholds as of the Selection Date to account for short term fluctuations
in market capitalization resulting from changes in a security’s price.
The
weightings of the constituents of the Index are further modified in that the
cumulative weight of all constituents with an individual weight of 5% or greater
may not in the aggregate account for more than 50% of the weight of the Index as
of the Selection Day. Further, the cumulative weight of all components with a
market capitalization of less than US $100 million may not in the aggregate
account for more than 10% of the weight of the Index as of the Selection Day. As
of January 14, 2022, the Index had 55 constituents.
The
Index is developed and owned by the Index Provider, and the Index is calculated
and maintained by Solactive AG. The Index Provider is independent of Solactive
AG, the Fund, and the Fund’s investment adviser.
The
Fund has adopted the following policy to comply with Rule 35d-1 under the
Investment Company Act of 1940. Such policy has been adopted as a
non-fundamental investment policy and may be changed without shareholder
approval upon 60 days’ written notice to shareholders. Under normal
circumstances, the Fund invests at least 80% of its net assets (plus borrowing
for investment purposes) in financial instruments, such as swap agreements,
securities of the Index, and exchange-traded funds that track the Index and
other financial instruments that provide daily leveraged exposure to the Index
or to ETFs that track the Index.
Industry
Concentration Policy: The
Fund will concentrate its investments (i.e., hold 25% or more of its net assets) in a
particular industry or group of related industries to approximately the same
extent that the Index is concentrated. As of January 14, 2022, the Index was
concentrated in companies in the metals and mining industries
group.
The
Fund may invest in the securities of the Index, a representative sample of the
securities in the Index that has aggregate characteristics similar to those of
the Index, an ETF that tracks the Index (including investing in an affiliated
series of ETF Managers Trust, ETFMG Prime Junior Silver Miners ETF) or a
substantially similar index, and may utilize derivatives, such as swaps on the
Index or on an ETF that tracks the same Index or a substantially similar index,
that provide leveraged exposure to the above.
Derivatives
are financial instruments that derive value from the underlying reference asset
or assets, such as stocks, bonds, or funds (including ETFs), interest rates or
indexes.
The
Fund seeks to remain fully invested at all times, consistent with its stated
investment objective but may not always have investment exposure to all of the
securities in the Index, or its weighting of investment exposure to securities
or industries may be different from that of the Index. In addition, the Fund may
invest in securities or financial instruments not included in the Index.
The
Fund will attempt to achieve its investment objective without regard to overall
market movement or the increase or decrease of the value of the securities in
the Index. At the close of the markets each trading day, ETF Managers Group LLC
(the “Adviser”) determines the type, quantity and mix of investment positions so
that its exposure to the Index is consistent with the Fund’s investment
objective. The impact of the Index’s movements during the day will affect
whether the Fund’s portfolio needs to be re-positioned. For example, if the
Index has risen on a given day, net assets of the Fund should rise, meaning the
Fund’s exposure will need to be increased. Conversely, if the Index has fallen
on a given day, net assets of the Fund should fall, meaning the Fund’s exposure
will need to be reduced. This re-positioning strategy typically results in high
portfolio turnover. On a day-to-day basis, the Fund is expected to hold ETFs and
money market funds, deposit accounts with institutions with high credit ratings,
and/or short-term debt instruments that have terms-to-maturity of less than 397
days and exhibit high quality credit profiles, including U.S. government
securities and repurchase agreements.
The
Fund may lend its portfolio securities to brokers, dealers, and other financial
organizations. These loans, if and when made, may not exceed 33 1/3% of the
total asset value of the Fund (including the loan collateral). By lending its
securities, the Fund may increase its income by receiving payments from the
borrower.
The
terms “daily,” “day,” and “trading day” refer to the period from the close of
the markets on one trading day to the close of the markets on the next trading
day.
Daily rebalancing and the compounding of
each day’s return over time means that the return of the Fund for a period
longer than a single day will be the result of each day’s returns compounded
over the period, which will very likely differ in amount, and possibly even
direction, from two times (2x) the return of the Index for the same period. The
Fund will lose money if the Index’s performance is flat over time, and the Fund
can lose money regardless of the performance of the Index, as a result of daily
rebalancing, the Index’s volatility, compounding of each day’s return and other
factors. See “Principal Risks” below.
Principal Risks
As with all funds, a shareholder is subject to the risk
that his or her investment could lose money. The Fund may not
achieve its leveraged investment objective and there is a risk that you could
lose all of your money invested in the Fund. The Fund is not a complete
investment program. The Fund presents risks not traditionally associated with
other mutual funds and ETFs. For example, due to the Fund’s daily leveraged
investment objective, a small adverse move in the Index will result in larger
and potentially substantial declines in the Fund. It is important that investors
closely review all of the risks listed below and understand them before making
an investment in the Fund.
Effects
of Compounding and Market Volatility Risk:
The
Fund has a daily leveraged investment objective and the Fund’s performance for
periods greater than a trading day will be the result of each day’s returns
compounded over the period, which is very likely to differ from two times (2x)
the Index’s performance, before fees and expenses. Compounding affects all
investments, but has a more significant impact on funds that are leveraged and
that rebalance daily. For a leveraged fund, if adverse daily performance of the
index reduces the amount of a shareholder’s investment, any further adverse
daily performance will lead to a smaller dollar loss because the shareholder’s
investment had already been reduced by the prior adverse performance. Equally,
however, if favorable daily performance of the index increases the amount of a
shareholder’s investment, the dollar amount lost due to future adverse
performance will increase because the shareholder’s investment has increased.
The
effect of compounding becomes more pronounced as Index volatility and the
holding period increase. The impact of compounding will impact each shareholder
differently depending on the period of time an investment in the Fund is held
and the volatility of the Index during shareholder’s holding period of an
investment in the Fund.
The
chart below provides examples of how Index volatility could affect the Fund’s
performance. The chart illustrates the impact of two factors that affect the
Fund’s performance: Index volatility and Index return. Index returns show the
percentage change in the value of the Index over the specified time period,
while Index volatility is a statistical measure of the magnitude of fluctuations
in the returns during that time period. As illustrated below, even if the Index
return over two equal time periods is identical, different Index volatility
(i.e.,
fluctuations in the rates of return) during the two time periods could result in
drastically different Fund performance for the two time periods due to the
effects of compounding daily returns during the time periods.
Fund
performance for periods greater than one single day can be estimated given any
set of assumptions for the following factors: a) Index volatility; b) Index
performance; c) period of time; d) financing rates associated with leveraged
exposure; e) other Fund expenses; and f) dividends or interest paid with respect
to securities in the Index. The chart below illustrates the impact of two
principal factors – Index volatility and Index performance – on Fund
performance. The chart shows estimated Fund returns for a number of combinations
of Index volatility and Index performance over a one-year period. Performance
shown in the chart assumes
that:
(i) no dividends were paid with respect to the securities included in the Index;
(ii) there were no Fund expenses; and (iii) borrowing/lending rates (to
obtain leveraged exposure) of 0%. If Fund expenses and/or actual
borrowing/lending rates were reflected, the estimated returns would be different
than those shown. Particularly during periods of higher Index volatility,
compounding will cause results for periods longer than a trading day to vary
from two times (2x) the performance of the Index.
As
shown in the chart below, the Fund would be expected to lose 6.1% if the Index
provided no return over a one year period during which the Index experienced
annualized volatility of 25%. At higher ranges of volatility, there is a chance
of a significant loss of value in the Fund, even if the Index’s return is flat.
For
instance, if the Index’s annualized volatility is 100%, the Fund would be
expected to lose 63.2% of its value, even if the cumulative Index return for the
year was 0%. Areas
shaded red (or dark gray) represent those scenarios where the Fund can be
expected to return less than two times (2x) the performance of the Index and
those shaded green (or light gray) represent those scenarios where the Fund can
be expected to return more than two times (2x) the performance of the Index. The
Fund’s actual returns may be significantly better or worse than the returns
shown below as a result of any of the factors discussed above or in “Daily Index
Correlation/Tracking Risk” below.
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One
Year Index |
Two
Times (2x) One Year Index |
Volatility
Rate |
Return |
Return |
10% |
25% |
50% |
75% |
100% |
-60% |
-120% |
-84.2% |
-85.0% |
-87.5% |
-90.9% |
-94.1% |
-50% |
-100% |
-75.2% |
-76.5% |
-80.5% |
-85.8% |
-90.8% |
-40% |
-80% |
-64.4% |
-66.2% |
-72.0% |
-79.5% |
-86.8% |
-30% |
-60% |
-51.5% |
-54.0% |
-61.8% |
-72.1% |
-82.0% |
-20% |
-40% |
-36.6% |
-39.9% |
-50.2% |
-63.5% |
-76.5% |
-10% |
-20% |
-19.8% |
-23.9% |
-36.9% |
-53.8% |
-70.2% |
0% |
0% |
-1.0% |
-6.1% |
-22.1% |
-43.0% |
-63.2% |
10% |
20% |
19.8% |
13.7% |
-5.8% |
-31.1% |
-55.5% |
20% |
40% |
42.6% |
35.3% |
12.1% |
-18.0% |
-47.0% |
30% |
60% |
67.3% |
58.8% |
31.6% |
-3.7% |
-37.8% |
40% |
80% |
94.0% |
84.1% |
52.6% |
11.7% |
-27.9% |
50% |
100% |
122.8% |
111.4% |
75.2% |
28.2% |
-17.2% |
60% |
120% |
153.5% |
140.5% |
99.4% |
45.9% |
-5.8% |
The
Index’s annualized historical volatility rate for the period from June 16, 2017
(the inception date of the Index) to December 31, 2021 was 45.7%. The Index’s
highest volatility rate for any one calendar year for the period from June 16,
2017 (the inception date of the Index) through December 31, 2021 was 70.6% and
volatility for a shorter period of time may have been substantially higher. The
Index’s annualized performance for the period from June 16, 2017 (the inception
date of the Index) to December 31, 2021 was 1.8%. Historical Index volatility
and performance are not indications of what the Index volatility and performance
will be in the future. The volatility of ETFs or instruments that reflect the
value of the Index, such as swaps, may differ from the volatility of the Index.
For
information regarding the effects of volatility and Index performance on the
long-term performance of the Fund, see “Additional Information about the Funds’
Investment Objective and Strategies” in the Fund’s statutory prospectus, and
“Special Note Regarding the Correlation Risks of the Funds” in the Funds’
Statement of Additional Information.
Leverage
Risk:
The
Fund obtains investment exposure in excess of its net assets by utilizing
leverage and may lose more money in market conditions that are adverse to its
investment objective than a fund that does not utilize leverage. An investment
in the Fund is exposed to the risk that a decline in the daily performance of
the Index will be magnified. This means that an investment in the Fund will be
reduced by an amount equal to 2% for every 1% daily decline in the Index, not
including the costs of financing leverage and other operating expenses, which
would further reduce its value. The Fund could theoretically lose an amount
greater than its net assets in the event of an Index decline of more than 50%.
Leverage will also have the effect of magnifying any differences in the Fund’s
correlation with the Index.
Silver
Exploration and Production Industry Concentration Risk:
The
Fund concentrates its assets in an industry or group of related industries to
the extent that the Index is so concentrated. Because the Index is expected to
concentrate in the Silver Exploration & Production sub-industry of the
Metals & Mining industry (in the Natural Resources/Minerals sector), the
Fund’s assets will be concentrated in, and will be more affected by the
performance of, that sub-industry than a fund that is more diversified. The
profitability of companies in the Silver Exploration & Production
sub-industry is related to, among other things, the worldwide price of silver
and the costs of extraction and production. Worldwide silver prices may
fluctuate substantially over short periods of time, so the Fund’s share price
may be more volatile than other types of investments. Companies in the
sub-industry may be adversely affected by economic conditions, tax treatment,
government regulation and intervention, and world events in the regions in which
the
companies
operate (e.g.,
expropriation, nationalization, confiscation of assets and property,
repatriation of capital, military coups, social unrest). The price of the equity
securities of silver mining companies and silver may not always be closely
correlated. Investing in a silver company involves certain risks unrelated to an
investment in silver as a commodity, including production costs, operational and
managerial risk, and the possibility that the company will take measures to
hedge or minimize its exposure to the volatility of the market price of
silver.
Market
Disruption Risk:
Geopolitical and other events, including public health crises and natural
disasters, have recently led to increased market volatility and significant
market losses. Significant market volatility and market downturns may limit the
Fund’s ability to sell securities and obtain long exposure to securities, and
the Fund’s sales and long exposures may exacerbate the market volatility and
downturn. Under such circumstances, the Fund may have difficulty achieving its
investment objective for one or more trading days, which may adversely impact
the Fund’s returns on those days and periods inclusive of those days.
Alternatively, the Fund may incur higher costs (including swap financing costs)
in order to achieve its investment objective and may be forced to purchase and
sell securities (including other ETFs’ shares) at market prices that do not
represent their fair value (including in the case of an ETF, its net asset
value) or at times that result in differences between the price the Fund
receives for the security or the value of the swap exposure and the market
closing price of the security or the market closing value of the swap exposure.
Under those circumstances, the Fund’s ability to track its Index is likely to be
adversely affected, the market price of Fund shares may reflect a greater
premium or discount to net asset value and bid-ask spreads in the Fund’s shares
may widen, resulting in increased transaction costs for secondary market
purchasers and sellers. The Fund may also incur additional tracking error due to
the use of securities that are not perfectly correlated to the Index.
Aggressive
Investment Techniques Risk:
Using
investment techniques that may be considered aggressive, such as swap
agreements, includes the risk of potentially dramatic changes (losses) in the
value of the instruments, imperfect correlations between the price of the
instrument and the underlying security or index, and volatility of the Fund.
Derivatives
Risk:
Derivatives
are financial instruments that derive value from the underlying reference asset
or assets, such as stocks, bonds, or funds (including ETFs), interest rates or
indexes. The Fund’s investments in derivatives may pose risks in addition to,
and greater than, those associated with directly investing in securities or
other ordinary investments, including risk related to the market, leverage,
imperfect daily correlations with underlying investments or the Fund’s other
portfolio holdings, higher price volatility, lack of availability, counterparty
risk, liquidity, valuation and legal restrictions. The use of derivatives is a
highly specialized activity that involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
The use of derivatives may result in larger losses or smaller gains than
directly investing in securities. When the Fund uses derivatives, there may be
imperfect correlation between the value of the reference assets and the
derivative, which may prevent the Fund from achieving its investment objective.
Because derivatives often require only a limited initial investment, the use of
derivatives may expose the Fund to losses in excess of those amounts initially
invested.
The
Fund may use a combination of swaps on the Index and swaps on an ETF whose
investment objective is to track the performance of the same, or a substantially
similar index to achieve its investment objective. The reference ETF may not
closely track the performance of the Index due to fees and other costs borne by
the ETF and other factors, such as an ETF’s premium or discount. Thus, to the
extent that the Fund invests in swaps that use an ETF as a reference asset, the
Fund may be subject to greater correlation risk and may not achieve as high a
degree of correlation with the Index as it would if the Fund used swaps that
utilized the Index as the reference asset. Any financing, borrowing or other
costs associated with using derivatives may also reduce the Fund’s return.
In
addition, the Fund’s investments in derivatives are subject to the following
risks:
Swap
Agreements:
Swap
agreements are entered into primarily with major global financial institutions
for a specified period, which may range from one day to more than one year. The
derivative transactions in which the Fund invests are generally traded in the
over-the-counter market, which generally has less transparency than
exchange-traded derivatives instruments. In a standard swap transaction, two
parties agree to exchange the return (or differentials in rates of return)
earned or realized on particular predetermined reference assets or underlying
securities or instruments. The gross return to be exchanged or swapped between
the parties is calculated based on a notional amount or the return on or change
in value of a particular dollar amount invested in a basket of securities
representing a particular index or an ETF that seeks to track an index.
If
the Index has a dramatic move that causes a material decline in the Fund’s net
assets, the terms of a swap agreement between the Fund and its counterparty may
permit the counterparty to immediately close out the swap transaction with the
Fund. In that event, the Fund may be unable to enter into another swap agreement
or invest in other derivatives to achieve exposure consistent with the Fund’s
investment objective. This may prevent the Fund from achieving its leveraged
investment objective, even if the Index later reverses all or a portion of its
movement.
Counterparty
Risk:
A counterparty may be unwilling or unable to make timely payments to meet its
contractual obligations or may fail to return holdings that are subject to the
agreement with the counterparty. If the counterparty or its affiliate becomes
insolvent, bankrupt or defaults on its payment obligations to the Fund, the
value of an investment held by the Fund may decline. Additionally, if any
collateral posted by the counterparty for the benefit of the Fund is
insufficient or there are delays in the Fund’s ability to access such
collateral, the Fund may not be able to achieve its leveraged investment
objective. In addition, the Fund may enter into swap agreements with a limited
number of counterparties, which may increase the Fund’s
exposure
to counterparty credit risk. Further, there is a risk that no suitable
counterparties will be willing to enter into, or continue to enter into,
transactions with the Fund and, as a result, the Fund may not be able to achieve
its leveraged investment objective or may decide to change its leveraged
investment objective.
Intra-Day
Investment Risk:
The
Fund seeks leveraged investment results from the close of the market on a given
trading day until the close of the market on the subsequent trading day. The
exact exposure of an investment in the Fund intraday in the secondary market is
a function of the difference between the value of the Index at the market close
on the first trading day and the value of the Index at the time of purchase. If
the Index gains value, the Fund’s net assets will rise by the same amount as the
Fund’s exposure. Conversely, if the Index declines, the Fund’s net assets will
decline by the same amount as the Fund’s exposure. Thus, an investor that
purchases shares intra-day may experience performance that is greater than, or
less than, the Fund’s stated multiple of the Index.
If
there is a significant intra-day market event and/or the securities of the Index
experience a significant decrease, the Fund may not meet its investment
objective or rebalance its portfolio appropriately. Additionally, the Fund may
close to purchases and sales of Shares prior to the close of regular trading on
the NYSE Arca, Inc. and incur significant losses.
Daily
Index Correlation/Tracking Risk:
There
is no guarantee that the Fund will achieve a high degree of correlation to the
Index and therefore achieve its daily leveraged investment objective. To achieve
a high degree of correlation with the Index, the Fund seeks to rebalance its
portfolio daily to keep leverage consistent with its daily leveraged investment
objective. In addition, the Fund’s exposure to the Index is impacted by the
Index’s movement. Because of this, it is unlikely that the Fund will be
perfectly exposed to the Index at the end of each day. The possibility of the
Fund being materially over- or under-exposed to the Index increases on days when
the Index is volatile near the close of the trading day. Market disruptions,
regulatory restrictions and high volatility will also adversely affect the
Fund’s ability to adjust exposure to the required levels.
The
Fund may have difficulty achieving its daily leveraged investment objective due
to fees, expenses, transaction costs, financing costs related to the use of
derivatives, investments in ETFs, directly or indirectly, income items,
valuation methodology, accounting standards, regulatory reasons (such as,
diversification requirements) and disruptions or illiquidity in the markets for
the securities or derivatives held by the Fund. The Fund may be subject to large
movements of assets into and out of the Fund, potentially resulting in the Fund
being over- or under-exposed to the Index. The Fund may not have investment
exposure to all of the securities in the Index or its weighting of investment
exposure to the securities may be different from that of the Index. In addition,
the Fund may invest in securities that are not included in the Index. The Fund
may also invest directly in or use other investment companies, such as ETFs,
which may result in increased tracking error for the Fund. Additionally, an
ETF’s performance may differ from the index it tracks, thus resulting in
additional tracking error for the Fund. Activities surrounding periodic Index
reconstitutions and other Index rebalancing events may also hinder the Fund’s
ability to meet its daily leveraged investment objective. For example, the Fund
may take or refrain from taking positions to improve tax efficiency or to comply
with various regulatory restrictions, which may negatively impact the Fund’s
correlation to the Index. Any of these factors could decrease correlation
between the performance of the Fund and the Index and may hinder the Fund’s
ability to meet its daily investment objective.
Smaller
Companies Risk:
The Fund’s Index may be composed primarily of, or have significant exposure to,
securities of smaller companies. Smaller companies may be more vulnerable to
adverse business or economic events than larger, more established companies, and
may underperform other segments of the market or the equity market as a whole.
The securities of smaller companies also tend to be bought and sold less
frequently and at significantly lower trading volumes than the securities of
larger companies. As a result, it may be more difficult for the Fund to buy or
sell a significant amount of the securities of a smaller company without an
adverse impact on the price of the company’s securities, or the Fund may have to
sell such securities in smaller quantities over a longer period of time, which
may prevent the fund from achieving its investment objective.
Non-Diversification
Risk:
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a small number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer or a small number of
issuers could cause the Fund’s overall value to decline to a greater degree than
if the Fund held a more diversified portfolio. This may increase the Fund’s
volatility and have a greater impact on the Fund’s performance.
Foreign
Investment Risk:
Returns on investments in foreign stocks could be more volatile than, or trail
the returns on, investments in U.S. stocks. Since foreign exchanges may be open
on days when the Fund does not price its Shares, the value of the securities in
the Fund’s portfolio may change on days when shareholders will not be able to
purchase or sell the Shares. Conversely, Shares may trade on days when foreign
exchanges are closed. Because securities held by the Fund trade on foreign
exchanges that are closed when the Fund’s primary listing exchange is open, the
Fund is likely to experience premiums and discounts greater than those of
domestic ETFs. Each of these factors can make investments in the Fund more
volatile and potentially less liquid than other types of
investments.
Currency
Risk:
Indirect and direct exposure to foreign currencies subjects the Fund to the risk
that currencies will decline in value relative to the U.S. dollar. Currency
rates in foreign countries may fluctuate significantly over short periods of
time for a number of reasons, including changes in interest rates and the
imposition of currency controls or other political developments in the U.S. or
abroad.
Depositary
Receipts Risk:
The
Fund may invest in depositary receipts. Investment in ADRs and GDRs may be less
liquid than the underlying shares in their primary trading market and GDRs, many
of which are issued by companies in emerging markets, may be more volatile and
less liquid than depositary receipts issued by companies in more developed
markets.
Emerging
Markets Securities Risk:
The Fund’s investments may expose the Fund’s portfolio to the risks of investing
in emerging markets. Investments in emerging markets are subject to greater risk
of loss than investments in developed markets. This is due to, among other
things, greater market volatility, lower trading volume, political and economic
instability, greater risk of market shutdown and more governmental limitations
on foreign investments than typically found in developed markets.
Foreign
Market and Trading Risk:
The trading markets for many foreign securities are not as active as U.S.
markets and may have less governmental regulation and oversight. Foreign markets
also may have clearance and settlement procedures that make it difficult for the
Fund to buy and sell securities. These factors could result in a loss to the
Fund by causing the Fund to be unable to dispose of an investment or to miss an
attractive investment opportunity, or by causing Fund assets to be uninvested
for some period of time.
Foreign
Securities Risk:
The Fund invests a significant portion of its assets directly in securities of
issuers based outside of the U.S., or in depositary receipts that represent such
securities. Investments in securities of non-U.S. issuers involve certain risks
that may not be present with investments in securities of U.S. issuers, such as
risk of loss due to foreign currency fluctuations or to political or economic
instability, as well as varying regulatory requirements applicable to
investments in non-U.S. issuers. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may also
be subject to different regulatory, accounting, auditing, financial reporting
and investor protection standards than U.S. issuers.
Political
and Economic Risk:
The Fund is subject to foreign political and economic risk not associated with
U.S. investments, meaning that political events, social and economic events and
natural disasters occurring in a country where the Fund invests could cause the
Fund’s investments in that country to experience gains or losses. The Fund also
could be unable to enforce its ownership rights or pursue legal remedies in
countries where it invests.
Geographic
Concentration Risk:
To
the extent the Fund invests a significant portion of its assets, directly or
indirectly, in the securities of companies of a single country or region, it is
more likely to be impacted by events or conditions affecting that country or
region.
Canada-Specific
Risk:
Because investments in the Silver Exploration & Production sub-industry may
be geographically concentrated in Canadian companies or companies that have a
significant presence in Canada, investment results could be dependent on the
financial condition of the Canadian economy. The Canadian economy is reliant on
the sale of natural resources and commodities, which can pose risks such as the
fluctuation of prices and the variability of demand for exportation of such
products. Changes in spending on Canadian products by the economies of other
countries or changes in any of these economies may cause a significant impact on
the Canadian economy.
The
remaining risks are presented in alphabetical order. Each risk summarized below
is considered a “principal risk” of investing in the Fund, regardless of the
order in which it appears.
Concentration
Risk: The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. To the extent the Fund invests more
heavily in particular industries, groups of industries, or sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those industries, groups of industries, or sectors of the
economy, and the value of Fund shares may rise and fall more than the value of
shares that invest in securities of companies in a broader range of industries
or sectors.
Early
Close/Late Close/Trading Halt Risk:
An exchange or market may close early, close late or issue trading halts on
specific securities or financial instruments. As a result, the ability to trade
certain securities or financial instruments may be restricted, which may disrupt
the Fund’s creation and redemption process, potentially affect the price at
which the Fund’s shares trade in the secondary market, and/or result in the Fund
being unable to trade certain securities or financial instruments at all. In
these circumstances, the Fund may be unable to rebalance its portfolio, may be
unable to accurately price its investments and/or may incur substantial trading
losses. If trading in the Fund’s shares are halted, investors may be temporarily
unable to trade shares of the Fund.
Equity
Market Risk:
The equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests such as
political, market and economic developments, as well as events that impact
specific issuers. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, acts of terrorism or other events
could result in increased premiums or discounts to the Fund’s NAV.
ETF
Risks:
Absence
of an Active Market: Although
the Fund’s shares are approved for listing on the NYSE Arca, Inc. (the
“Exchange”), there can be no assurance that an active trading market will
develop and be maintained for Fund shares. There can be no assurance that the
Fund will grow to or maintain an economically viable size, in which case the
Fund may experience greater tracking error to its Index than it otherwise would
at higher asset levels or the Fund may ultimately liquidate.
Authorized
Participants (“APs”), Market Makers, and Liquidity Providers
Concentration: The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to net asset value (“NAV”) and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions. The risks
associated with limited APs may be heightened in scenarios where APs have
limited or diminished access to the capital required to post collateral.
Cash
Transactions Risk:
The Fund may effect its creations and redemptions primarily for cash, rather
than in-kind securities. Paying redemption proceeds in cash rather than through
in-kind delivery of portfolio securities may require the fund to dispose of or
sell portfolio investments at an inopportune time to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to incur certain costs
such as brokerage costs, and to recognize gains or losses that it might not have
incurred if it had made a redemption in-kind. As a result, the Fund may pay out
higher or lower annual capital gains distributions than ETFs that redeem
in-kind. In addition, the costs imposed on the Fund will decrease the Fund’ NAV
unless the costs are offset by a transaction fee payable by an AP.
Costs
of Buying or Selling Shares: Investors
buying or selling Fund shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of shares.
Fluctuation
of NAV: The
NAV of Fund shares will generally fluctuate with changes in the market value of
the Fund’s securities holdings. The market prices of shares will generally
fluctuate in accordance with changes in the Fund’s NAV and supply and demand of
shares on the Exchange. It cannot be predicted whether Fund shares will trade
below, at or above their NAV. During periods of unusual volatility or market
disruptions, market prices of Fund shares may deviate significantly from the
market value of the Fund’s securities holdings or the NAV of Fund shares. As a
result, investors in the Fund may pay significantly more or receive
significantly less for Fund shares than the value of the Fund’s underlying
securities or the NAV of Fund shares.
Market
Trading:
An investment in the Fund faces numerous market trading risks, including the
potential lack of an active market for Fund shares, losses from trading in
secondary markets, periods of high volatility and disruption in the
creation/redemption process of the Fund. Any of these factors, among others, may
lead to the Fund’s shares trading at a premium or discount to NAV. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, there may be deviations between the
current price of a security and the security’s last quoted price from the closed
foreign market. This may result in premiums and discounts that are greater than
those experienced by purely domestic ETFs.
Trading
Issues:
Although
Fund shares are listed for trading on the Exchange, there can be no assurance
that an active trading market for such shares will develop or be maintained.
Trading in Fund shares may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in shares inadvisable. There can
be no assurance that the requirements of the Exchange necessary to maintain the
listing of any Fund will continue to be met or will remain unchanged or that the
shares will trade with any volume, or at all. Further, secondary markets may be
subject to erratic trading activity, wide bid/ask spreads and extended trade
settlement periods in times of market stress because market makers and APs may
step away from making a market in Fund shares and in executing creation and
redemption orders, which could cause a material deviation in the Fund’s market
price from its NAV.
Gain
Limitation Risk:
The Adviser will attempt to position the Fund’s portfolio to ensure that the
Fund does not gain or lose more than 90% of its NAV on a given day. As a
consequence, the Fund’s portfolio should not be responsive to Index movements of
more than 45% in a given day. For example, if the Index were to gain 50%, the
Fund’s gains should be limited to a daily gain of 90% (i.e.,
two times (2x) 45%) rather than 100% (i.e.,
two times (2x) 50%).
Liquidity
Risk:
In
certain circumstances, such as the disruption of the orderly markets for the
financial instruments in which the Fund invests, the Fund might not be able to
acquire or dispose of certain holdings quickly or at prices that represent true
market value in the judgment of the Adviser. Markets for the financial
instruments in which the Fund invests may be disrupted by a number of events,
including but not limited to economic crises, health crises, natural disasters,
excessive volatility, new legislation, or regulatory changes inside or outside
of the U.S. For example, regulation limiting the ability of certain financial
institutions to invest in certain financial instruments would likely reduce the
liquidity of those instruments. These situations may prevent the Fund from
limiting losses, realizing gains or achieving a high leveraged correlation with
the Index.
Money
Market Instrument Risk:
The
Fund may use a variety of money market instruments for cash management purposes,
including money market funds, depositary accounts and repurchase agreements.
Money market funds may be subject to credit risk with respect to the debt
instruments in which they invest. Depository accounts may be subject to credit
risk with respect to the financial institution in which the depository account
is held. Repurchase agreements are contracts in which a seller of securities
agrees to buy the securities back at a specified time and price. Repurchase
agreements may be subject to market and credit risk related to the collateral
securing the repurchase agreement. Money market instruments may lose money.
Natural
Disaster/Epidemic Risk:
Natural or environmental disasters, such as earthquakes, fires, floods,
hurricanes, tsunamis and other severe weather-related phenomena generally, and
widespread disease, including pandemics and epidemics, have been and may be
highly disruptive to economies and markets, adversely impacting individual
companies, sectors, industries, markets, currencies, interest and inflation
rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Given the increasing interdependence among global
economies and markets, conditions in one country, market, or region are
increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have
a significant adverse impact on the value of the Fund’s investments.
New
Fund Risk: The
Fund is a recently organized investment company with limited operating history.
As a result, prospective investors have a limited track record or history on
which to base their investment decision. There can be no assurance that the Fund
will grow to or maintain an economically viable size.
Other
Investment Companies (including ETFs) Risk:
The Fund may invest directly in another investment company by purchasing shares
of the investment company or indirectly by utilizing an investment company as
the reference asset of a derivative instrument. The Fund will incur higher and
duplicative expenses when it invests in other investment companies such as ETFs
(affiliated ETFs will not charge duplicate fees and expenses). There is also the
risk that the Fund may suffer losses due to the investment practices of the
underlying funds. If the other investment company fails to achieve its
investment objective, the value of the Fund’s investment will not perform as
expected, thus affecting the Fund’s performance and its correlation with the
Index. When the Fund invests in other investment companies, the Fund will be
subject to substantially the same risks as those associated with the direct
ownership of securities held by such investment companies. Investments in ETFs
are also subject to the following risks: (i) the market price of an ETF’s shares
may trade above or below their net asset value; (ii) an active trading market
for an ETF’s shares may not develop or be maintained; and (iii) trading of an
ETF’s shares may be halted for a number of reasons. Investments in such shares
may be subject to brokerage and other trading costs, which could result in
greater expenses to the Fund. Finally, depending on the demand in the market,
the Fund may not be able to liquidate its holdings in ETFs at an optimal price
or time, which may adversely affect the Fund’s performance.
Portfolio
Turnover Risk:
The
Fund may incur high portfolio turnover to manage the Fund’s investment exposure.
Additionally, active market trading of the Fund’s shares may cause more frequent
creation or redemption activities that could, in certain circumstances, increase
the number of portfolio transactions. High levels of portfolio transactions
increase brokerage and other transaction costs and may result in increased
taxable capital gains. Each of these factors could have a negative impact on the
performance of the Fund.
Reliance
on Trading Partners Risk:
The Fund invests in some economies that are heavily dependent upon trading with
key partners. Any reduction in this trading may cause an adverse impact on the
economy in which the Fund invests.
Sector
Risk:
To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors.
Securities
Lending Risk:
The Fund may engage in securities lending. The Fund may lose money if the
borrower of the loaned securities delays returning in a timely manner or fails
to return the loaned securities. Securities lending involves the risk that the
Fund could lose money in the event of a decline in the value of collateral
provided for loaned securities. In addition, the Fund bears the risk of loss in
connection with its investment of the cash collateral it receives from a
borrower. To the extent that the value or return of the Fund’s investment of the
cash collateral declines below the amount owed to the borrower, the Fund may
incur losses that exceed the amount it earned on lending the
security.
Tax
Risk:
To qualify for the favorable tax treatment generally available to regulated
investment companies, the Fund must satisfy certain diversification requirements
under the Internal Revenue Code of 1986, as amended (the “Code”). In particular,
the Fund generally may not acquire a security if, as a result of the
acquisition, more than 50% of the value of the Fund’s assets would be invested
in (a) issuers in which the Fund has, in each case, invested more than 5%
of the Fund’s assets and (b) issuers more than 10% of whose outstanding
voting securities are owned by the Fund. When the Index is concentrated in a
relatively small number of securities, it may not be possible for the Fund to
fully implement a replication strategy or a representative sampling strategy
while satisfying these diversification requirements. The Fund’s efforts to
satisfy the diversification requirements may cause the Fund’s return to deviate
from that of the Index, and the Fund’s efforts to replicate the Index may cause
it inadvertently to fail to satisfy the diversification requirements. If the
Fund were to fail to qualify as a regulated investment company, it would be
taxed in the same manner as an ordinary corporation, and distributions to its
shareholders would not be deductible by the Fund in computing its taxable
income.
Valuation
Risk: The sales price that the Fund could
receive for a security may differ from the Fund’s valuation of the security and
may differ from the value used by the Index, particularly for securities that
trade in low volume or volatile markets or that are valued using a fair value
methodology. In addition, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell the
Fund’s shares.
Performance
Information
The Fund is new and therefore does not have
performance history for a full calendar year. Once the Fund has
completed a full calendar year of operations, a bar chart and table will be
included that will provide some indication of the risks of investing in the Fund
by
showing the variability of the Fund’s
returns and comparing the Fund’s performance to a broad measure of market
performance. Updated performance information is available at www.etfmg.com.
Investment
Adviser
ETF
Managers Group LLC (the “Adviser”) serves as the investment adviser to the Fund.
Portfolio
Managers
Samuel
R. Masucci, III, Chief Executive Officer of the Adviser, Frank Vallario, Chief
Investment Officer of the Adviser, Donal Bishnoi, Portfolio Manager of the
Adviser, and Devin Ryder, Portfolio Manager of the Adviser, have been the Fund’s
portfolio managers since the Fund’s inception in 2021.
For
important information about the purchase and sale of Fund shares, tax
information, and financial intermediary compensation, please turn to “Summary
Information about Purchases, Sales, Taxes, and Financial Intermediary
Compensation” on page 29 of the Prospectus.
ETFMG
Prime 2x Daily Inverse Junior Silver Miners ETF — FUND SUMMARY
Important
Information About the Fund
ETFMG
Prime 2x Daily Inverse Junior Silver Miners ETF (“-2x Daily Junior Silver ETF”
or the “Fund”) seeks daily investment results, before fees and expenses, that
correspond to two times the inverse (-2x) (or opposite) of the return of the
Prime Junior Silver Miners & Explorers Index (the “Index”) for
a single day,
not for any other period. A “single day” is measured from the time the Fund
calculates its net asset value (“NAV”) to the time of the Fund’s next NAV
calculation. The
return of the Fund for periods longer than a single day will be the result of
its return for each day compounded over the period. The Fund’s returns for
periods longer than a single day will very likely differ in amount, and possibly
even direction, from the Fund’s stated -200% of the return of the Index for the
same period. As
a consequence, longer holding periods, higher volatility of the Index and
greater leverage increase the impact of compounding on an investor’s returns.
During periods of higher Index volatility, the volatility of the Index may
affect the Fund’s return as much as, or more than, the return of the Index.
Further, the return for investors that invest for periods less than a trading
day will not be -200% of the performance of the Index for the trading day.
The
Fund presents different risks than other types of funds. The Fund uses leverage
and is riskier than similarly benchmarked funds that do not use leverage. The
Fund may not be suitable for all investors and should be used only by
knowledgeable investors who understand the consequences of seeking daily inverse
leveraged (-2x) investment results, including the impact of compounding on Fund
performance. Investors in the Fund should actively manage and monitor their
investments, as frequently as daily. An investor in the Fund could potentially
lose the full principal value of their investment within a single day.
Investment Objective
The -2x Daily Junior Silver
ETF seeks to provide daily investment results that, before fees and expenses,
correspond to two times the inverse (-2x) (or opposite) the daily total return
of the Index. The Fund does not seek to achieve its
stated investment objective over a period of time greater than a single
day.
Fees and Expenses
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
|
|
|
|
|
|
|
|
|
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
|
|
Management
Fee |
0.95 |
% |
|
Distribution
and Service (12b-1) Fees |
None |
|
Other
Expenses1 |
0.00 |
% |
|
Total
Annual Fund Operating Expenses |
0.95 |
% |
|
1
Based on estimated amounts for
the current fiscal year.
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. This
Example does not take into account the brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your cost would be:
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when the Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. This rate excludes the value
of portfolio securities whose maturities or expiration dates at the time of
acquisition were one year or less. For the fiscal period June 15, 2021
(commencement of operations) through September 30, 2021, the portfolio turnover
rate was 0% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund invests in financial instruments, such as swap agreements, exchange-traded
funds (“ETFs”), and short positions that, in combination, provide daily inverse
exposure to the Index or to ETFs that track the Index to seek returns equal to
-200% of the daily return of the Index. The financial instruments in which the
Fund most commonly invests are swap agreements which are intended to produce
economically leveraged investment results. The Fund expects that its cash
balances maintained in connection with the use of financial instruments will
typically be held in money market instruments.
The
Index tracks the performance of the equity securities (or corresponding American
Depositary Receipts (“ADRs”) or Global Depositary Receipts (“GDRs”)) of
small-capitalization companies actively engaged in silver refining, mining, or
exploration (“Junior Silver Companies”). “Junior” is a term used in reference to
small capitalization exploration companies. Junior Silver Companies include pure
play companies that generate more than 50% of their revenue from silver mining
activities and non-pure play companies that generate 50% or less of their
revenue from silver mining activities. The stocks are weighted according to a
modified market capitalization that is based upon the percentage of company
revenues generated from silver mining activities such that, when weighting
Junior Silver Companies, the market cap of a pure play company is multiplied by
a factor of three and the market cap of a non-pure play company is multiplied by
a factor of one. The five stocks with the highest adjusted market capitalization
are assigned a weight of 13%, 11%, 9%, 7%, and 5% respectively with all
remaining stocks weighted pro rata based on their relative adjusted market
capitalization, subject to a cap of 4.5%. The securities of each company in the
Index must also be listed on a securities exchange.
The
initial universe of Junior Silver Companies is determined based on proprietary
research and analysis conducted by Prime Indexes, (the “Index Provider”), an
independent index provider that is not affiliated with the Fund’s investment
adviser. The Index Provider uses a variety of publicly available resources for
such analysis, including financial statements and other reports published by
issuers to determine whether a company is actively engaged as a Junior Silver
Company.
The
Index Provider may exclude companies that meet the criteria for inclusion in the
Index or include companies that do not meet such criteria if it determines that
including or excluding them would be contrary to the objective of the Index
(e.g.,
their inclusion would negatively affect the investibility of the Index, the
company’s economic fortunes are predominantly driven by a business not related
to that of a Junior Silver Company, the company is expected to meet the
inclusion criteria in the immediate future and plays an important role in the
junior silver industry).
The
Index has a quarterly review in March, June, September, and December of each
year at which times the Index is reconstituted and rebalanced by the Index
Provider. The composition of the Index and the constituent weights are
determined on the two Thursdays before the second Friday of each March, June,
September, and December (or the next business day if this is a non-business day)
(the “Selection Day”). Component changes are made after the market close on the
third Friday of March, June, September, and December (or the next business day
if the third Friday is not a business day) and become effective at the market
opening on the next trading day.
Junior
Silver Companies are then screened as of the Selection Date for investibility to
determine initial inclusion (e.g.,
must not be listed on an exchange in a country which employs certain
restrictions on foreign capital investment), a minimum market capitalization of
$20 million, a maximum market capitalization of $3 billion, and an operating
company structure (as opposed to a pass-through security). The Index Provider
may include companies in the Index with a market capitalization within 5% of the
above thresholds as of the Selection Date to account for short term fluctuations
in market capitalization resulting from changes in a security’s price.
The
weightings of the constituents of the Index are further modified in that the
cumulative weight of all constituents with an individual weight of 5% or greater
may not in the aggregate account for more than 50% of the weight of the Index as
of the Selection Day. Further, the cumulative weight of all components with a
market capitalization of less than US $100 million may not in the aggregate
account for more than 10% of the weight of the Index as of the Selection Day. As
of January 14, 2022, the Index had 55 constituents.
The
Index is developed and owned by the Index Provider, and the Index is calculated
and maintained by Solactive AG. The Index Provider is independent of Solactive
AG, the Fund, and the Fund’s investment adviser.
The
Fund has adopted the following policy to comply with Rule 35d-1 under the
Investment Company Act of 1940. Such policy has been adopted as a
non-fundamental investment policy and may be changed without shareholder
approval upon 60 days’ written notice to shareholders. Under normal
circumstances, the Fund invests in swap agreements, futures contracts, short
positions or other financial instruments that, in combination, provide inverse
(opposite) or short leveraged exposure to the Index equal to at least 80% of the
Fund’s net assets (plus borrowing for investment purposes).
Industry
Concentration Policy: The
Fund will concentrate its investments (i.e., hold 25% or more of its total assets in
investments that provide inverse leveraged exposure in a particular industry or
group of related industries) to approximately the same extent that the Index is
concentrated. As of January 14, 2022, the Index was concentrated in companies in
the metals and mining industries group.
The
Fund may invest in a combination of financial instruments, such as swaps, that
provide two times the inverse (-2x) exposure to the Index, to a representative
sample of the securities in the Index that has aggregate characteristics similar
to those of the Index, to an ETF that tracks the Index (including an affiliated
series of ETF Managers Trust, ETFMG Prime Junior Silver Miners ETF) or to a
substantially similar index, or the Fund may short securities of the Index, or
short an ETF that tracks the same Index or a substantially similar index. The
Fund invests in derivatives as a substitute for directly shorting securities in
order to gain inverse leveraged exposure
to
the Index or its components. When the Fund shorts securities, including the
securities or another investment company, it borrows shares of that security or
investment company, which it then sells. The Fund closes out a short sale by
purchasing the security that it has sold short and returning that security to
the entity that lent the security. Derivatives are financial instruments that
derive value from the underlying reference asset or assets, such as stocks,
bonds, or funds (including ETFs), interest rates or indexes.
The
Fund seeks to remain fully invested at all times, consistent with its stated
investment objective but may not always have inverse investment exposure to all
of the securities in the Index, or its weighting of inverse investment exposure
to securities or industries may be different from that of the Index. In
addition, the Fund may have inverse investment exposure to securities, ETFs, or
financial instruments not included in the Index.
The
Fund will attempt to achieve its investment objective without regard to overall
market movement or the increase or decrease of the value of the securities in
the Index. At the close of the markets each trading day, ETF Managers Group LLC
(the “Adviser”) determines the type, quantity and mix of investment positions so
that its exposure to the Index is consistent with the Fund’s investment
objective. The impact of the Index’s movements during the day will affect
whether the Fund’s portfolio needs to be re-positioned. For example, if the
Index has fallen on a given day, net assets of the Fund should rise, meaning the
Fund’s exposure will need to be increased. Conversely, if the Index has risen on
a given day, net assets of the Fund should fall, meaning the Fund’s exposure
will need to be reduced and that a shareholder should lose money, a result that
is the opposite of traditional index tracking ETFs. This re-positioning strategy
typically results in high portfolio turnover. On a day-to-day basis, the Fund is
expected to hold ETFs and money market funds, deposit accounts with institutions
with high credit ratings, and/or short-term debt instruments that have
terms-to-maturity of less than 397 days and exhibit high quality credit
profiles, including U.S. government securities and repurchase agreements.
The
Fund may lend its portfolio securities to brokers, dealers, and other financial
organizations. These loans, if and when made, may not exceed 33 1/3% of the
total asset value of the Fund (including the loan collateral). By lending its
securities, the Fund may increase its income by receiving payments from the
borrower.
The
terms “daily,” “day,” and “trading day” refer to the period from the close of
the markets on one trading day to the close of the markets on the next trading
day.
Daily rebalancing and the compounding of
each day’s return over time means that the return of the Fund for a period
longer than a single day will be the result of each day’s returns compounded
over the period, which will very likely differ in amount, and possibly even
direction, from the Fund’s stated -200% of the return of the Index for the same
period. The Fund will lose money if the Index’s performance is flat over time,
and the Fund can lose money regardless of the performance of the Index, as a
result of daily rebalancing, the Index’s volatility, compounding of each day’s
return and other factors. See “Principal Risks” below.
Principal Risks
As with all funds, a shareholder is subject to the risk
that his or her investment could lose money. The Fund may not
achieve its inverse leveraged investment objective and there is a risk that you
could lose all of your money invested in the Fund. The Fund is not a complete
investment program. The Fund presents risks not traditionally associated with
other mutual funds and ETFs. For example, due to the Fund’s daily leveraged
investment objective, a small adverse move in the Index will result in larger
and potentially substantial declines in the Fund. It is important that investors
closely review all of the risks listed below and understand them before making
an investment in the Fund.
Effects
of Compounding and Market Volatility Risk:
The
Fund has a daily inverse leveraged investment objective and the Fund’s
performance for periods greater than a trading day will be the result of each
day's returns compounded over the period, which is very likely to differ from
-200% of the Index’s performance, before fees and expenses. Compounding affects
all investments, but has a more significant impact on funds that are inverse
leveraged and that rebalance daily. Particularly during periods of higher Index
volatility, compounding will cause results for periods longer than a trading day
to vary from -200% of the performance of the Index.
The
effect of compounding becomes more pronounced as Index volatility and the
holding period increase. The impact of compounding will impact each shareholder
differently depending on the period of time an investment in the Fund held and
the volatility of the Index during shareholder’s holding period of an investment
in the Fund. If adverse daily performance of the Index reduces the amount of a
shareholder’s investment, any further adverse daily performance will lead to a
smaller dollar loss because the shareholder’s investment had already been
reduced by the prior adverse performance. Equally, however, if favorable daily
performance of the Index increases the amount of a shareholder’s investment, the
dollar amount lost due to future adverse performance will increase because the
shareholder’s investment has increased.
The
chart below provides examples of how Index volatility could affect the Fund’s
performance. The chart illustrates the impact of two factors that affect the
Fund’s performance: Index volatility and Index return. Index returns show the
percentage change in the value of the Index over the specified time period,
while Index volatility is a statistical measure of the magnitude of fluctuations
in the returns during that time period. As illustrated below, even if the Index
return over two equal time periods is identical, different Index volatility
(i.e.,
fluctuations in the rates of return) during the two time periods could result in
drastically different Fund performance for the two time periods due to the
effects of compounding daily returns during the time periods.
Fund
performance for periods greater than one single day can be estimated given any
set of assumptions for the following factors: a) Index volatility; b) Index
performance; c) period of time; d) financing rates associated with inverse
leveraged exposure; e) other Fund expenses; and f) dividends or interest paid
with respect to securities in the Index. The chart below illustrates the impact
of two principal factors – Index volatility and Index performance – on Fund
performance. The chart shows estimated Fund returns for a number of combinations
of Index volatility and Index performance over a one-year period. Performance
shown in the chart assumes that: (i) no dividends were paid with respect to the
securities included in the Index; (ii) there were no Fund expenses; and (iii)
borrowing/lending rates (to obtain inverse leveraged exposure) of 0%. If Fund
expenses and/or actual borrowing/lending rates were reflected, the estimated
returns would be different than those shown.
As
shown in the chart below, the Fund would be expected to lose 17.1% if the Index
provided no return over a one year period during which the Index experienced
annualized volatility of 25%. At higher ranges of volatility, there is a chance
of a significant loss of value in the Fund, even if the Index’s return is flat.
For instance, if the Index’s annualized volatility is 100%, the Fund would be
expected to lose 95% of its value, even if the cumulative Index return for the
year was 0%. Areas shaded red (or dark gray) represent those scenarios where the
Fund can be expected to return less than -200% of the performance of the Index
and those shaded green (or light gray) represent those scenarios where the Fund
can be expected to return more than -200% of the performance of the Index. The
table below is intended to isolate the effect of Index volatility and
performance on the Fund’s performance. The Fund’s actual returns may be
significantly better or worse than the returns shown below as a result of any of
the factors discussed above or in “Daily Inverse Index Correlation/Tracking
Risk” below.
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One
Year Index |
-200% One
Year Index |
Volatility
Rate |
Return |
Return |
10% |
25% |
50% |
75% |
100% |
-60% |
120% |
506.5% |
418.1% |
195.2% |
15.6% |
-68.9% |
-50% |
100% |
288.2% |
231.6% |
88.9% |
-26.0% |
-80.1% |
-40% |
80% |
169.6% |
130.3% |
31.2% |
-48.6% |
-86.2% |
-30% |
60% |
98.1% |
69.2% |
-3.6% |
-62.2% |
-89.8% |
-20% |
40% |
51.6% |
29.5% |
-26.2% |
-71.1% |
-92.2% |
-10% |
-20% |
19.8% |
2.3% |
-41.7% |
-77.2% |
-93.9% |
0% |
0% |
-3.0% |
-17.1% |
-52.8% |
-81.5% |
-95.0% |
10% |
-20% |
-19.8% |
-31.5% |
-61.0% |
-84.7% |
-95.9% |
20% |
-40% |
-32.6% |
-42.4% |
-67.2% |
-87.2% |
-96.5% |
30% |
-60% |
-42.6% |
-50.9% |
-72.0% |
-89.1% |
-97.1% |
40% |
-80% |
-50.5% |
-57.7% |
-75.9% |
-90.6% |
-97.5% |
50% |
-100% |
-56.9% |
-63.2% |
-79.0% |
-91.8% |
-97.8% |
60% |
-120% |
-62.1% |
-67.6% |
-81.5% |
-92.8% |
-98.1% |
The
Index’s annualized historical volatility rate for the period from June 16, 2017
(the inception date of the Index) to December 31, 2021 was 45.7%. The Index’s
highest volatility rate for any one calendar year for the period from June 16,
2017 (the inception date of the Index) through December 31, 2021 was 70.6% and
volatility for a shorter period of time may have been substantially higher. The
Index’s annualized performance for the period from June 16, 2017 (the inception
date of the Index) to December 31, 2021 was 1.8%. Historical Index volatility
and performance are not indications of what the Index volatility and performance
will be in the future. The volatility of ETFs or instruments that reflect the
value of the Index, such as swaps, may differ from the volatility of the Index.
For
information regarding the effects of volatility and Index performance on the
long-term performance of the Fund, see “Additional Information about the Fund’s
Investment Objective and Strategies” in the Funds’ statutory prospectus, and
“Special Note Regarding the Correlation Risks of the Funds” in the Funds’
Statement of Additional Information.
Leverage
Risk:
The
Fund obtains investment exposure in excess of its net assets by utilizing
leverage and may lose more money in market conditions that are adverse to its
investment objective than a fund that does not utilize leverage. An investment
in the Fund is exposed to the risk that a change in a direction adverse to the
Fund in the daily performance of the Index will be magnified. This means that an
investment in the Fund will be reduced by an amount equal to 2% for every 1%
daily increase in the Index, not including the costs of financing leverage and
other operating expenses, which would further reduce its value. The Fund could
theoretically lose an amount greater than its net assets in the event of an
Index increase of more than 50%. Leverage will also have the effect of
magnifying any differences in the Fund’s correlation with the Index.
Silver
Exploration and Production Industry Concentration Risk:
The
Fund concentrates its assets in an industry or group of related industries to
the extent that the Index is so concentrated. Because the Index is expected to
concentrate in the Silver Exploration & Production sub-industry of the
Metals & Mining industry (in the Natural Resources/Minerals sector), the
Fund’s assets will be concentrated in, and will be more affected by the
performance of, that sub-industry than a fund that is more diversified. The
profitability of companies in the Silver Exploration & Production
sub-industry is related to, among other things, the worldwide price
of
silver and the costs of extraction and production. Worldwide silver prices may
fluctuate substantially over short periods of time, so the Fund’s share price
may be more volatile than other types of investments. Companies in the
sub-industry may be adversely affected by economic conditions, tax treatment,
government regulation and intervention, and world events in the regions in which
the companies operate (e.g.,
expropriation, nationalization, confiscation of assets and property,
repatriation of capital, military coups, social unrest). The price of the equity
securities of silver mining companies and silver may not always be closely
correlated. Investing in a silver company involves certain risks unrelated to an
investment in silver as a commodity, including production costs, operational and
managerial risk, and the possibility that the company will take measures to
hedge or minimize its exposure to the volatility of the market price of
silver.
Market
Disruption Risk:
Geopolitical and other events, including public health crises and natural
disasters, have recently led to increased market volatility and significant
market losses. Significant market volatility and market downturns may limit the
Fund’s ability to sell securities and obtain short exposure to securities, and
the Fund’s sales and short exposures may exacerbate the market volatility and
downturn. Under such circumstances, the Fund may have difficulty achieving its
investment objective for one or more trading days, which may adversely impact
the Fund’s returns on those days and periods inclusive of those days.
Alternatively, the Fund may incur higher costs (including swap financing costs)
in order to achieve its investment objective and may be forced to purchase and
sell securities (including other ETFs’ shares) at market prices that do not
represent their fair value (including in the case of an ETF, its net asset
value) or at times that result in differences between the price the Fund
receives for the security or the value of the swap exposure and the market
closing price of the security or the market closing value of the swap exposure.
Under those circumstances, the Fund’s ability to track its Index is likely to be
adversely affected, the market price of Fund shares may reflect a greater
premium or discount to net asset value and bid-ask spreads in the Fund’s shares
may widen, resulting in increased transaction costs for secondary market
purchasers and sellers. The Fund may also incur additional tracking error due to
the use of securities that are not perfectly correlated to the
Index.
Aggressive
Investment Techniques Risk:
Using
investment techniques that may be considered aggressive, such as swap
agreements, includes the risk of potentially dramatic changes (losses) in the
value of the instruments, imperfect correlations between the price of the
instrument and the underlying security or index, and volatility of the Fund.
Derivatives
Risk:
Derivatives
are financial instruments that derive value from the underlying reference asset
or assets, such as stocks, bonds, or funds (including ETFs), interest rates or
indexes. The Fund’s investments in derivatives may pose risks in addition to,
and greater than, those associated with directly investing in securities or
other ordinary investments, including risk related to the market, leverage,
imperfect daily correlations with underlying investments or the Fund’s other
portfolio holdings, higher price volatility, lack of availability, counterparty
risk, liquidity, valuation and legal restrictions. The use of derivatives is a
highly specialized activity that involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
The use of derivatives may result in larger losses or smaller gains than
directly investing in securities. When the Fund uses derivatives, there may be
imperfect correlation between the value of the reference assets and the
derivative, which may prevent the Fund from achieving its investment objective.
Because derivatives often require only a limited initial investment, the use of
derivatives may expose the Fund to losses in excess of those amounts initially
invested.
The
Fund may use a combination of swaps on the Index and swaps on an ETF whose
investment objective is to track the performance of the same, or a substantially
similar index to achieve its investment objective. The reference ETF may not
closely track the performance of the Index due to fees and other costs borne by
the ETF and other factors, such as an ETF’s premium or discount. Thus, to the
extent that the Fund invests in swaps that use an ETF as a reference asset, the
Fund may be subject to greater correlation risk and may not achieve as high a
degree of correlation with the Index as it would if the Fund used swaps that
utilized the Index as the reference asset. Any financing, borrowing or other
costs associated with using derivatives may also reduce the Fund’s
return.
In
addition, the Fund’s investments in derivatives are subject to the following
risks:
Swap
Agreements:
Swap
agreements are entered into primarily with major global financial institutions
for a specified period, which may range from one day to more than one year. The
derivative transactions in which the Fund invests are generally traded in the
over-the-counter market, which generally has less transparency than
exchange-traded derivatives instruments. In a standard swap transaction, two
parties agree to exchange the return (or differentials in rates of return)
earned or realized on particular predetermined reference assets or underlying
securities or instruments. The gross return to be exchanged or swapped between
the parties is calculated based on a notional amount or the return on or change
in value of a particular dollar amount invested in a basket of securities
representing a particular index or an ETF that seeks to track an index.
If
the Index has a dramatic move that causes a material decline in the Fund’s net
assets, the terms of a swap agreement between the Fund and its counterparty may
permit the counterparty to immediately close out the swap transaction with the
Fund. In that event, the Fund may be unable to enter into another swap agreement
or invest in other derivatives to achieve exposure consistent with the Fund’s
investment objective. This may prevent the Fund from achieving its leveraged
investment objective, even if the Index later reverses all or a portion of its
movement.
Counterparty
Risk:
A counterparty may be unwilling or unable to make timely payments to meet its
contractual obligations or may fail to return holdings that are subject to the
agreement with the counterparty. If the counterparty or its affiliate becomes
insolvent, bankrupt or defaults on its payment obligations to the Fund, the
value of an investment held by the Fund may decline. Additionally, if
any
collateral posted by the counterparty for the benefit of the Fund is
insufficient or there are delays in the Fund’s ability to access such
collateral, the Fund may not be able to achieve its leveraged investment
objective. In addition, the Fund may enter into swap agreements with a limited
number of counterparties, which may increase the Fund’s exposure to counterparty
credit risk. Further, there is a risk that no suitable counterparties will be
willing to enter into, or continue to enter into, transactions with the Fund
and, as a result, the Fund may not be able to achieve its leveraged investment
objective or may decide to change its leveraged investment
objective.
Shorting
Risk:
A short position is a financial arrangement in which the short position
appreciates in value when a reference asset falls in value and depreciates in
value when the reference asset rises in value. Over the long term, most assets
are expected to rise in value and short positions are expected to depreciate in
value. Short positions therefore may be riskier and more speculative than
traditional investments.
Obtaining
inverse or “short” exposure through the use of derivatives such as swap
agreements may expose the Fund to certain risks such as an increase in
volatility or decrease in the liquidity of the securities of the underlying
short position. If the Fund were to experience this volatility or decreased
liquidity, the Fund’s return may be lower, the Fund’s ability to obtain inverse
exposure through the use of derivatives may be limited or the Fund may be
required to obtain inverse exposure through alternative investment strategies
that may be less desirable or more costly to implement. If the securities
underlying the short positions are thinly traded or have a limited market due to
various factors, including regulatory action, the Fund may be unable to meet its
investment objective due to a lack of available securities or counterparties.
The Fund may not be able to issue additional Creation Units during period when
it cannot meet its investment objective due to these factors. Any income,
dividends or payments by the assets underlying the Fund’s short positions will
negatively impact the Fund.
Intra-Day
Investment Risk:
The
Fund seeks leveraged investment results from the close of the market on a given
trading day until the close of the market on the subsequent trading day. The
exact exposure of an investment in the Fund intraday in the secondary market is
a function of the difference between the value of the Index at the market close
on the first trading day and the value of the Index at the time of purchase. If
the Index loses value, the Fund’s net assets will rise by the same amount as the
Fund’s exposure. Conversely, if the Index rises, the Fund’s net assets will
decline by the same amount as the Fund’s exposure. Thus, an investor that
purchases shares intra-day may experience performance that is greater than, or
less than, the Fund’s stated multiple of the Index.
If
there is a significant intra-day market event and/or the securities of the Index
experience a significant decrease, the Fund may not meet its investment
objective or rebalance its portfolio appropriately. Additionally, the Fund may
close to purchases and sales of Shares prior to the close of regular trading on
the NYSE Arca, Inc. and incur significant losses.
Daily
Inverse Index Correlation/Tracking Risk:
Investors
will lose money when the Index rises, which is a result that is the opposite
from traditional index funds. There is no guarantee that the Fund will achieve a
high degree of inverse correlation to its Index and therefore achieve its daily
inverse leveraged investment objective. The Fund’s exposure to the Index is
impacted dynamically by the Index’s movement. Because of this, it is unlikely
that the Fund will be perfectly exposed to the Index at the end of each day. The
possibility of the Fund being materially over- or under-exposed to the Index
increases on days when the Index is volatile near the close of the trading day.
Market disruptions, regulatory restrictions or high volatility will also
adversely affect the Fund’s ability to adjust exposure to the required
levels.
The
Fund may have difficulty achieving its daily two times inverse (-2x) leveraged
investment objective due to fees, expenses, transaction costs, financing costs
related to the use of derivatives, income items, valuation methodology,
accounting standards, regulatory reasons (such as, diversification requirements)
and disruptions or illiquidity in the markets for the securities or derivatives
held by the Fund. The Fund may not have investment exposure to all securities in
the Index, or its weighting of investment exposure to such stocks or industries
may be different from that of the Index. The Fund may also have exposure to
securities or financial instruments that are not included in the Index. The Fund
may also use other investment companies, such as ETFs, as reference assets for
derivative instruments, which may result in increased tracking error.
Additionally, an ETF’s performance may differ from the index it tracks, thus
resulting in additional tracking error for the Fund. The Fund may be subject to
large movements of assets into and out of the Fund, potentially resulting in the
Fund being over- or under-exposed to the Index. Activities surrounding periodic
Index reconstitutions and other Index rebalancing events may also hinder the
Fund’s ability to meet its daily inverse leveraged investment objective. For
example, the Fund may take or refrain from taking positions to improve tax
efficiency or to comply with various regulatory restrictions, which may
negatively impact the Fund’s inverse correlation to the Index. Any of these
factors could decrease correlation between the performance of the Fund and the
Index and may hinder the Fund’s ability to meet its daily two times inverse
(-2x) leveraged investment objective.
Smaller
Companies Risk:
The Fund’s Index may be composed primarily of, or have significant exposure to,
securities of smaller companies. Smaller companies may be more vulnerable to
adverse business or economic events than larger, more established companies, and
may underperform other segments of the market or the equity market as a whole.
The securities of smaller companies also tend to be bought and sold less
frequently and at significantly lower trading volumes than the securities of
larger companies. As a result, it may be more difficult for the Fund to buy or
sell a significant amount of the securities of a smaller company without an
adverse impact on the price of the company’s securities, or the Fund may have to
sell such securities in smaller quantities over a longer period of time, which
may prevent the fund from achieving its investment objective.
Non-Diversification
Risk:
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a small number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer or a small number of
issuers could cause the Fund’s overall value to decline to a greater degree than
if the Fund held a more diversified portfolio. This may increase the Fund’s
volatility and have a greater impact on the Fund’s performance.
Foreign
Investment Risk:
Returns on investments in foreign stocks could be more volatile than, or trail
the returns on, investments in U.S. stocks. Since foreign exchanges may be open
on days when the Fund does not price its Shares, the value of the securities in
the Fund’s portfolio may change on days when shareholders will not be able to
purchase or sell the Shares. Conversely, Shares may trade on days when foreign
exchanges are closed. Because securities held by the Fund trade on foreign
exchanges that are closed when the Fund’s primary listing exchange is open, the
Fund is likely to experience premiums and discounts greater than those of
domestic ETFs. Each of these factors can make investments in the Fund more
volatile and potentially less liquid than other types of
investments.
Currency
Risk:
Indirect and direct exposure to foreign currencies subjects the Fund to the risk
that currencies will decline in value relative to the U.S. dollar. Currency
rates in foreign countries may fluctuate significantly over short periods of
time for a number of reasons, including changes in interest rates and the
imposition of currency controls or other political developments in the U.S. or
abroad.
Depositary
Receipts Risk:
The
Fund may invest in depositary receipts. Investment in ADRs and GDRs may be less
liquid than the underlying shares in their primary trading market and GDRs, many
of which are issued by companies in emerging markets, may be more volatile and
less liquid than depositary receipts issued by companies in more developed
markets.
Emerging
Markets Securities Risk:
The Fund’s investments may expose the Fund’s portfolio to the risks of investing
in emerging markets. Investments in emerging markets are subject to greater risk
of loss than investments in developed markets. This is due to, among other
things, greater market volatility, lower trading volume, political and economic
instability, greater risk of market shutdown and more governmental limitations
on foreign investments than typically found in developed markets.
Foreign
Market and Trading Risk:
The trading markets for many foreign securities are not as active as U.S.
markets and may have less governmental regulation and oversight. Foreign markets
also may have clearance and settlement procedures that make it difficult for the
Fund to buy and sell securities. These factors could result in a loss to the
Fund by causing the Fund to be unable to dispose of an investment or to miss an
attractive investment opportunity, or by causing Fund assets to be uninvested
for some period of time.
Foreign
Securities Risk:
The Fund invests a significant portion of its assets directly in securities of
issuers based outside of the U.S., or in depositary receipts that represent such
securities. Investments in securities of non-U.S. issuers involve certain risks
that may not be present with investments in securities of U.S. issuers, such as
risk of loss due to foreign currency fluctuations or to political or economic
instability, as well as varying regulatory requirements applicable to
investments in non-U.S. issuers. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may also
be subject to different regulatory, accounting, auditing, financial reporting
and investor protection standards than U.S. issuers.
Political
and Economic Risk:
The Fund is subject to foreign political and economic risk not associated with
U.S. investments, meaning that political events, social and economic events and
natural disasters occurring in a country where the Fund invests could cause the
Fund’s investments in that country to experience gains or losses. The Fund also
could be unable to enforce its ownership rights or pursue legal remedies in
countries where it invests.
Gain
Limitation Risk:
The Adviser will attempt to position the Fund’s portfolio to ensure that the
Fund does not gain or lose more than 90% of its NAV on a given day. As a
consequence, the Fund’s portfolio should not be responsive to Index movements of
more than 45% in a given day. For example, if the Index were to lose 50%, the
Fund’s gains should be limited to a daily gain of 90% (i.e.,
inverse 2 times (-2x) 45%) rather than 100% (i.e.,
inverse 2 times (-2x) 50%).
Geographic
Concentration Risk:
To
the extent the Fund invests a significant portion of its assets, directly or
indirectly, in the securities of companies of a single country or region, it is
more likely to be impacted by events or conditions affecting that country or
region.
Canada-Specific
Risk:
Because investments in the Silver Exploration & Production sub-industry may
be geographically concentrated in Canadian companies or companies that have a
significant presence in Canada, investment results could be dependent on the
financial condition of the Canadian economy. The Canadian economy is reliant on
the sale of natural resources and commodities, which can pose risks such as the
fluctuation of prices and the variability of demand for exportation of such
products. Changes in spending on Canadian products by the economies of other
countries or changes in any of these economies may cause a significant impact on
the Canadian economy.
The
remaining risks are presented in alphabetical order. Each risk summarized below
is considered a “principal risk” of investing in the Fund, regardless of the
order in which it appears.
Concentration
Risk: The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. To the extent the Fund invests more
heavily in particular industries, groups of industries, or sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those industries, groups of industries, or sectors of
the
economy, and the value of Fund shares may rise and fall more than the value of
shares that invest in securities of companies in a broader range of industries
or sectors.
Early
Close/Late Close/Trading Halt Risk:
An exchange or market may close early, close late or issue trading halts on
specific securities or financial instruments. As a result, the ability to trade
certain securities or financial instruments may be restricted, which may disrupt
the Fund’s creation and redemption process, potentially affect the price at
which the Fund’s shares trade in the secondary market, and/or result in the Fund
being unable to trade certain securities or financial instruments at all. In
these circumstances, the Fund may be unable to rebalance its portfolio, may be
unable to accurately price its investments and/or may incur substantial trading
losses. If trading in the Fund’s shares are halted, investors may be temporarily
unable to trade shares of the Fund.
Equity
Market Risk:
The equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests such as
political, market and economic developments, as well as events that impact
specific issuers. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, acts of terrorism or other events
could result in increased premiums or discounts to the Fund’s NAV.
ETF
Risks:
Absence
of an Active Market: Although
the Fund’s shares are approved for listing on the NYSE Arca, Inc. (the
“Exchange”), there can be no assurance that an active trading market will
develop and be maintained for Fund shares. There can be no assurance that the
Fund will grow to or maintain an economically viable size, in which case the
Fund may experience greater tracking error to its Index than it otherwise would
at higher asset levels or the Fund may ultimately liquidate.
Authorized
Participants (“APs”), Market Makers, and Liquidity Providers
Concentration: The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to net asset value (“NAV”) and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
Cash
Transactions Risk:
The Fund may effect its creations and redemptions primarily for cash, rather
than in-kind securities. Paying redemption proceeds in cash rather than through
in-kind delivery of portfolio securities may require the fund to dispose of or
sell portfolio investments at an inopportune time to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to incur certain costs
such as brokerage costs, and to recognize gains or losses that it might not have
incurred if it had made a redemption in-kind. As a result, the Fund may pay out
higher or lower annual capital gains distributions than ETFs that redeem
in-kind. In addition, the costs imposed on the Fund will decrease the Fund’ NAV
unless the costs are offset by a transaction fee payable by an AP.
Costs
of Buying or Selling Shares: Investors
buying or selling Fund shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of shares.
Fluctuation
of NAV: The
NAV of Fund shares will generally fluctuate with changes in the market value of
the Fund’s securities holdings. The market prices of shares will generally
fluctuate in accordance with changes in the Fund’s NAV and supply and demand of
shares on the Exchange. It cannot be predicted whether Fund shares will trade
below, at or above their NAV. During periods of unusual volatility or market
disruptions, market prices of Fund shares may deviate significantly from the
market value of the Fund’s securities holdings or the NAV of Fund shares. As a
result, investors in the Fund may pay significantly more or receive
significantly less for Fund shares than the value of the Fund’s underlying
securities or the NAV of Fund shares.
Market
Trading:
An investment in the Fund faces numerous market trading risks, including the
potential lack of an active market for Fund shares, losses from trading in
secondary markets, periods of high volatility and disruption in the
creation/redemption process of the Fund. Any of these factors, among others, may
lead to the Fund’s shares trading at a premium or discount to NAV. Because
securities held by the Fund may trade on foreign exchanges that are closed when
the Fund’s primary listing exchange is open, there may be deviations between the
current price of a security and the security’s last quoted price from the closed
foreign market. This may result in premiums and discounts that are greater than
those experienced by purely domestic ETFs.
Trading
Issues:
Although
Fund shares are listed for trading on the Exchange, there can be no assurance
that an active trading market for such shares will develop or be maintained.
Trading in Fund shares may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in shares inadvisable. There can
be no assurance that the requirements of the Exchange necessary to maintain the
listing of any Fund will continue to be met or will remain unchanged or that the
shares will trade with any volume, or at all. Further, secondary markets may be
subject to erratic trading activity, wide bid/ask spreads and extended trade
settlement periods in times of market stress because market makers and APs may
step away from making a market in Fund shares and in executing creation and
redemption orders, which could cause a material deviation in the Fund’s market
price from its NAV.
Liquidity
Risk:
In
certain circumstances, such as the disruption of the orderly markets for the
financial instruments in which the Fund invests, the Fund might not be able to
acquire or dispose of certain holdings quickly or at prices that represent true
market value in the judgment of the Adviser. Markets for the financial
instruments in which the Fund invests may be disrupted by a number of events,
including but not limited to economic crises, health crises, natural disasters,
excessive volatility, new legislation, or regulatory changes inside or outside
of the U.S. For example, regulation limiting the ability of certain financial
institutions to invest in certain financial instruments would likely reduce the
liquidity of those instruments. These situations may prevent the Fund from
limiting losses, realizing gains or achieving a high leveraged correlation with
the Index.
Money
Market Instrument Risk:
The
Fund may use a variety of money market instruments for cash management purposes,
including money market funds, depositary accounts and repurchase agreements.
Money market funds may be subject to credit risk with respect to the debt
instruments in which they invest. Depository accounts may be subject to credit
risk with respect to the financial institution in which the depository account
is held. Repurchase agreements are contracts in which a seller of securities
agrees to buy the securities back at a specified time and price. Repurchase
agreements may be subject to market and credit risk related to the collateral
securing the repurchase agreement. Money market instruments may lose money.
Natural
Disaster/Epidemic Risk:
Natural or environmental disasters, such as earthquakes, fires, floods,
hurricanes, tsunamis and other severe weather-related phenomena generally, and
widespread disease, including pandemics and epidemics, have been and may be
highly disruptive to economies and markets, adversely impacting individual
companies, sectors, industries, markets, currencies, interest and inflation
rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Given the increasing interdependence among global
economies and markets, conditions in one country, market, or region are
increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have
a significant adverse impact on the value of the Fund’s investments.
New
Fund Risk: The
Fund is a recently organized investment company with limited operating history.
As a result, prospective investors have a limited track record or history on
which to base their investment decision. There can be no assurance that the Fund
will grow to or maintain an economically viable size.
Other
Investment Companies (including ETFs) Risk:
The Fund may invest directly in another investment company by purchasing shares
of the investment company or indirectly by utilizing an investment company as
the reference asset of a derivative instrument. The Fund will incur higher and
duplicative expenses when it invests in other investment companies such as ETFs
(affiliated ETFs will not charge duplicate fees and expenses). There is also the
risk that the Fund may suffer losses due to the investment practices of the
underlying funds. If the other investment company fails to achieve its
investment objective, the value of the Fund’s investment will not perform as
expected, thus affecting the Fund’s performance and its correlation with the
Index. When the Fund invests in other investment companies, the Fund will be
subject to substantially the same risks as those associated with the direct
ownership of securities held by such investment companies. Investments in ETFs
are also subject to the following risks: (i) the market price of an ETF’s shares
may trade above or below their net asset value; (ii) an active trading market
for an ETF’s shares may not develop or be maintained; and (iii) trading of an
ETF’s shares may be halted for a number of reasons. Investments in such shares
may be subject to brokerage and other trading costs, which could result in
greater expenses to the Fund. Finally, depending on the demand in the market,
the Fund may not be able to liquidate its holdings in ETFs at an optimal price
or time, which may adversely affect the Fund’s performance.
Portfolio
Turnover Risk:
The
Fund may incur high portfolio turnover to manage the Fund’s investment exposure.
Additionally, active market trading of the Fund’s shares may cause more frequent
creation or redemption activities that could, in certain circumstances, increase
the number of portfolio transactions. High levels of portfolio transactions
increase brokerage and other transaction costs and may result in increased
taxable capital gains. Each of these factors could have a negative impact on the
performance of the Fund.
Reliance
on Trading Partners Risk:
The Fund invests in some economies that are heavily dependent upon trading with
key partners. Any reduction in this trading may cause an adverse impact on the
economy in which the Fund invests.
Sector
Risk:
To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors.
Securities
Lending Risk:
The Fund may engage in securities lending. The Fund may lose money if the
borrower of the loaned securities delays returning in a timely manner or fails
to return the loaned securities. Securities lending involves the risk that the
Fund could lose money in the event of a decline in the value of collateral
provided for loaned securities. In addition, the Fund bears the risk of loss in
connection with its investment of the cash collateral it receives from a
borrower. To the extent that the value or return of the Fund’s investment of the
cash collateral declines below the amount owed to the borrower, the Fund may
incur losses that exceed the amount it earned on lending the
security.
Tax
Risk:
To qualify for the favorable tax treatment generally available to regulated
investment companies, the Fund must satisfy certain diversification requirements
under the Internal Revenue Code of 1986, as amended (the “Code”). In particular,
the Fund generally may not acquire a security if, as a result of the
acquisition, more than 50% of the value of the Fund’s assets would be invested
in (a) issuers in which the Fund has, in each case, invested more than 5%
of the Fund’s assets and (b) issuers more than 10% of whose outstanding
voting securities are owned by the Fund. When the Index is concentrated in a
relatively small number of
securities,
it may not be possible for the Fund to fully implement a replication strategy or
a representative sampling strategy while satisfying these diversification
requirements. The Fund’s efforts to satisfy the diversification requirements may
cause the Fund’s return to deviate from that of the Index, and the Fund’s
efforts to replicate the Index may cause it inadvertently to fail to satisfy the
diversification requirements. If the Fund were to fail to qualify as a regulated
investment company, it would be taxed in the same manner as an ordinary
corporation, and distributions to its shareholders would not be deductible by
the Fund in computing its taxable income.
Valuation
Risk: The sales price that the Fund could
receive for a security may differ from the Fund’s valuation of the security and
may differ from the value used by the Index, particularly for securities that
trade in low volume or volatile markets or that are valued using a fair value
methodology. In addition, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell the
Fund’s shares.
Performance
Information
The Fund is new and therefore does not have
performance history for a full calendar year. Once the Fund has
completed a full calendar year of operations, a bar chart and table will be
included that will provide some indication of the risks of investing in the Fund
by showing the variability of the Fund’s returns and comparing the Fund’s
performance to a broad measure of market performance. Updated performance
information is available at www.etfmg.com.
Investment
Adviser
ETF
Managers Group LLC (the “Adviser”) serves as the investment adviser to the
Fund.
Portfolio
Managers
Samuel
R. Masucci, III, Chief Executive Officer of the Adviser, Frank Vallario, Chief
Investment Officer of the Adviser, Donal Bishnoi, Portfolio Manager of the
Adviser, and Devin Ryder, Portfolio Manager of the Adviser, have been the Fund’s
portfolio managers since the Fund’s inception in 2021.
For
important information about the purchase and sale of Fund shares, tax
information, and financial intermediary compensation, please turn to “Summary
Information about Purchases, Sales, Taxes, and Financial Intermediary
Compensation” on page 29 of the Prospectus.
Summary
Information about Purchases, Sales, Taxes, and Financial Intermediary
Compensation
Purchase
and Sale of Fund Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
Each
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. Each
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities (the “Deposit Securities”) and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Funds,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Funds’ website at www.etfmg.com.
Except
when aggregated in Creation Units, each Fund’s shares are not redeemable
securities.
Tax
Information
The
distributions made by the Funds are taxable, and will be taxed as ordinary
income, qualified dividend income, or capital gains (or a combination), unless
your investment is in an IRA or other tax-advantaged account. However,
subsequent withdrawals from such a tax-advantaged account may be subject to
federal income tax. You should consult your tax advisor about your specific tax
situation.
Financial
Intermediary Compensation
If
you purchase shares of the Funds through a broker-dealer or other financial
intermediary (such as a bank) (an “Intermediary”), the Adviser or its affiliates
may pay Intermediaries for certain activities related to the Funds, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange traded products, including the Funds, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of a Fund’s shares. These payments may create a
conflict of interest by influencing the Intermediary and your salesperson to
recommend the Funds over another investment. Any such arrangements do not result
in increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
Additional
Information about the Funds’ Investment Objectives and Strategies
This
section contains additional details about the Funds’ investment objective,
principal investment strategies and related risks.
Each
Fund’s investment objective is non-fundamental, meaning that it may be changed
by the Board of Trustees (the “Board”) of ETF Managers Trust (the “Trust”),
without the approval of Fund shareholders. Each Fund reserves the right to
substitute a different index for the Index without shareholder approval.
Additionally, in accordance with rules under the Investment Company Act of 1940,
as amended (the “1940 Act”), the Fund’s 80% Policy has been adopted as a
non-fundamental investment policy and may be changed without shareholder
approval upon 60 days’ written notice to shareholders.
The
Funds, as part of their securities lending program, may invest collateral in an
affiliated series of ETF Managers Trust, ETFMG Sit Ultra Short ETF. ETF Managers
Group LLC serves as the investment adviser to ETFMG Sit Ultra Short ETF. Other
investment companies, including Ultra Short ETF, in which a Fund may invest cash
collateral can be expected to incur fees and expenses for operations, such as
investment advisory and administration fees, which would be in addition to those
incurred by the Funds, and which, with respect to Ultra Short ETF, will be
received in full or in part by the Adviser.
Investment
Objective for the ETFMG Prime Junior Silver
Miners
ETF
The
Junior Silver ETF uses an “indexing” investment approach, and seeks to provide
investment results that, before fees and expenses, corresponds generally to the
price and yield performance of its Index. A number of factors may affect the
Fund’s ability to achieve a high correlation with its Index, including the
degree to which the Fund utilizes a sampling methodology. There can be no
guarantee that the Fund will achieve a high degree of correlation. The Fund’s
investment adviser (“Adviser”) may sell securities that are represented in the
Index or purchase securities not yet represented in the Index, in anticipation
of their removal from or addition to the Index. There may also be instances in
which the Adviser may choose to overweight securities in the Index, thus causing
the Fund to purchase or sell securities not in the Index, but which the Adviser
believes are appropriate to substitute for certain securities in the Index. The
Fund will not take defensive positions.
The
Junior Silver ETF will invest at least 80% of its total assets, exclusive of
collateral held from securities lending, in the component securities of its
Index and in American Depositary Receipts (“ADRs”) and Global Depositary
Receipts (“GDRs”) based on the component securities in the Index (the “80%
Policy”). The Fund may invest up to 20% of its total assets in securities that
are not in the Index to the extent that the Adviser believes that such
investments should help the Fund’s overall portfolio track its Index. The Fund
will also concentrate its investments (i.e.,
hold 25% or more of its net assets) in a particular industry or group of related
industries to approximately the same extent that its Index is
concentrated.
Investment
Objectives for the ETFMG Prime 2x Daily Junior Silver
Miners
ETF and ETFMG Prime 2x Daily Inverse Junior Silver Miners ETF
The
2x Daily Junior Silver ETF and -2x Daily Junior Silver ETF are designed to seek
daily investment results, before fees and expenses, that corresponds to two
times (2x) the daily total return of the Index or two times the inverse (-2x) of
the daily total return of the Index. If, on a given day, the Index gains 1%, 2x
Daily Junior Silver ETF is designed to gain approximately 2% (which is equal to
two times 1%), and the -2x Daily Junior Silver ETF is designed to lose
approximately 2%. Conversely, if the Index loses 1% on a given day, the 2x Daily
Junior Silver ETF is designed to lose approximately 2% and the -2x Daily Junior
Silver ETF is designed to gain approximately 2%. Each Fund seeks leveraged
investment results on a daily basis – from the close of regular trading on one
trading day to the close on the next trading day – which should not be equated
with seeking a leveraged (2x Daily Junior Silver ETF) or inverse leveraged (-2x
Daily Junior Silver ETF) investment objective for any other period. Each
Fund is designed as short-term trading vehicles. Each Fund is intended to be
used by investors who intend to actively monitor and manage their
portfolios.
Principal
Investment Strategies for the ETFMG Prime 2x Daily Junior Silver
Miners
ETF and ETFMG Prime 2x Daily Inverse Junior Silver Miners ETF
The
Adviser uses a number of investment techniques in an effort to achieve the
stated investment objective for each Fund. The 2x
Daily Junior Silver ETF seeks
two times (2x) the daily total return of the Index on a given day.
The
-2x Daily Junior Silver ETF seeks two times the inverse (-2x) (or opposite) of
the daily total return of the Index on a given day. The Adviser attempts to
provide the returns of the Index for a one-day period consistent with its Fund’s
stated investment objective. To do this, the Adviser creates net “long”
positions for the 2x Daily Junior Silver ETF and net “short” positions for the
-2x Daily Junior Silver ETF. The Adviser may create short positions in a Fund
even though the net exposure in such Fund will be long. Long positions move in
the same direction as the Index, advancing when the Index advances and declining
when such Index declines.
In
seeking to achieve a Fund’s investment objective, the Adviser uses statistical
and quantitative analysis to determine the investments such Fund makes and the
techniques it employs. The Adviser determines the type, quantity and mix of
investment positions that it believes in combination should produce daily
returns consistent with a Fund’s investment objective. In general, if a Fund is
performing as designed, the return of the Index will dictate the return for such
Fund. The Adviser does not invest the assets of a Fund in securities,
derivatives or other investments based on the Adviser’s view of the investment
merit of a particular security, instrument or company, nor does it conduct
conventional investment research or analysis or forecast market movements or
trends. A Fund generally pursues its investment objective regardless of the
market conditions and does not take defensive positions.
Each
Fund has a clearly articulated daily leveraged (2x Daily Junior Silver ETF) or
inverse leveraged (-2x Daily Junior Silver ETF) investment objective which
requires a Fund to seek economic exposure in excess of its net assets
(i.e.,
economic leverage). To meet its objectives, a Fund invests in some combination
of financial instruments so that it generates economic exposure consistent with
such Fund’s investment objective.
The
Funds may invest significantly in: swap agreements and ETFs to obtain economic
“leverage.” Leveraging allows the Adviser to generate a greater positive or
negative return for the Funds than what would be generated on the invested
capital without leverage, thus changing small market movements into larger
changes in the value of the investments of the Funds.
Each
Fund generally may hold a representative sample of the securities in the Index.
The sampling of securities that is held by a Fund are intended to maintain high
correlation with, and similar aggregate characteristics (e.g.,
market capitalization and industry weightings) to, the Index. A Fund also may
invest in securities that are not included in the Index or may overweight or
underweight certain components of the Index. Certain assets may be concentrated
in an industry or group of industries to the extent that the Index concentrates
in a particular industry or group of industries. In addition, the Funds offered
in this Prospectus are non-diversified, which means that it may invest in the
securities of a limited number of issuers.
At
the close of the markets each trading day, a Fund will position its portfolio to
ensure that such Fund’s exposure to the Index is consistent with such Fund’s
stated investment objective. The impact of market movements during the day
determines whether a portfolio needs to be repositioned. If the Index has risen
on a given day, the 2x Daily Junior Silver ETF’s net assets should rise, meaning
its exposure will typically need to be increased and the -2x Daily Junior Silver
ETF’s net assets should fall, meaning its exposure will typically need to be
reduced. Conversely, if the Index has fallen on a given day, the 2x Daily Junior
Silver ETF’s net assets should fall, meaning its exposure will typically need to
be reduced and the -2x Daily Junior Silver ETF’s net assets should rise, meaning
its exposure will typically need to be increased. A Fund’s portfolio may also
need to be changed to reflect changes in the composition of the Index.
Each
Fund may have difficulty in achieving its daily leveraged (2x Daily Junior
Silver ETF) or inverse leveraged (-2x Daily Junior Silver ETF) investment
objective due to fees, expenses, transaction costs, income items, accounting
standards, significant purchase and redemption activity by Fund shareholders
and/or disruptions or a temporary lack of liquidity in the markets for the
securities held by a Fund. Additionally, if the Index includes foreign
securities or tracks a foreign market index where the foreign market closes
before or after the New York Stock Exchange (“NYSE”) closes (generally at 4 p.m.
Eastern Time), the daily leveraged performance of the Fund may deviate from its
expected performance relative to the Index.
An
exchange or market may close or issue trading halts on specific securities, or
the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in a Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, a Fund may be unable
to rebalance its portfolio, may be unable to accurately price its investments
and/or may incur substantial trading losses.
If
a Fund is unable to obtain sufficient leveraged (2x Daily Junior Silver ETF) or
inverse leveraged (-2x Daily Junior Silver ETF) exposure to the Index due to the
limited availability of necessary investments or financial instruments, a Fund
could, among other things, limit or suspend creation units until the Adviser
determines that the requisite exposure to the Index is obtainable. During the
period that creation units are suspended, a Fund could trade at a significant
premium or discount to its NAV and could experience substantial redemptions.
A
Cautionary Note to Investors Regarding Dramatic Index Movement for the 2x Funds
Each
Fund seeks daily exposure to the Index equal to 200% or -200% of its net assets.
As a consequence, a Fund could lose an amount greater than its net assets in the
event of a decline (for the 2x Daily Junior Silver ETF) or an increase (for the
-2x Daily Junior Silver ETF) in the value of its Index in excess of 50% of the
value of the applicable Index. The Adviser will attempt to position a Fund’s
portfolio to ensure that such Fund does not gain or lose more than 90% of its
NAV on a given day. If the Adviser successfully positions a Fund’s portfolio to
provide such limits, such Fund’s portfolio and NAV will not be responsive to
movements in the Index beyond 45% in a given day, whether that movement is
favorable or adverse to such Fund. For example, if the Index were to gain 55%,
the 2x Daily Junior Silver ETF would be limited to a daily gain of 90%, which
corresponds to two times the Index gain of 45%, rather than 110%, which is two
times the Index gain of 55%. In addition, if the Index were to lose 55%, the -2x
Daily Junior Silver ETF would be limited to a daily gain of 90%, which
corresponds to two times the Index gain of 45%, rather than 110%, which is two
times the Index gain of 55%. It may not be possible to limit a Fund’s losses,
and shareholders should not expect such protection. The risk of total loss
exists.
If
the Index has a dramatic adverse move that causes a material decline in its
respective Fund’s net assets, the terms of such Fund’s swap agreements may
permit the counterparty to immediately close out the swap transaction. In that
event, a Fund may be unable to enter into another swap agreement or invest in
other derivatives to achieve exposure consistent with such Fund’s investment
objective. This may prevent a Fund from achieving its leveraged or inverse
leveraged investment objective, even if the Index later reverses all or a
portion the move.
Understanding
the Risks and Long-Term Performance of Daily Objective Funds – the Impact of
Compounding
Each
2x Fund is designed to provide leveraged (2x or -2x) results on a daily basis. A
2x Fund, however, is unlikely to provide a simple multiple (i.e.,
2x or -2x) of an index’s performance over periods longer than a single day.
•Why?
The hypothetical example below illustrates how daily leveraged fund returns can
behave for periods longer than a single day.
Take
a hypothetical fund XYZ that seeks to achieve twice the daily performance of
index XYZ. On each day, fund XYZ performs in line with its objective (2x the
index’s daily performance before fees and expenses). Notice that over the entire
five-day period, the fund’s total return is considerably less than two times
that of the period return of the index. For the five-day period, index XYZ
gained 5.1% while fund XYZ gained 9.9% (versus 2 x 5.1% or 10.2%). In other
scenarios, the return of a daily rebalanced fund could be greater than three
times the index’s return.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
XYZ |
Fund
XYZ |
|
Level |
Daily Performance |
Daily Performance |
Net
Asset Value |
Start |
100 |
|
|
$100.00 |
Day
1 |
103 |
3.0% |
6.0% |
$106.00 |
Day
2 |
99.9 |
-3.0% |
-6.0% |
$99.62 |
Day
3 |
103.9 |
4.0% |
8.0% |
$107.60 |
Day
4 |
101.3 |
-2.5% |
-5.0% |
$102.21 |
Day
5 |
105.1 |
3.8% |
7.5% |
$109.88 |
Total
Return |
|
5.1% |
9.9% |
|
•Why
does this happen? This
effect is caused by compounding, which exists in all investments, but has a more
significant impact on a daily leveraged fund. The return of a daily leveraged
fund for a period longer than a single day is the result of its return for each
day compounded over the period and usually will differ in amount, and possibly
even direction, from the daily leveraged fund’s stated multiple times the return
of the daily leveraged fund’s index for the same period. In general, during
periods of higher index volatility, compounding will cause longer term results
to be less than the multiple of the return of the index. This effect becomes
more pronounced as volatility increases. Conversely, in periods of lower index
volatility, fund returns over longer periods can be higher than the multiple of
the return of the index. Actual results for a particular period,
before
fees and expenses, are also dependent on the following factors: a) the index’s
volatility; b) the index’s performance; c) period of time; d) financing rates
associated with derivatives; e) other fund expenses; and f) dividends or
interest paid with respect to the securities in the index. The examples herein
illustrate the impact of two principal factors — index volatility and index
performance — on fund performance.
The
graphs that follow illustrate this point. Each of the graphs shows a simulated
hypothetical one year performance of an index compared with the performance of a
fund that perfectly achieves its investment objective. The graphs demonstrate
that, for periods longer than a single day, a daily leveraged fund is likely to
underperform or overperform (but not match) the index performance times the
stated multiple in the fund’s investment objective. Investors should understand
the consequences of holding daily rebalanced funds for periods longer than a
single day, including the impact of compounding on fund performance. Investors
should actively manage and monitor their investments, as frequently as daily. A
one-year period is used for illustrative purposes only. Deviations from the
index return times the fund multiple can occur over periods as short as a single
day (as measured from one day’s NAV to the next day’s NAV) and may also occur in
periods shorter than a single day (when measured intraday as opposed to NAV to
NAV). An investor in a daily leveraged fund could potentially lose the full
principal value of his/her investment within a single day.
To
isolate the impact of leverage, these graphs assume: a) no dividends paid with
respect to securities in the index; b) no fund expenses; and c)
borrowing/lending rates (to obtain required leverage) of zero percent. If these
were reflected, the fund’s performance would be different than that shown. Each
of the graphs also assumes a volatility rate of 30%, which is the approximate
average of the five-year historical volatility rate of the Prime Junior Silver
Miners & Explorers Index. An index’s volatility rate is a statistical
measure of the magnitude of fluctuations in the returns of an index.
One-Year
Simulation for Leveraged (2x) Fund; Index Return 0%
(Annualized
Index Volatility 30%)
The
graph above shows a scenario where the index, which exhibits day-to-day
volatility, is flat or trendless over the year (i.e.,
begins and ends the year at 0%), but the 2x Fund is down.
One-Year
Simulation for Leveraged (2x) Fund; Index Return 1.87%
(Annualized
Index Volatility 30%)
The
graph above shows a scenario where the index, which exhibits day-to-day
volatility, is up over the year, but the 2x Fund is up less than two times the
index.
One-Year
Simulation for Leveraged (2x) Fund; Index Return –1.23%
(Annualized
Index Volatility 30%)
The
graph above shows a scenario where the index, which exhibits day-to-day
volatility, is down over the year, the 2x Fund is down more than two times the
index.
One-Year
Simulation for Inverse (-2x) Fund; Index Return 0%
(Annualized
Index Volatility 30%)
The
graph above shows a scenario where the index, which exhibits day-to-day
volatility, is flat or trendless over the year (i.e.,
begins and ends the year at 0%), but the -2x Fund is down.
One-Year
Simulation for Inverse (-2x) Fund; Index Return 1.51%
(Annualized
Index Volatility 30%)
The
graph above shows a scenario where the index, which exhibits day-to-day
volatility, is up over the year, but the -2x Fund is down more than minus two
times the index.
One-Year
Simulation for Inverse (-2x) Fund; Index Return –2.49%
(Annualized
Index Volatility 30%)
The
graph above shows a scenario where the index, which exhibits day-to-day
volatility, is down over the year, the -2x Fund is up less than minus two times
the Index.
•What
it means to you.
Daily leveraged funds, if used properly and in conjunction with the investor’s
view on the future direction and volatility of the markets, can be useful tools
for knowledgeable investors who want to manage their exposure to various markets
and market segments. Investors should understand the consequences of seeking
daily investment results, before fees and expenses, that correspond to the
performance of a daily benchmark such as the multiple (i.e.,
2x or -2x) of the daily performance of an index for a single day, not for any
other period, including the impact of compounding on fund performance. Investors
should monitor and/or periodically rebalance their portfolios (which will
possibly trigger transaction costs and tax consequences), as frequently as
daily. Investors considering these funds should understand that they are
designed to provide a positive or negative multiple of an index for a single
day, not for any other period.
Additionally,
investors should recognize that the degree of volatility of a fund’s index can
have a dramatic effect on a fund’s longer-term performance. The more volatile an
index is, the more a fund’s longer-term performance will negatively deviate from
a simple multiple (e.g.,
2x or -2x) of its index’s longer-term return. The return of the fund for a
period longer than a single day is the result of its return for each day
compounded over the period and usually will differ in amount, and possibly even
direction, from the fund’s stated multiple times the return of the fund’s index
for the same period. For periods longer than a single day, the fund will lose
money if its index’s performance is flat over time, and it is possible that the
fund will lose money over time regardless of the performance of its index, as a
result of daily rebalancing, the index’s volatility, compounding and other
factors. An investor in the fund could potentially lose the full principal value
of his/her investment within a single day.
Additional
Risk Information
You
may lose the full principal value of your investment within a single
day.
The
following section provides additional information regarding the principal risks
identified under “Principal Risks” in each Fund’s summary.
Effects
of Compounding and Market Volatility Risk
(2x
Funds only):
The 2x Daily Junior Silver ETF has a daily leveraged and the -2x Daily Junior
Silver ETF has a daily inverse leveraged investment objective and a Fund’s
performance for periods greater than a trading day will be the result of each
day’s returns compounded over the period, which is very likely to differ from
the Index’s performance times the stated multiple in a Fund’s investment
objective, before fees and expenses. Compounding affects all investments, but
has a more significant impact on leveraged funds and funds that, rebalance
daily.
Over
time, the cumulative percentage increase or decrease in the value of a Fund’s
portfolio may diverge significantly from the cumulative percentage increase or
decrease in 200% or -200% of the return of a Fund’s underlying index due to the
compounding effect of losses and gains on the returns of a Fund. It also is
expected that a Fund’s use of leverage will cause the Fund to underperform the
return of 200% or -200% of its underlying index in a trendless or flat market.
The
charts below provide examples of how index volatility could affect a Fund’s
performance. The charts illustrate the impact of two factors that affect a
Fund’s performance: Index volatility and Index return. Index returns show the
percentage change in the value of the Index over the specified time period,
while Index volatility is a statistical measure of the magnitude of fluctuations
in the returns during that time period. As illustrated below, even if the Index
return over two equal time periods is identical, different Index volatility
(i.e.,
fluctuations in the rates of return) during the two time periods could result in
drastically different Fund performance for the two time periods due to the
effects of compounding daily returns during the time periods.
Fund
performance for periods greater than one single day can be estimated given any
set of assumptions for the following factors: a) index volatility; b) index
performance; c) period of time; d) financing rates associated with leveraged
exposure; e) other Fund expenses; and f) dividends or interest paid with respect
to securities in the Index. The charts below illustrate the impact of two
principal factors – index volatility and index performance – on Fund
performance. The charts show estimated Fund returns for a number of combinations
of index volatility and index performance over a one-year period.
Performance
shown in the chart assumes that: (i) no dividends were paid with respect to the
securities included in Index; (ii) there were no Fund expenses; and (iii)
borrowing/lending rates (to obtain leveraged exposure for the 2x Daily Junior
Silver ETF and inverse leveraged exposure for the -2x Daily Junior Silver ETF)
of 0%. If Fund expenses and/or actual borrowing/lending rates were reflected,
the estimated returns would be worse than those shown.
As
shown below, the 2x Daily Junior Silver ETF would be expected to lose 6.1% and
the -2x Daily Junior Silver ETF would be expected to lose 17.1% if the Index
provided no return over a one year period during which the Index experienced
annualized volatility of 25%. If the Index’s annualized volatility were to rise
to 75%, the hypothetical loss for a one year period widens to approximately 43%
for the 2x Daily Junior Silver ETF and 81.5% for the -2x Daily Junior Silver
ETF. At higher ranges of volatility, there is a chance of a significant loss of
value even if the Index is flat. For instance, if the Index’s annualized
volatility is 100%, it is likely that the Fund would lose 63.2% of its value,
and the -2x Daily Junior Silver ETF would lose approximately 95% of its value,
even if the Index’s cumulative return for the year was only 0%. The volatility
of ETFs or instruments that reflect the value of the Index such as swaps, may
differ from the volatility of the Index.
2x
Chart
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One
Year Index |
Two
Times (2x) One Year Index |
Volatility
Rate |
Return |
Return |
10% |
25% |
50% |
75% |
100% |
-60% |
-120% |
-84.2% |
-85.0% |
-87.5% |
-90.9% |
-94.1% |
-50% |
-100% |
-75.2% |
-76.5% |
-80.5% |
-85.8% |
-90.8% |
-40% |
-80% |
-64.4% |
-66.2% |
-72.0% |
-79.5% |
-86.8% |
-30% |
-60% |
-51.5% |
-54.0% |
-61.8% |
-72.1% |
-82.0% |
-20% |
-40% |
-36.6% |
-39.9% |
-50.2% |
-63.5% |
-76.5% |
-10% |
-20% |
-19.8% |
-23.9% |
-36.9% |
-53.8% |
-70.2% |
0% |
0% |
-1.0% |
-6.1% |
-22.1% |
-43.0% |
-63.2% |
10% |
20% |
19.8% |
13.7% |
-5.8% |
-31.1% |
-55.5% |
20% |
40% |
42.6% |
35.3% |
12.1% |
-18.0% |
-47.0% |
30% |
60% |
67.3% |
58.8% |
31.6% |
-3.7% |
-37.8% |
40% |
80% |
94.0% |
84.1% |
52.6% |
11.7% |
-27.9% |
50% |
100% |
122.8% |
111.4% |
75.2% |
28.2% |
-17.2% |
60% |
120% |
153.5% |
140.5% |
99.4% |
45.9% |
-5.8% |
-2x
Chart
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One
Year Index |
-200%
One Year Index |
Volatility
Rate |
Return |
Return |
10% |
25% |
50% |
75% |
100% |
-60% |
120% |
506.5% |
418.1% |
195.2% |
15.6% |
-68.9% |
-50% |
100% |
288.2% |
231.6% |
88.9% |
-26.0% |
-80.1% |
-40% |
80% |
169.6% |
130.3% |
31.2% |
-48.6% |
-86.2% |
-30% |
60% |
98.1% |
69.2% |
-3.6% |
-62.2% |
-89.8% |
-20% |
40% |
51.6% |
29.5% |
-26.2% |
-71.1% |
-92.2% |
-10% |
-20% |
19.8% |
2.3% |
-41.7% |
-77.2% |
-93.9% |
0% |
0% |
-3.0% |
-17.1% |
-52.8% |
-81.5% |
-95.0% |
10% |
-20% |
-19.8% |
-31.5% |
-61.0% |
-84.7% |
-95.9% |
20% |
-40% |
-32.6% |
-42.4% |
-67.2% |
-87.2% |
-96.5% |
30% |
-60% |
-42.6% |
-50.9% |
-72.0% |
-89.1% |
-97.1% |
40% |
-80% |
-50.5% |
-57.7% |
-75.9% |
-90.6% |
-97.5% |
50% |
-100% |
-56.9% |
-63.2% |
-79.0% |
-91.8% |
-97.8% |
60% |
-120% |
-62.1% |
-67.6% |
-81.5% |
-92.8% |
-98.1% |
Holding
an unmanaged position opens the investor to the risk of market volatility
adversely affecting the performance of the investment. A Fund is not appropriate
for investors who do not intend to actively monitor and manage their portfolios.
Each table is intended to underscore the fact that a Fund is designed as a
short-term trading vehicle for investors who intend to actively monitor and
manage their portfolios.
Leverage
Risk (2x Funds only):
To
achieve its daily investment objective, a Fund employs leverage and is exposed
to the risk that adverse daily performance of the Index will be magnified. This
means that, if the Index experiences an adverse daily performance, an investment
in the Fund will change by an amount equal to 2% for every 1% of adverse
performance, not including the costs of financing leverage and other operating
expenses, which would further reduce its value. A Fund could theoretically lose
an amount greater than its net assets if the Index moves more than 50% in a
direction adverse to the Fund (meaning a decline in the value of the Index).
Leverage will also have the effect of magnifying any differences in a Fund’s
correlation with the Index.
Silver
Exploration and Production Industry Concentration Risk:
Because
the Index is expected to concentrate in the Silver Exploration & Production
sub-industry of the Metals & Mining industry (in the Natural
Resources/Minerals sector), a Fund’s assets will be concentrated in, and will be
more affected by the performance of, that sub-industry than a fund that is more
diversified. The profitability of companies in the Silver Exploration &
Production sub-industry is related to, among other things, the worldwide price
of silver and the costs of extraction and production. Worldwide silver prices
may fluctuate substantially over short periods of time, so a Fund’s share price
may be more volatile than other types of investments. Companies in the
sub-industry may be adversely affected by economic conditions, tax treatment,
government regulation and intervention, and world events in the regions in which
the
companies
operate (e.g.,
expropriation, nationalization, confiscation of assets and property,
repatriation of capital, military coups, social unrest). The price of the equity
securities of silver mining companies and silver may not always be closely
correlated. Investing in a silver company involves certain risks unrelated to an
investment in silver as a commodity, including production costs, operational and
managerial risk, and the possibility that the company will take measures to
hedge or minimize its exposure to the volatility of the market price of silver.
Market
Disruption Risk (2x Funds only):
Geopolitical and other events, including public health crises and natural
disasters, have recently led to increased market volatility and significant
market losses. Significant market volatility and market downturns may limit a
Fund’s ability to sell securities and obtain long or short exposure to
securities, and a Fund’s sales and long or short exposures may exacerbate the
market volatility and downturn. Under such circumstances, a Fund may have
difficulty achieving its investment objective for one or more trading days,
which may adversely impact a Fund’s returns on those days and periods inclusive
of those days. Alternatively, a Fund may incur higher costs (including swap
financing costs) in order to achieve its investment objective and may be forced
to purchase and sell securities (including other ETFs’ shares) at market prices
that do not represent their fair value (including in the case of an ETF, its net
asset value) or at times that result in differences between the price a Fund
receives for the security or the value of the swap exposure and the market
closing price of the security or the market closing value of the swap exposure.
Under those circumstances, a Fund’s ability to track its Index is likely to be
adversely affected, the market price of Fund shares may reflect a greater
premium or discount to net asset value and bid-ask spreads in a Fund’s shares
may widen, resulting in increased transaction costs for secondary market
purchasers and sellers. A Fund may also incur additional tracking error due to
the use of securities that are not perfectly correlated to the Index.
Aggressive
Investment Techniques Risk (2x Funds only):
Using investment techniques that may be considered aggressive, such as swap
agreements, includes the risk of potentially dramatic changes (losses) in the
value of the instruments, imperfect correlations between the price of the
instrument and the underlying security or index, and volatility of the Funds.
Derivatives
Risk (2x Funds only):
A Fund uses investment techniques, including investments in derivatives, such as
swaps that may be considered aggressive. The use of derivatives may result in
larger losses or smaller gains than investing in the underlying securities
directly. Investments in these derivatives may generally be subject to market
risks that cause their prices to fluctuate more than an investment directly in a
security and may increase the volatility of a Fund. The use of derivatives may
expose a Fund to additional risks such as counterparty risk, liquidity risk and
increased daily correlation risk. When a Fund uses derivatives, there may be
imperfect correlation between the value of the underlying reference assets and
the derivative, which may prevent a Fund from achieving its investment
objective.
A
Fund may use swaps on the Index or swaps on an ETF that tracks the same, or a
substantially similar, index. If the Index has a dramatic intraday move in value
that causes a material decline in the applicable Fund’s NAV, the terms of the
swap agreement between such Fund and its counterparty may allow the counterparty
to immediately close out of the transaction with such Fund. In such
circumstances, a Fund may be unable to enter into another swap agreement or
invest in other derivatives to achieve the desired exposure consistent with such
Fund’s daily leveraged investment objective. This may prevent a Fund from
achieving its daily leveraged investment objective particularly if the Index
reverses all or a portion of its intraday move by the end of the day. The value
of an investment in a Fund may change quickly and without warning. Any
financing, borrowing or other costs associated with using derivatives may also
have the effect of lowering a Fund’s return.
In
addition, a Fund’s investments in derivatives are subject to the following
risks:
Swap
Agreements.
Swap agreements are entered into primarily with major global financial
institutions for a specified period which may range from one day to more than
one year. In a standard swap transaction, two parties agree to exchange the
return (or differentials in rates of return) earned or realized on particular
predetermined reference or underlying securities or instruments. The gross
return to be exchanged or swapped between the parties is calculated based on a
notional amount or the return on or change in value of a particular dollar
amount invested in a reference asset.
Counterparty
Risk (2x Funds only):
Counterparty risk is the risk that a counterparty is unwilling or unable to make
timely payments to meet its contractual obligations with respect to the amount a
Fund expects to receive from a counterparty to a financial instrument entered
into by such Fund. A Fund generally enters into derivatives transactions, such
as the swap agreements, with counterparties such that either party can terminate
the contract without penalty prior to the termination date. A Fund may be
negatively impacted if a counterparty becomes bankrupt or otherwise fails to
perform its obligations under such a contract, or if any collateral posted by
the counterparty for the benefit of a Fund is insufficient or there are delays
in a Fund’s ability to access such collateral. If the counterparty becomes
bankrupt or defaults on its payment obligations to a Fund, it may experience
significant delays in obtaining any recovery, may obtain only a limited recovery
or obtain no recovery and the value of an investment held by a Fund may decline.
The Fund may also not be able to exercise remedies, such as the termination of
transactions, netting of obligations and realization on collateral, if such
remedies are stayed or eliminated under special resolutions adopted in the
United States, the European Union and various other jurisdictions. European
Union rules and regulations intervene when a financial institution is
experiencing financial difficulties and could reduce, eliminate, or convert to
equity a counterparty’s obligations to a Fund (sometimes referred to as a “bail
in”).
A
Fund typically enters into transactions with counterparties that present minimal
risks based on the Adviser’s assessment of the counterparty’s creditworthiness,
or its capacity to meet its financial obligations during the term of the
derivative agreement or contract.
The
Adviser considers factors such as counterparty credit rating among other factors
when determining whether a counterparty is creditworthy. The Adviser regularly
monitors the creditworthiness of each counterparty with which a Fund transacts.
A Fund generally enters into swap agreements with major, global financial
institutions and seeks to mitigate risks by generally requiring that the
counterparties for a Fund to post collateral, marked to market daily, in an
amount approximately equal to what the counterparty owes such Fund, subject to
certain minimum thresholds. To the extent any such collateral is insufficient or
there are delays in accessing the collateral, a Fund will be exposed to the
risks described above. If a counterparty’s credit ratings decline, a Fund may be
subject to a bail-in, as described above.
In
addition, a Fund may enter into swap agreements with a limited number of
counterparties, which may increase such Fund’s exposure to counterparty credit
risk. A Fund does not specifically limit its counterparty risk with respect to
any single counterparty. There is a risk that no suitable counterparties are
willing to enter into, or continue to enter into, transactions with a Fund and,
as a result, such Fund may not be able to achieve its investment objective or
may decide to change its leveraged (2x Daily Junior Silver ETF) or inverse
leveraged (-2x Daily Junior Silver ETF) investment objective. Additionally,
although a counterparty to a centrally cleared swap agreement is often backed by
a futures commission merchant (“FCM”) or a clearing organization that is further
backed by a group of financial institutions, there may be instances in which a
FCM or a clearing organization would fail to perform its obligations, causing
significant losses to a Fund.
Intra-Day
Investment Risk (2x Funds only):
A
Fund seeks daily leveraged investment results, which should not be equated with
seeking an investment objective for shorter than a day. Thus, an investor who
purchases Fund shares after close of the markets on one trading day and before
the close of the markets on the next trading day will likely have more, or less,
than two times (2x) the leveraged investment exposure to the Index, depending
upon the movement of the Index from the end of one trading day until the time of
purchase. If the Index moves in a direction favorable to the 2x Daily Junior
Silver ETF, the investor will receive less than two times (2x) the exposure to
the Index (greater than two times for the -2x Daily Junior Silver ETF).
Conversely, if the Index moves in a direction adverse to the 2x Daily Junior
Silver ETF, the investor will receive exposure to the Index greater than two
times (2x) (less than two times for the -2x Daily Junior Silver ETF). Thus, an
investor that purchases shares intra-day may experience performance that is
greater than, or less than, a Fund’s stated multiple of the Index.
If
there is a significant intra-day market event and/or the securities of the Index
experience a significant change that is adverse to a Fund, a Fund may not meet
its investment objective or rebalance its portfolio appropriately. Additionally,
a Fund may close to purchases and sales of Shares prior to the close of regular
trading on the NYSE Arca, Inc. and incur significant losses.
Daily
Index Correlation/Tracking Risk (2x Daily Junior Silver ETF only):
There
is no guarantee that the Fund will achieve a high degree of correlation to its
Index and therefore achieve its daily leveraged investment objective. To achieve
a high degree of correlation with the Index, the Fund seeks to rebalance its
portfolio daily to keep leverage consistent with its daily leveraged investment
objective. In addition, the Fund’s exposure to the Index is impacted dynamically
by the Index’s movement. Because of this, it is unlikely that the Fund will be
perfectly exposed to the Index at the end of each day. The possibility of the
Fund being materially over- or under-exposed to the Index increases on days when
the Index is volatile near the close of the trading day. Market disruptions,
regulatory restrictions or high volatility will also adversely affect the Fund’s
ability to adjust exposure to the required levels.
Because
an Index may include instruments that trade on a different market than the Fund,
the Fund’s return may vary from a multiple of the performance of the Index
because different markets may close before the Exchange opens or may not be open
for business on the same calendar days as the Fund. Additionally, due to
differences in trading hours, and because the Index may be calculated using
prices obtained at times other than the Fund’s NAV calculation time or using
fair valuations of index security, the Fund’s performance may not correlate to
its Index. Additionally, there may be legal restrictions or limitation imposed
by governments of certain countries which may limit the size of the Fund’s
holding or otherwise limit the Fund’s ability to achieve its investment
objective.
The
Fund may have difficulty achieving its daily leveraged investment objective due
to fees, expenses, transactions costs, financing costs related to the use of
derivatives, investments in ETFs, directly or indirectly as a reference asset
for derivative instruments, income items, valuation methodology, accounting
standards, required regulatory reasons (such as, diversification requirements)
and disruptions or illiquidity in the markets for the securities or derivatives
held by the Fund. The Fund may not have investment exposure to all securities in
the Index, or its weighting of investment exposure to such stocks or industries
may be different from that of the Index. In addition, the Fund may invest in
securities or financial instruments not included in the Index. The Fund may be
subject to large movements of assets into and out of the Fund, potentially
resulting in the Fund being over- or under-exposed to the Index. The Fund may
also invest directly in or use other investment companies, such as ETFs, which
may result in increased tracking error for the Fund. Additionally, an ETF’s
performance may differ from the index it tracks, thus resulting in additional
tracking error for the Fund. Activities surrounding periodic index
reconstitutions and other index rebalancing events may also hinder the Fund’s
ability to meet its daily leveraged investment objective. For example, the Fund
may take or refrain from taking positions to improve the tax efficiency or to
comply with various regulatory restrictions, which may negatively impact the
Fund’s correlation to the Index. Any of these factors could decrease correlation
between the performance of the Fund and the Index and may hinder the Fund’s
ability to meet its daily investment objective.
Daily
Inverse Index Correlation/Tracking Risk (-2x Daily Junior Silver ETF
only):
Investors
will lose money when the Index rises, which is a result that is the opposite
from traditional index funds. There is no guarantee that the Fund will achieve a
high degree of inverse correlation to its Index and therefore achieve its daily
inverse leveraged investment objective. To achieve a high degree of inverse
correlation with the Index, the Fund seeks to rebalance its portfolio daily to
keep leverage consistent with its daily inverse leverage investment objective.
The Fund’s exposure to the Index is impacted dynamically by the Index’s
movement. Because of this, it is unlikely that the Fund will be perfectly
exposed to the Index at the end of each day. The possibility of the Fund being
materially over- or under-exposed to the Index increases on days when the Index
is volatile near the close of the trading day. Market disruptions, regulatory
restrictions or high volatility will also adversely affect the Fund’s ability to
adjust exposure to the required levels.
Because
an Index may include instruments that trade on a different market than the Fund,
the Fund’s return may vary from a multiple of the performance of the Index
because different markets may close before the Exchange opens or may not be open
for business on the same calendar days as the Fund. Additionally, due to
differences in trading hours, and because the Index may be calculated using
prices obtained at times other than the Fund’s NAV calculation time or using
fair valuations of index security, the Fund’s performance may not correlate to
the Index. Additionally, there may be legal restrictions or limitation imposed
by governments of certain countries which may limit the size of the Fund’s
holding or otherwise limit the Fund’s ability to achieve its investment
objective.
The
Fund may have difficulty achieving its daily two times inverse (-2x) leveraged
investment objective due to fees, expenses, transaction costs, financing costs
related to the use of derivatives as a reference assets for derivative
instruments, income items, valuation methodology, accounting standards, required
regulatory reasons (such as, diversification requirements) and disruptions or
illiquidity in the markets for the securities or derivatives held by the Fund.
The Fund may not have investment exposure to all securities in the Index, or its
weighting of investment exposure to such stocks or industries may be different
from that of the Index. The Fund may also have exposure to securities or
financial instruments that are not included in the Index. The Fund may also use
other investment companies, such as ETFs, as reference assets for derivative
instruments, which may result in increased tracking error. Additionally, an
ETF’s performance may differ from the index it tracks, thus resulting in
additional tracking error for the Fund. The Fund may be subject to large
movements of assets into and out of the Fund, potentially resulting in the Fund
being over- or under-exposed to the Index. Activities surrounding periodic Index
reconstitutions and other Index rebalancing events may hinder the Fund’s ability
to meet its daily inverse leveraged investment objective. For example, the Fund
may take or refrain from taking positions to improve tax efficiency or to comply
with various regulatory restrictions, which may negatively impact the Fund’s
inverse correlation to the Index. Any of these factors could decrease
correlation between the performance of the Fund and the Index and may also
hinder the Fund’s ability to meet its daily two times inverse (-2x) leveraged
investment objective. Any of these factors could decrease correlation between
the performance of the Fund and the Index and may hinder the Fund’s ability to
meet its daily investment objective
The
remaining risks are presented in alphabetical order. Each risk summarized below
is considered a “principal risk” of investing in the Fund, regardless of the
order in which it appears.
Concentration
Risk: Each
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. To the extent a Fund invests more
heavily in particular industries, groups of industries, or sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those industries, groups of industries, or sectors of the
economy, and the value of Shares may rise and fall more than the value of shares
that invest in securities of companies in a broader range of industries or
sectors.
Early
Close/Late Close/Trading Halt Risk (2x Funds only):
An exchange or market may close early, close late or issue trading halts on
specific securities or financial instruments. As a result, the ability to trade
certain securities or financial instruments may be restricted, which may disrupt
a Fund’s creation and redemption process, potentially affect the price at which
a Fund’s shares trade in the secondary market, and/or result in a Fund being
unable to trade certain securities or financial instruments at all. In these
circumstances, a Fund may be unable to rebalance its portfolio, may be unable to
accurately price its investments and/or may incur substantial trading losses. If
trading in a Fund’s shares are halted, investors may be temporarily unable to
trade shares of the applicable Fund.
Equity
Market Risk:
An investment in a Fund involves risks of investing in equity securities, such
as market fluctuations caused by such factors as economic and political
developments, changes in interest rates and perceived trends in securities
prices. The values of equity securities could decline generally or could
underperform other investments. Different types of equity securities tend to go
through cycles of out-performance and under-performance in comparison to the
general securities markets. In addition, securities may decline in value due to
factors affecting a specific issuer, market or securities markets generally.
Holders of common stocks incur more risk than holders of preferred stocks and
debt obligations because common stockholders, as owners of the issuer, have
generally inferior rights to receive payments from the issuer in comparison with
the rights of creditors of, or holders of debt obligations or preferred stocks
issued by, the issuer. Additionally, natural or environmental disasters,
widespread disease or other public health issues, war, acts of terrorism or
other events could result in increased premiums or discounts to a Fund’s
NAV.
ETF
Risks:
Absence
of an Active Market Risk: Although
a Fund’s shares are approved for listing on the Exchange, there can be no
assurance that an active trading market will develop and be maintained for Fund
shares. There can be no assurance that a Fund will grow to
or
maintain an economically viable size, in which case a Fund may experience
greater tracking error to its Index than it otherwise would at higher asset
levels or a Fund may ultimately liquidate.
APs,
Market Makers and Liquidity Providers Concentration Risk:
A Fund has a limited number of financial institutions that may act as APs, none
of which are obligated to engage in creation and/or redemption transactions. 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, there may be a significantly diminished trading market for Fund shares
and shares may trade at a material discount to NAV and possibly face delisting:
(i) APs exit the business or otherwise become unable to process creation and/or
redemption orders and no other APs step forward to perform these services, or
(ii) market makers and/or liquidity providers exit the business or significantly
reduce their business activities and no other entities step forward to perform
their functions. The risks associated with limited APs may be heightened in
scenarios where APs have limited or diminished access to the capital required to
post collateral.
Cash
Transactions Risk (2x Funds only):
A Fund may effect its creations and redemptions primarily for cash, rather than
in-kind securities. Paying redemption proceeds in cash rather than through
in-kind delivery of portfolio securities may require the fund to dispose of or
sell portfolio investments at an inopportune time to obtain the cash needed to
distribute redemption proceeds. This may cause a Fund to incur certain costs
such as brokerage costs, and to recognize gains or losses that it might not have
incurred if it had made a redemption in-kind. As a result, a Fund may pay out
higher or lower annual capital gains distributions than ETFs that redeem
in-kind. In addition, the costs imposed on a Fund will decrease such Fund’ NAV
unless the costs are offset by a transaction fee payable by an AP.
Costs
of Buying or Selling Shares Risk: Investors
buying or selling a Fund’s shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers as determined by the applicable
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, including bid/ask spreads, frequent trading of shares
may significantly reduce investment results and an investment in shares may not
be advisable for investors who anticipate regularly making small investments.
Fluctuation
of NAV Risk: The
NAV of a Fund’s shares will generally fluctuate with changes in the market value
of such Fund’s securities holdings. The market prices of shares will generally
fluctuate in accordance with changes in a Fund’s NAV and supply and demand of
shares on the Exchange. It cannot be predicted whether a Fund’s shares will
trade below, at or above their NAV. Price differences may be due, in large part,
to the fact that supply and demand forces at work in the secondary trading
market for shares will be closely related to, but not identical to, the same
forces influencing the prices of the securities of the Index trading
individually or in the aggregate at any point in time. The market prices of a
Fund’s shares may deviate significantly from the NAV of the shares during
periods of market volatility. While the creation/redemption feature is designed
to make it likely that a Fund’s shares normally will trade close to such Fund’s
NAV, disruptions to creations and redemptions may result in trading prices that
differ significantly from the Fund’s NAV. As a result, investors in a Fund may
pay significantly more or receive significantly less for Fund shares than the
value of such Fund’s underlying securities or the NAV of Fund shares. If an
investor purchases a Fund’s shares at a time when the market price is at a
premium to the NAV of the shares or sells at a time when the market price is at
a discount to the NAV of the shares, then the investor may sustain
losses.
Market
Trading Risk:
An investment in a Fund faces numerous market trading risks, including the
potential lack of an active market for Fund shares, losses from trading in
secondary markets, periods of high volatility and disruption in the
creation/redemption process of such Fund. Any of these factors, among others,
may lead to a Fund’s shares trading at a premium or discount to NAV.
Trading
Issues Risk:
Although
a Fund’s shares are listed for trading on the Exchange, there can be no
assurance that an active trading market for such shares will be maintained.
Trading in a Fund’s shares may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in shares inadvisable. In
addition, trading in shares is subject to trading halts caused by extraordinary
market volatility pursuant to the Exchange “circuit breaker” rules, which
temporarily halt trading on the Exchange when a decline in the S&P 500 Index
during a single day reaches certain thresholds (e.g.,
7%., 13% and 20%). Additional rules applicable to the Exchange may halt trading
in Fund shares when extraordinary volatility causes sudden, significant swings
in the market price of Fund shares. There can be no assurance that the
requirements of the Exchange necessary to maintain the listing of a Fund will
continue to be met or will remain unchanged or that the shares will trade with
any volume, or at all. In stressed market conditions, the liquidity of a Fund’s
shares may begin to mirror the liquidity of such Fund’s underlying portfolio
holdings, which can be significantly less liquid than the Fund’s shares,
potentially causing the market price of the Fund’s shares to deviate from their
NAV.
Further,
secondary markets may be subject to erratic trading activity, wide bid/ask
spreads and extended trade settlement periods in times of market stress because
market makers and APs may step away from making a market in Fund shares and in
executing creation and redemption orders, which could cause a material deviation
in a Fund’s market price from its NAV. Decisions by market makers or APs to
reduce their role or step away from these activities in times of market stress
could inhibit the effectiveness of the arbitrage process in maintaining the
relationship between the underlying value of a Fund’s portfolio securities and
such Fund’s market price. This reduced effectiveness could result in Fund shares
trading at a price which differs materially from NAV and also in greater than
normal intraday bid/ask spreads for Fund shares. During a “flash crash,” the
market prices of a Fund’s shares may decline suddenly and significantly. Such a
decline may not reflect the performance of the portfolio securities held by a
Fund. Flash crashes may cause APs and other market makers to limit or cease
trading in a Fund’s shares for temporary or longer periods. Shareholders could
suffer significant losses to the extent that they sell shares at these
temporarily low market prices.
Foreign
Investment Risk:
Returns on investments in foreign stocks could be more volatile than, or trail
the returns on, investments in U.S. stocks. Since foreign exchanges may be open
on days when a Fund does not price its Shares, the value of the securities in a
Fund’s portfolio may change on days when shareholders will not be able to
purchase or sell the Shares. Conversely, Shares may trade on days when foreign
exchanges are closed. Because securities held by a Fund trade on foreign
exchanges that are closed when a Fund’s primary listing exchange is open, a Fund
is likely to experience premiums and discounts greater than those of domestic
ETFs. Each of these factors can make investments in a Fund more volatile and
potentially less liquid than other types of investments.
Currency
Risk:
Indirect and direct exposure to foreign currencies subjects a Fund to the risk
that currencies will decline in value relative to the U.S. dollar. Currency
rates in foreign countries may fluctuate significantly over short periods of
time for a number of reasons, including changes in interest rates and the
imposition of currency controls or other political developments in the U.S. or
abroad. A Fund’s NAV is determined on the basis of U.S. dollars and, therefore,
a Fund may lose value if the local currency of a foreign market depreciates
against the U.S. dollar, even if the local currency value of a Fund’s holdings
goes up.
Depositary
Receipts Risk:
A Fund may invest in depositary receipts. Depositary receipts include ADRs and
GDRs. ADRs are U.S. dollar-denominated receipts representing shares of
foreign-based corporations. ADRs are issued by U.S. banks or trust companies,
and entitle the holder to all dividends and capital gains that are paid out on
the underlying foreign shares. GDRs are depositary receipts which are similar to
ADRs, but are shares of foreign-based corporations generally issued by
international banks in one or more markets around the world. Investment in ADRs
and GDRs may be less liquid than the underlying shares in their primary trading
market and GDRs, many of which are issued by companies in emerging markets, may
be more volatile and less liquid than depositary receipts issued by companies in
more developed markets.
Depositary
receipts may be sponsored or unsponsored. Sponsored depositary receipts are
established jointly by a depositary and the underlying issuer, whereas
unsponsored depositary receipts may be established by a depositary without
participation by the underlying issuer. Holders of an unsponsored depositary
receipt generally bear all the costs associated with establishing the
unsponsored depositary receipt. In addition, the issuers of the securities
underlying unsponsored depositary receipts are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the depositary receipts.
Depositary
receipts may be unregistered and unlisted. A Fund’s investments also may include
ADRs and GDRs that are not purchased in the public markets and are restricted
securities that can be offered and sold only to “qualified institutional buyers”
under Rule 144A of the Securities Act of 1933, as amended. The Adviser will
determine the liquidity of such investments pursuant to the Funds’ liquidity
risk management program. If a particular investment in such ADRs or GDRs is
deemed illiquid, that investment will be included within a Fund’s limitation on
investment in illiquid securities. Moreover, if adverse market conditions were
to develop during the period between a Fund’s decision to sell these types of
ADRs or GDRs and the point at which a Fund is permitted or able to sell such
security, a Fund might obtain a price less favorable than the price that
prevailed when it decided to sell.
Emerging
Markets Securities Risk:
A Fund’s investments may expose a Fund’s portfolio to the risks of investing in
emerging markets. Investments in emerging markets are subject to greater risk of
loss than investments in developed markets. This is due to, among other things,
greater market volatility, lower trading volume, political and economic
instability, greater risk of market shutdown and more governmental limitations
on foreign investments than typically found in developed markets. In addition,
less developed markets are more likely to experience problems with the clearing
and settling of trades and the holding of securities by local banks, agents and
depositories.
Foreign
Market and Trading Risk:
The trading markets for many foreign securities are not as active as U.S.
markets and may have less governmental regulation and oversight. Foreign markets
also may have clearance and settlement procedures that make it difficult for a
Fund to buy and sell securities. These factors could result in a loss to a Fund
by causing the Fund to be unable to dispose of an investment or to miss an
attractive investment opportunity, or by causing Fund assets to be uninvested
for some period of time. Where all or a part of a Fund’s underlying securities
trade in a market that is closed when the Exchange is open, there may be changes
between the last quotation from its closed foreign market and the value of such
securities during a Fund’s
domestic
trading day. This could lead to differences between the market price of a Fund’s
shares and the value of a Fund’s underlying securities.
Foreign
Securities Risk:
A Fund invests in foreign securities, including non-U.S. dollar-denominated
securities traded outside of the United States and U.S. dollar-denominated
securities of foreign issuers traded in the United States. Investment in foreign
securities may involve higher costs than investment in U.S. securities,
including higher transaction and custody costs as well as the imposition of
additional taxes by foreign governments. Foreign investments may also involve
risks associated with the level of currency exchange rates, less complete
financial information about the issuers, less market liquidity, more market
volatility and political instability, as well as varying regulatory requirements
applicable to investments in non-U.S. issuers. Future political and economic
developments, the possible imposition of withholding taxes on dividend income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls or freezes on the convertibility of currency,
or the adoption of other governmental restrictions might adversely affect an
investment in foreign securities. Additionally, foreign issuers may be subject
to less stringent regulation, and to different accounting, auditing and
recordkeeping requirements.
Political
and Economic Risk:
A Fund is subject to foreign political and economic risk not associated with
U.S. investments, meaning that political events (civil unrest, national
elections, changes in political conditions and foreign relations, imposition of
exchange controls and repatriation restrictions), social and economic events
(labor strikes, rising inflation) and natural disasters occurring in a country
where a Fund invests could cause the Fund’s investments in that country to
experience gains or losses. A Fund also could be unable to enforce its ownership
rights or pursue legal remedies in countries where it invests.
Gain
Limitation Risk (2x Funds only):
The Adviser will attempt to position a Fund’s portfolio to ensure that such Fund
does not gain or lose more than 90% of its NAV on a given day. As a consequence,
a Fund’s portfolio should not be responsive to Index movements of more than 45%
in a given day. For example, for 2x Daily Junior Silver ETF, if the Index were
to gain 50%, its gains should be limited to a daily gain of 90% (i.e.,
two times (2x) 45%) rather than 100% (i.e.,
two times (2x) 50%) and if the Index were to lose 50%, the -2x Daily Junior
Silver ETF gains should be limited to a daily gain of 90% (i.e.,
inverse 2 times (-2x) 45%) rather than 100% (i.e.,
inverse 2 times (-2x) 50%).
Geographic
Concentration Risk:
A Fund is subject to geographic concentration risk, which is the chance that
world events—such as political upheaval, financial troubles, or natural
disasters—will adversely affect the value of securities issued by companies in
foreign countries or regions. Because a Fund may invest a large portion of its
assets in securities of companies located in any one country or region, such
Fund’s performance may be hurt disproportionately by the poor performance of its
investments in that area.
Canada-Specific
Risk:
Because
the investments of a Fund may be geographically concentrated in Canadian
companies or companies that have a significant presence in Canada, investment
results could be dependent on the financial condition of the Canadian economy.
The Canadian economy is reliant on the sale of natural resources and
commodities, which can pose risks such as the fluctuation of prices and the
variability of demand for exportation of such products. Changes in spending on
Canadian products by the economies of other countries or changes in any of these
economies may cause a significant impact on the Canadian economy.
Liquidity
Risk (2x Funds only):
Some
securities held by a Fund, including derivatives, may be difficult to sell or
illiquid, particularly during times of market turmoil. Markets for securities or
financial instruments could be disrupted by a number of events, including, but
not limited to, an economic crisis, natural disasters, new legislation or
regulatory changes inside or outside the United States. Illiquid securities may
be difficult to value, especially in changing or volatile markets. If a Fund is
forced to sell an illiquid security at an unfavorable time or price, such Fund
may incur a loss. Certain market conditions may prevent a Fund from limiting
losses, realizing gains or achieving a high correlation with the Index. There is
no assurance that a security that is deemed liquid when purchased will continue
to be liquid.
Market
illiquidity may cause losses for a Fund. For such Fund, to the extent that the
Index moves adversely, the Fund may be one of many market participants that are
attempting to transact in the securities of an underlying index or correlated
instruments. Under such circumstances, the market for investments of the Index
may lack sufficient liquidity for all market participants’ trades. Therefore, a
Fund may have more difficulty transacting in securities of the Index or
correlated investments such as financial instruments and a Fund’s transactions
could exacerbate the price change of the securities of the Index. Additionally,
because a Fund is leveraged, a minor adverse change in the value of the Index
should be expected to have a substantial adverse impact on such
Fund.
Management
Risk: While
each Fund is not actively managed, a Fund is subject to the risks associated
with decisions made by the Adviser if such Fund utilizes a representative
sampling strategy or to the extent the Adviser makes decisions regarding the
investment of collateral from securities on loan.
Models
and Data Risk:
When models and data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose a Fund to potential risks as such Fund tracks its
respective Index. For example, by relying on models and data, the Index, and
consequently the Fund, may add or remove certain investments at prices that are
too high or too low or to miss favorable opportunities altogether.
Models
may have aspects that are predictive in nature. The use of predictive models has
inherent risks. For example, such models may incorrectly forecast future
behavior, leading to potential losses on a cash flow and/or a mark-to-market
basis. In addition, in
unforeseen
or certain low-probability scenarios (often involving a market disruption of
some kind), such models may produce unexpected results, which can result in
losses for the applicable Fund. Furthermore, because predictive models are
usually constructed based on historical data supplied by third parties, the
success of relying on such models may depend heavily on the accuracy and
reliability of the supplied historical data.
All
models rely on correct market data inputs. If incorrect market data is entered
into even a well-founded model, the resulting information will be incorrect.
However, even if market data is input correctly, “model prices” will often
differ substantially from market prices, especially for instruments with complex
characteristics, such as derivative instruments.
Money
Market Instrument Risk (2x Funds only):
A Fund may use a variety of money market instruments for cash management
purposes, including money market funds, depositary accounts and repurchase
agreements. Money market funds may be subject to credit risk with respect to the
debt instruments in which they invest. Depository accounts may be subject to
credit risk with respect to the financial institution in which the depository
account is held. Repurchase agreements are contracts in which a seller of
securities agrees to buy the securities back at a specified time and price.
Repurchase agreements may be subject to market and credit risk related to the
collateral securing the repurchase agreement. Money market instruments may also
be subject to credit risks associated with the instruments in which they invest.
There is no guarantee that money market instruments will maintain a stable
value, and they may lose money.
Natural
Disaster/Epidemic Risk:
Natural
or environmental disasters, such as earthquakes, fires, floods, hurricanes,
tsunamis and other severe weather-related phenomena generally, and widespread
disease, including pandemics and epidemics, have been and may be highly
disruptive to economies and markets, adversely impacting individual companies,
sectors, industries, markets, currencies, interest and inflation rates, credit
ratings, investor sentiment, and other factors affecting the value of a Fund’s
investments. Given the increasing interdependence among global economies and
markets, conditions in one country, market, or region are increasingly likely to
adversely affect markets, issuers, and/or foreign exchange rates in other
countries, including the U.S. Any such events could have a significant adverse
impact on the value of a Fund’s investments.
New
Fund Risk
(2x
Funds only):
Each Fund is a recently organized investment company with no operating history.
As a result, prospective investors have no track record or history on which to
base their investment decision.
Non-Diversification
Risk:
Because
each Fund is “non-diversified,” a Fund may invest a greater percentage of its
assets in the securities of a single issuer or a small number of issuers than if
it was a diversified fund. As a result, a decline in the value of an investment
in a single issuer or a small number of issuers could cause a Fund’s overall
value to decline to a greater degree than if such Fund held a more diversified
portfolio. This may increase a Fund’s volatility and have a greater impact on
such Fund’s performance.
Other
Investment Companies (including ETFs) Risk (2x Funds only):
A Fund may invest directly in another investment company by purchasing shares of
the investment company or indirectly by utilizing an investment company as the
reference asset of a derivative instrument. A Fund will incur higher and
duplicative expenses when it invests in other investment companies such as ETFs.
There is also the risk that a Fund may suffer losses due to the investment
practices of the underlying funds. If the other investment company fails to
achieve its investment objective, the value of such Fund’s investment will not
perform as expected, thus affecting such Fund’s performance and its correlation
with the Index. When a Fund invests in other investment companies, such Fund
will be subject to substantially the same risks as those associated with the
direct ownership of securities held by such investment companies. Investments in
ETFs are also subject to the following risks: (i) the market price of an ETF’s
shares may trade above or below their net asset value; (ii) an active trading
market for an ETF’s shares may not develop or be maintained; and (iii) trading
of an ETF’s shares may be halted for a number of reasons. Investments in such
shares may be subject to brokerage and other trading costs, which could result
in greater expenses to a Fund. Finally, depending on the demand in the market, a
Fund may not be able to liquidate its holdings in ETFs at an optimal price or
time, which may adversely affect such Fund’s performance.
Passive
Investment Risk:
Each Fund is not actively managed. Therefore, unless a specific security is
removed from a Fund’s Index, such Fund generally would not sell a security
because the security’s issuer was in financial trouble. If a specific security
is removed from a Fund’s Index, such Fund may be forced to sell such security at
an inopportune time or for a price other than the security’s current market
value. An investment in a Fund involves risks similar to those of investing in
any equity securities traded on an exchange, such as market fluctuations caused
by such factors as economic and political developments, changes in interest
rates and perceived trends in security prices. It is anticipated that the value
of a Fund’s shares will decline, more or less, in correspondence with any
decline in value of such Fund’s respective Index. An Index may not contain the
appropriate mix of securities for any particular economic cycle, and the timing
of movements from one type of security to another in seeking to replicate the
Index could have a negative effect on the applicable Fund. Unlike with an
actively managed fund, the Adviser does not use techniques or defensive
strategies designed to lessen the effects of market volatility or to reduce the
impact of periods of market decline. This means that, based on market and
economic conditions, a Fund’s performance could be lower than other types of
funds that may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline.
Portfolio
Turnover Risk (2x Funds only):
Daily rebalancing of a Fund’s holdings pursuant to its daily investment
objective causes a much greater number of portfolio transactions when compared
to most ETFs. Additionally, active market trading of a Fund’s shares on such
exchanges as the NYSE Arca, Inc., could cause more frequent creation and
redemption activities which could increase the number of portfolio transactions.
Frequent and active trading may lead to higher transaction costs because of
increased broker
commissions
resulting from such transactions. In addition, there is the possibility of
significantly increased short-term capital gains (which will be taxable to
shareholders as ordinary income when distributed to them). A Fund calculates
portfolio turnover without including the short-term cash instruments or
derivative transactions that comprise the majority of such Fund’s trading. As
such, if a Fund’s extensive use of derivative instruments were reflected, the
calculated portfolio turnover rate would be significantly higher.
Reliance
on Trading Partners Risk (2x Funds only):
A Fund invests in some economies that are heavily dependent upon trading with
key partners. Any reduction in this trading may cause an adverse impact on the
economy in which a Fund invests.
Sector
Risk:
To
the extent a Fund invests more heavily in particular sectors of the economy, its
performance will be especially sensitive to developments that significantly
affect those sectors.
Securities
Lending Risk:
Each Fund may engage in securities lending. A Fund may lose money if the
borrower of the loaned securities delays returning in a timely manner or fails
to return the loaned securities. Securities lending involves the risk that a
Fund could lose money in the event of a decline in the value of collateral
provided for loaned securities. In addition, a Fund bears the risk of loss in
connection with its investment of the cash collateral it receives from a
borrower. When a Fund invests cash collateral in other investment companies,
such investments of cash collateral will be subject to substantially the same
risks as those associated with the direct ownership of securities held by such
investment companies. To the extent that the value or return of a Fund’s
investment of the cash collateral declines below the amount owed to the
borrower, such Fund may incur losses that exceed the amount it earned on lending
the security. A Fund may borrow money to repay the applicable borrower the
amount of cash collateral owed to the borrower upon return of the loaned
securities. This will result in financial leverage, which may cause a Fund to be
more volatile because financial leverage tends to exaggerate the effect of any
increase or decrease in the value of such Fund’s portfolio securities.
Shorting
Risk (-2x Daily Junior Silver ETF only):
A short position is a financial arrangement in which the short position
appreciates in value when a reference asset falls in value and depreciates in
value when the reference asset rises in value. Over the long term, most assets
are expected to rise in value and short positions are expected to depreciate in
value. Short positions therefore may be riskier and more speculative than
traditional investments.
Obtaining
inverse or “short” exposure through the use of derivatives such as swap
agreements may expose the Fund to certain risks such as an increase in
volatility or decrease in the liquidity of the securities of the underlying
short position. If the Fund were to experience this volatility or decreased
liquidity, the Fund’s return may be lower, the Fund’s ability to obtain inverse
exposure through the use of derivatives may be limited or the Fund may be
required to obtain inverse exposure through alternative investment strategies
that may be less desirable or more costly to implement. If the securities
underlying the short positions are thinly traded or have a limited market due to
various factors, including regulatory action, the Fund may be unable to meet its
investment objective due to a lack of available securities or counterparties.
The Fund may not be able to issue additional Creation Units during period when
it cannot meet its investment objective due to these factors. Any income,
dividends or payments by the assets underlying the Fund’s short positions will
negatively impact the Fund.
Smaller
Companies Risk:
Each Fund’s Index may be composed primarily of, or have significant exposure to,
securities of smaller companies. As a result, the Funds may be subject to the
risk that securities of smaller companies represented in the Indexes may
underperform securities of larger companies or the equity market as a whole. In
addition, in comparison to securities of companies with larger capitalizations,
securities of smaller-capitalization companies may experience more price
volatility, greater spreads between their bid and ask prices, less frequent
trading, significantly lower trading volumes, and cyclical or static growth
prospects. As a result of the differences between the securities of smaller
companies and those of companies with larger capitalizations, it may be more
difficult for a Fund to buy or sell a significant amount of the securities of a
smaller company without an adverse impact on the price of the company’s
securities, or a Fund may have to sell such securities in smaller quantities
over a longer period of time, which may increase the Fund’s tracking error.
Smaller-capitalization companies often have limited product lines, markets or
financial resources, and may therefore be more vulnerable to adverse
developments than larger capitalization companies. These securities may or may
not pay dividends.
Tax
Risk:
To qualify for the favorable tax treatment generally available to regulated
investment companies, a Fund must satisfy certain diversification requirements
under the Code. In particular, a Fund generally may not acquire a security if,
as a result of the acquisition, more than 50% of the value of such Fund’s assets
would be invested in (a) issuers in which the Fund has, in each case, invested
more than 5% of the Fund’s assets and (b) issuers more than 10% of whose
outstanding voting securities are owned by the Fund. When the Index is
concentrated in a relatively small number of securities, it may not be possible
for the applicable Fund to fully implement a replication strategy or a
representative sampling strategy while satisfying these diversification
requirements. A Fund’s efforts to satisfy the diversification requirements may
cause such Fund’s return to deviate from that of the Index, and the applicable
Fund’s efforts to replicate the Index may cause it inadvertently to fail to
satisfy the diversification requirements.
If
a Fund were to fail to qualify as a regulated investment company, it would be
taxed in the same manner as an ordinary corporation, and distributions to its
shareholders would not be deductible by such Fund in computing its taxable
income. Distributions to a Fund’s shareholders would generally be taxed as
ordinary dividends. Under certain circumstances, a Fund may be able to cure a
failure to qualify as a regulated investment company, but in order to do so such
Fund may incur significant Fund-level taxes and may be forced to dispose of
certain assets. Relief is provided for certain de
minimis
failures of the diversification requirements where a Fund corrects the failure
within a specified period. If a Fund were to fail to qualify as a regulated
investment company in any taxable year, such
Fund
would be required to pay out its earnings and profits accumulated in that year
in order to qualify for treatment as a regulated investment company in a
subsequent year. If a Fund failed to qualify as a regulated investment company
for a period greater than two taxable years, such Fund would generally be
required to pay the Fund-level tax on any net built-in gains with respect to
certain of its assets upon a disposition of such assets within five years of
qualifying as a regulated investment company in a subsequent year.
Tracking
Error Risk (Junior Silver ETF only):
Tracking error refers to the risk that the Adviser may not be able to cause the
Fund’s performance to match or correlate to that of the Fund’s Index, either on
a daily or aggregate basis. There are a number of factors that may contribute to
the Fund’s tracking error, such as Fund expenses, imperfect correlation between
the Fund’s investments and those of the Index, rounding of share prices, changes
to the composition of the Index, regulatory policies, and high portfolio
turnover rate. In addition, mathematical compounding may prevent the Fund from
correlating with the monthly, quarterly, annual or other period performance of
the Index. In addition, in order to minimize the market impact of the Index
rebalance, the Fund may begin trading to effect the rebalance in advance of the
effective date of the rebalance and continue trading after the effective date of
the rebalance. This may contribute to tracking error if the weights of the
Fund’s portfolio securities diverge from the weights of the securities in the
Index during the rebalancing. Tracking error in such circumstances may be
greater if the Fund is trading in securities that are less liquid or lightly
traded. Tracking error may cause the Fund’s performance to be less than
expected.
Valuation
Risk:
The sales price that a Fund could receive for a security may differ from such
Fund’s valuation of the security and may differ from the value used by the
Index, particularly for securities that trade in low volume or volatile markets
or that are valued using a fair value methodology. In addition, the value of the
securities in a Fund’s portfolio may change on days when shareholders will not
be able to purchase or sell such Fund’s shares.
Portfolio
Holdings
Information
about the Funds’ daily portfolio holdings will be available at www.etfmg.com. A
summarized description of the Funds’ policies and procedures with respect to the
disclosure of the Funds’ portfolio holdings is available in the Funds’ Statement
of Additional Information (“SAI”).
Fund
Management
Adviser.
ETF
Managers Group LLC, the investment adviser to the Funds, is a Delaware
limited liability company located at 30 Maple Street, 2nd
Floor, Summit, New Jersey 07901. The Adviser provides investment advisory
services to exchange-traded funds. The Adviser serves as investment adviser to
the Funds with overall responsibility for the day-to-day portfolio management of
each Fund, subject to the supervision of the Board. For its services, the
Adviser receives, and, except as otherwise noted, did receive for each Fund’s
most recent fiscal year, a fee that is equal to the percent shown in the table
below per annum of the average daily net assets of each Fund with the fee for
each Fund calculated daily and paid monthly.
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Fund |
Management
Fee |
Junior
Silver ETF |
0.69% |
2x
Daily Junior Silver ETF |
0.95%* |
-2x
Daily Junior Silver ETF |
0.95%* |
*
For the fiscal period June 15, 2021 (commencement of operations) through
September 30, 2021, the Adviser received management fees equal to 0.28% of each
Fund’s average net assets.
Under
the Investment Advisory Agreement, the Adviser has overall responsibility for
the general management and administration of the Funds and arranges for transfer
agency, custody, fund administration, securities lending, and all other
non-distribution related services necessary for each Fund to operate.
Additionally, under the Investment Advisory Agreement, the Adviser has agreed to
pay all expenses of each Fund, except for: the fee paid to the Adviser pursuant
to the Investment Advisory Agreement, interest charges on any borrowings, taxes,
brokerage commissions and other expenses incurred in placing orders for the
purchase and sale of securities and other investment instruments, acquired fund
fees and expenses, accrued deferred tax liability, extraordinary expenses (such
as, among other things and subject to Board approval, certain proxy solicitation
costs and non-standard Board-related expenses and litigation against the Board,
Trustees, Fund, Adviser, and officers of the Adviser), and distribution (12b-1)
fees and expenses (collectively, “Excluded Expenses”).
A
discussion regarding the basis for the Board’s approval of the continuation of
the Investment Advisory Agreement for the Junior Silver ETF is available in the
Funds’ Semi-Annual Report
for the reporting period ended March 31, 2021. A discussion regarding the basis
for the Board’s approval of the Investment Advisory Agreement for the 2x Daily
Junior Silver ETF and -2x Daily Junior Silver ETF is available in the Funds’
Annual Report
for the reporting period ended September 30, 2021.
Manager
of Managers Structure.
The Adviser and the Trust have received an exemptive order (the “Order”) from
the SEC that permits the Adviser to enter into investment sub-advisory
agreements with sub-advisers without obtaining shareholder approval. The
Adviser, subject to the review and approval of the Board, may select one or more
sub-advisers for a Fund and supervise, monitor and evaluate the performance of
each sub-adviser.
The
Order also permits the Adviser, subject to the approval of the Board, to replace
sub-advisers and amend investment sub-advisory agreements, including fees,
without shareholder approval whenever the Adviser and the Board believe such
action will benefit a Fund and its respective shareholders. The Adviser thus has
the ultimate responsibility (subject to the ultimate oversight of the Board) to
recommend the hiring and replacement of sub-advisers as well as the discretion
to terminate any sub-adviser and reallocate a Fund’s assets for management among
any other sub-adviser(s) and itself. This means that the Adviser may be able to
reduce the sub-advisory fees and retain a larger portion of the management fee,
or increase the sub-advisory fees and retain a smaller portion of the management
fee. The Adviser will compensate each sub-adviser out of its management fee. A
Fund is required to provide shareholders with certain information regarding any
new sub-adviser within 90 days of the hiring of any new sub-adviser. Such
information generally includes the information that would have been provided to
shareholders in the form of a proxy statement in the absence of the Order.
The
Adviser’s reliance on such Order with respect to a Fund is contingent on the
holders of a majority of such Fund’s outstanding voting securities approving the
applicable Fund’s use of a manager of managers structure and the Adviser’s
reliance on such Order. Prior to the date of this Prospectus, shareholders of
each Fund approved the use by such Fund of a manager of managers structure and
the Adviser’s reliance on such Order.
Portfolio
Managers
The
Funds’ portfolio managers are primarily responsible for the day-to-day
management of the Funds. The portfolio managers are responsible for various
functions related to portfolio management, including, but not limited to,
investing cash inflows, implementing investment strategy, researching and
reviewing investment strategy.
The
Funds are managed by Samuel R. Masucci, III, Chief Executive Officer of the
Adviser, Frank Vallario, Chief Investment Officer of the Adviser, Donal Bishnoi,
Portfolio Manager of the Adviser, and Devin Ryder, Portfolio Manager of the
Adviser.
Samuel
Masucci, III has more than 25 years’ experience in investment banking,
structured product development, sales and trading. In the last 5 years, he
founded ETF Managers Group (ETFMG). Prior to ETFMG he has held senior positions
at Bear Stearns, UBS, SBC Warburg, and Merrill Lynch and has experience in
creating, building and managing businesses for the issuance, sales and trading
of: ETFs, index products, commodity products, hedge funds, ABS, and OTC
structured products in the U.S. and Europe.
Frank
Vallario serves in the role of Chief Investment Officer for the Adviser. Mr.
Vallario is responsible for the portfolio construction, trading, risk management
and portfolio analysis processes associated with ETF strategies. Prior to his
current role at the Adviser, Mr. Vallario has had a variety of senior roles over
his 25-year career in financial services. He joined Oppenheimer Funds in 2017
where he was Head of Equity Portfolio Management for Smart Beta ETFs. Prior to
that he was a Senior Portfolio Manager at Columbia Threadneedle from September
2015 to June 2017 where he was responsible for the day to day management of the
firm’s ETF business, which was acquired from his previous firm, Emerging Global
Advisors (EGA). From September 2010 to September 2015, he was relationship
manager at MSCI responsible for providing investment solutions to complex
problems using MSCI Barra’s fundamental models and portfolio construction tools.
Previously, he was a partner in a start-up asset management firm where he served
as the director of portfolio management. Mr. Vallario began his career at UBS
Global Asset Management where he spent over a decade in various quantitative
portfolio management equity roles including equity market neutral, tactical
asset allocation, structured active equities, enhanced index, passive management
and factor research. Mr. Vallario served on the Investment Committee for the
Girl Scouts of Connecticut and was a University Affiliate at the University of
Utah – David Eccles School of Business. He received a B.S. in Finance from
Lehigh University and a M.B.A. with a concentration in Finance from Rutgers
University.
Donal
A. Bishnoi, CFA, has more than 16 years of experience in portfolio management
and risk management. Prior to joining the Adviser, Mr. Bishnoi held a senior
portfolio management position with Oppenheimer Funds from 2018 to 2019 where he
was responsible for managing approximately $5 billion in assets across 20
passive strategies. Prior to joining Oppenheimer Funds in 2010, Mr. Bishnoi
managed a long/short systematic equity strategy at Moore Capital from 2007 to
2009. He holds a bachelor’s degree from Boston University’s Questrom School of
Business and is a CFA charter holder.
Devin
Ryder began her career with the Adviser during the summer of 2017 and re-joined
the Adviser on a permanent basis in 2018 to be a part of the Adviser’s portfolio
management team. Prior to joining the Adviser, Ms. Ryder was pursuing studies in
the quantitative aspects of risk management and finance, for which she received
a B.S. in Mathematics of Finance and Risk Management from the University of
Michigan in 2017.
The
SAI provides additional information about each Portfolio Manager’s compensation,
other accounts managed, and ownership of the applicable Fund’s
shares.
Buying
and Selling the Funds
Each
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from a Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor (defined below), and that
has been accepted by the Fund’s transfer agent, with respect to purchases and
redemptions of Creation Units. Once created, Shares trade in the secondary
market in quantities less than a Creation Unit.
Each
Fund’s shares are listed for secondary trading on the Exchange. When you buy or
sell a Fund’s shares on the secondary market, you will pay or receive the market
price. You may incur customary brokerage commissions and charges and may pay
some or all of the spread between the bid and the offered price in the secondary
market on each leg of a round trip (purchase and sale) transaction. The shares
will trade on the Exchange at prices that may differ to varying degrees from the
daily NAV of the shares. The Exchange is generally open Monday through Friday
and is closed weekends and the following holidays: New Year’s Day, Martin Luther
King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Juneteenth Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
NAV
per share for a Fund is computed by dividing the value of the net assets of the
Fund (i.e.,
the value of its total assets less total liabilities) by its total number of
shares outstanding. Expenses and fees, including management and distribution
fees, if any, are accrued daily and taken into account for purposes of
determining NAV. NAV is determined each business day, normally as of the close
of regular trading of the New York Stock Exchange (ordinarily 4:00 p.m., Eastern
time).
When
determining NAV, the value of a Fund’s portfolio securities is based on market
prices of the securities, which generally means a valuation obtained from an
exchange or other market (or based on a price quotation or other equivalent
indication of the value supplied by an exchange or other market) or a valuation
obtained from an independent pricing service. Swap contracts are valued based on
the value of the swap contract’s reference asset and are marked-to-market each
day NAV is calculated. If such information is not readily available or does not
otherwise accurately reflect the fair value of the security, the security will
be valued by another method that the Board believes will better reflect fair
value in accordance with the Trust’s valuation policies and procedures. Fair
value pricing may be used in a variety of circumstances, including, but not
limited to, situations when the value of a security in a Fund’s portfolio has
been materially affected by events occurring after the close of the market on
which the security is principally traded but prior to the close of the Exchange
(such as in the case of a corporate action or other news that may materially
affect the price of a security) or trading in a security has been suspended or
halted. Accordingly, the Fund’s NAV may reflect certain portfolio securities’
fair values rather than their market prices.
Fair
value pricing involves subjective judgments and it is possible that a fair value
determination for a security will materially differ from the value that could be
realized upon the sale of the security. In addition, fair value pricing could
result in a difference between the prices used to calculate a Fund’s NAV and the
prices used by the Fund’s Index. This may result in a difference between a
Fund’s performance and the desired performance relative to the Fund’s
Index.
The
Funds invest in non-U.S. securities. Non-U.S. securities held by a Fund may
trade on weekends or other days when the Fund does not price its shares. As a
result, the Fund’s NAV may change on days when Authorized Participants will not
be able to purchase or redeem Fund shares.
Frequent
Purchases and Redemptions of the Funds’ Shares
Unlike
frequent trading of shares of a traditional open-end mutual fund’s (i.e.,
not exchange-traded) shares, frequent trading of shares of the Funds on the
secondary market does not disrupt portfolio management, increase the Funds’
trading costs, lead to realization of capitalization gains, or otherwise harm
the Funds’ shareholders because these trades do not involve the Funds directly.
Certain institutional investors are authorized to purchase and redeem a Fund’s
shares directly with the Fund. Because these trades are effected in-kind
(i.e.,
for securities, and not for cash), they do not cause any of the harmful effects
noted above that may result from frequent cash trades. Moreover, the Funds
impose transaction fees on in-kind purchases and redemptions of Creation Units
to cover the custodial and other costs incurred by the Funds in effecting
in-kind trades. These fees increase if an investor substitutes cash in part or
in whole for Creation Units, reflecting the fact that a Fund’s trading costs
increase in those circumstances. For these reasons, the Board has determined
that it is not necessary to adopt policies and procedures to detect and deter
frequent trading and market-timing in shares of the Funds.
Dividends,
Distributions, and Taxes
Fund
Distributions
Each
Fund intends to pay out dividends, if any, quarterly and distribute any net
realized capital gains to their shareholders annually.
Dividend
Reinvestment Service
Brokers
may make available to their customers who own a Fund’s shares the DTC book-entry
dividend reinvestment service. If this service is available and used, dividend
distributions of both income and capital gains will automatically be reinvested
in additional whole shares of the applicable Fund. Without this service,
investors would receive their distributions in cash. In order to achieve the
maximum total return on their investments, investors are encouraged to use the
dividend reinvestment service. To determine whether the dividend reinvestment
service is available and whether there is a commission or other charge for using
this service, consult your broker. Brokers may require a Fund’s shareholders to
adhere to specific procedures and timetables. If this service is available and
used, dividend distributions of both income and realized gains will be
automatically reinvested in additional whole shares issued by the applicable
Fund at NAV per share.
Tax
Information
The
following is a summary of some important tax issues that affect the Funds and
their respective shareholders. The summary is based on current tax laws, which
may be changed by legislative, judicial or administrative action. You should not
consider this summary to be a detailed explanation of the tax treatment of the
Funds, or the tax consequences of an investment in the Funds. The summary is
very general, and does not address investors subject to special rules, such as
investors who hold shares through an IRA, 401(k) or other tax-deferred account.
More information about taxes is located in the SAI. You are urged to consult
your tax adviser regarding specific questions as to federal, state and local
income taxes.
Tax
Status of the Funds
Each
Fund is treated as a separate entity for federal tax purposes, and intends to
qualify for the special tax treatment afforded to regulated investment companies
under the Code. As long as each Fund qualifies as a regulated investment
company, it pays no federal income tax on the earnings it distributes to
shareholders.
Tax
Status of Distributions
•Each
Fund will, for each year, distribute substantially all of its net investment
income and net capital gains.
•Each
Fund’s distributions from income will generally be taxed to you as ordinary
income or qualified dividend income. For non-corporate shareholders, dividends
reported by a Fund as qualified dividend income are generally eligible for
reduced tax rates.
•Corporate
shareholders may be entitled to a dividends-received deduction for the portion
of dividends they receive that are attributable to dividends received by the
Fund from U.S. corporations, subject to certain limitations. A Fund’s strategies
may limit its ability to distribute dividends eligible for the
dividends-received deduction for corporate shareholders.
•Any
distributions of net capital gain (the excess of a Fund’s net long-term capital
gains over its net short-term capital losses) that you receive from the Fund are
taxable as long-term capital gains regardless of how long you have owned your
shares. Long-term capital gains are currently taxed to non-corporate
shareholders at reduced maximum rates.
•Dividends
and distributions are generally taxable to you whether you receive them in cash
or in additional shares through a broker’s dividend reinvestment service. If you
receive dividends or distributions in the form of additional shares through a
broker’s dividend reinvestment service, you will be required to pay applicable
federal, state or local taxes on the reinvested dividends but you will not
receive a corresponding cash distribution with which to pay any applicable
tax.
•A
Fund may be able to pass through to you foreign tax credits for certain taxes
paid by the Fund, provided the Fund meets certain requirements.
•Distributions
paid in January but declared by the Fund in October, November or December of the
previous year may be taxable to you in the previous year.
•Each
Fund will inform you of the amount of your ordinary income dividends, qualified
dividend income, foreign tax credits and net capital gain distributions received
from the Fund shortly after the close of each calendar year.
Taxes
on Exchange-Listed Share Sales. Any
capital gain or loss realized upon a sale of shares will generally be treated as
long-term capital gain or loss if the shares have been held for more than one
year and as short-term capital gain or loss if the shares have been held for one
year or less, except that any capital loss on the sale of shares held for six
months or less will be treated as long-term capital loss to the extent of
amounts treated as distributions of long-term capital gains to the shareholder
with respect to such shares.
Investment
in Foreign Securities.
The Funds may be subject to foreign withholding taxes on income they may earn
from investing in foreign securities, which may reduce the return on such
investments. In addition, the Funds’ investments in foreign securities or
foreign currencies may increase or accelerate the Funds’ recognition of ordinary
income and may affect the timing or amount of their distributions. The Funds may
be eligible to file an election that would permit shareholders who are U.S.
citizens, resident aliens or U.S. corporations to claim a foreign tax credit or
deduction (but not both) on their U.S. income tax returns for their pro rata
portions of qualified taxes paid by the Funds to foreign countries in respect of
foreign securities held for at least the minimum period specified in the Code.
For the purposes of the foreign tax credit, each such shareholder would include
in gross income from foreign sources its pro rata share of such taxes. Certain
limitations imposed by the Code may prevent shareholders from receiving a full
foreign tax credit or deduction for their allocable amount of such taxes.
Medicare
Tax. U.S.
individuals with income exceeding $200,000 ($250,000 if married and filing
jointly) are subject to a 3.8% Medicare contribution tax on their “net
investment income,” including interest, dividends, and capital gains (including
capital gains realized on the sale or exchange of shares). This 3.8% tax also
applies to all or a portion of the net investment income of certain shareholders
that are estates and trusts which the estate or trust has not distributed to its
beneficiaries.
Non-U.S.
Investors. If
you are not a citizen or permanent resident of the United States, a Fund’s
ordinary income dividends will generally be subject to a 30% U.S. withholding
tax, unless a lower treaty rate applies or unless such income is effectively
connected with a U.S. trade or business. This 30% withholding tax generally will
not apply to distributions of net capital gain.
Distributions
paid to a shareholder that is a “foreign financial institution” as defined in
Section 1471 of the Code and that does not meet the requirements imposed on
foreign financial institutions by Section 1471 will generally be subject to
withholding tax at a 30% rate. Distributions to a non-U.S. shareholder that is
not a foreign financial institution will generally be subject to such
withholding tax if the shareholder fails to make certain required
certifications. A non-U.S. shareholder may be exempt from the withholding
described in this paragraph under an applicable intergovernmental agreement
between the U.S. and a foreign government, provided that the shareholder and the
applicable foreign government comply with the terms of such agreement.
Backup
Withholding. The
Funds or your broker will be required in certain cases to withhold (as “backup
withholding”) on amounts payable to any shareholder who (1) has provided
either an incorrect tax identification number or no number at all, (2) is
subject to backup withholding by the Internal Revenue Service for failure to
properly report payments of interest or dividends, (3) has failed to
certify that such shareholder is not subject to backup withholding, or
(4) has not certified that such shareholder is a U.S. person (including a
U.S. resident alien). The backup withholding rate is currently 24%. Backup
withholding will not, however, be applied to payments that have been subject to
the 30% withholding tax applicable to shareholders who are neither citizens nor
residents of the United States.
Distribution
The
Distributor, ETFMG Financial LLC, an affiliate of the Adviser, is a
broker-dealer registered with the U.S. Securities and Exchange Commission. The
Distributor distributes Creation Units for the Funds on an agency basis and does
not maintain a secondary market in the Funds’ shares. The Distributor has no
role in determining the policies of the Funds or the securities that are
purchased or sold by the Funds. The Distributor’s principal business address is
30 Maple Street, 2nd
Floor, Summit, New Jersey 07901.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act with respect to each Fund. In accordance with the
Plan, each Fund is authorized to pay an amount up to 0.25% of its average daily
net assets each year for certain distribution-related activities and shareholder
services.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged
in the future, because the fees are paid out of each applicable Fund’s assets,
over time these fees will increase the cost of your investment and may cost you
more than certain other types of sales charges.
Fund
Service Providers
Sullivan
& Worcester LLP, 1666 K Street NW, Washington, DC 20006, serves as legal
counsel to the Funds.
WithumSmith
+ Brown, PC, with offices located at 1411 Broadway, 9th Floor, New York, New
York, 10018, serves as the Funds’ independent registered public accounting firm.
The independent registered public accounting firm is responsible for auditing
the annual financial statements of the Funds.
Premium/Discount
Information
Information
regarding the number of days each Fund’s market price was a price above
(i.e.,
at a premium) or below (i.e.,
at a discount) its NAV for the most recently completed calendar year and the
most recently completed calendar quarters since that year, are provided, free of
charge, on the Funds’ website at www.etfmg.com.
Litigation
The
Adviser and its parent, ETFMG, were defendants in a case filed on October 26,
2017 in the United States District Court for the Southern District of New York
by NASDAQ, Inc. (“Nasdaq”) captioned Nasdaq,
Inc. v. Exchange Traded Managers Group, LLC et al.,
Case 1:17-cv-08252 (the “New York Action”). This action asserted claims for
breach of contract, conversion and certain other claims based on disputes
arising out of contractual relationships with the Adviser relating to certain
series of the Trust. The matter was the subject of a bench trial in May 2019,
and on December 20, 2019, the Court issued an Opinion and Order awarding
compensatory damages to Plaintiff in the amount of $78,403,172.36, plus
prejudgment interest (the “Judgment”). In its decision, the Court in the New
York Action stated that its damages award, which gave rise to the Judgment,
“includes the share of profits to which Nasdaq’s venture partner PureShares was
entitled[.]”
ETFMG
filed a Notice of Appeal from the Judgment in the United States Court of Appeals
for the Second Circuit on January 19, 2020, Docket No. 20-300. On October 28,
2021, Nasdaq and ETFMG entered into a Judgment Payment Agreement, which settled
the matter and satisfied the Judgment. On November 1, 2021, Nasdaq recorded a
Satisfaction of Judgment with the United States District Court for the Southern
District of New York reflecting that the Judgment was paid in full, and ETFMG
withdrew its appeal of the Judgment with prejudice before the United States
Court of Appeals for the Second Circuit.
The
Trust, the Adviser, and certain officers and affiliated persons of the Adviser
have been named as defendants in an action filed December 21, 2021, in the
Superior Court of New Jersey, Union County, captioned PureShares,
LLC, d/b/a PureFunds et al. v. ETF Managers Group, LLC et al.,
Docket No. UNN-C-152-21. This action asserts breach of contract and tort claims
arising from the same facts and circumstances, and relates to the same series of
the Trust, that gave rise to the New York Action. The new action seeks damages
in unspecified amounts and injunctive relief. The defendants intend to
vigorously defend themselves in this new action and
believe
that Plaintiffs’ claims overlap with, and are barred by, those claims previously
asserted by Nasdaq (and resolved on PureShares’ behalf) in the New York Action
that resulted in the Judgment, which has been satisfied.
Financial
Highlights
The
financial highlights tables are intended to help you understand the Funds’
financial performance for the period of each Fund’s operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have gained (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been derived from the financial statements
audited by WithumSmith+Brown, PC, an independent registered public accounting
firm, whose report, along with the Funds’ financial statements, is included in
the Funds’ Annual Report,
which is available upon request.
ETFMG
Prime Junior Silver Miners ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year
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Year
Ended September 30, 2021 |
|
Year
Ended September 30, 2020 |
|
Year
Ended September 30, 2019 |
|
Year
Ended September 30, 2018 |
|
Year
Ended September 30, 2017 |
|
Net
Asset Value, Beginning of Year |
$ |
13.79 |
|
|
$ |
9.45 |
|
|
$ |
8.70 |
|
|
$ |
11.84 |
|
|
$ |
15.57 |
|
|
Income
(Loss) from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
Net
investment (loss)1 |
(0.01) |
|
|
(0.05) |
|
|
(0.02) |
|
|
(0.03) |
|
|
(0.06) |
|
|
Net
realized and unrealized gain (loss) on investments |
(1.76) |
|
|
4.56 |
|
|
0.91 |
|
|
(3.11) |
|
|
(3.61) |
|
|
Total
from investment operations |
(1.77) |
|
|
4.51 |
|
|
0.89 |
|
|
(3.14) |
|
|
(3.67) |
|
|
Less
Distributions: |
|
|
|
|
|
|
|
|
|
|
Distributions
from net investment income |
(0.20) |
|
|
(0.17) |
|
|
(0.14) |
|
|
— |
|
|
(0.06) |
|
|
Total
distributions |
(0.20) |
|
|
(0.17) |
|
|
(0.14) |
|
|
— |
|
|
(0.06) |
|
|
Capital
Share Transactions: |
|
|
|
|
|
|
|
|
|
|
Transaction
fees |
0.00 |
|
3 |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Net
asset value, end of year |
$ |
11.82 |
|
|
$ |
13.79 |
|
|
$ |
9.45 |
|
|
$ |
8.70 |
|
|
$ |
11.84 |
|
|
Total
Return |
-13.06 |
% |
|
48.06 |
% |
|
10.45 |
% |
|
-26.50 |
% |
|
-23.53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
|
|
|
Net
assets at end of year (000’s) |
$ |
727,987 |
|
|
$ |
408,319 |
|
|
$ |
100,119 |
|
|
$ |
45,265 |
|
|
$ |
58,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
to Average Net Assets before legal expense |
0.69 |
% |
|
0.69 |
% |
|
0.69 |
% |
|
0.69 |
% |
|
0.69 |
% |
|
Gross
Expenses to Average Net Assets |
0.69 |
% |
|
0.69 |
% |
|
0.69 |
% |
|
0.69 |
% |
|
0.72 |
% |
2 |
Net
Investment Income (Loss) to Average Net Assets |
-0.10 |
% |
|
-0.46 |
% |
|
-0.21 |
% |
|
-0.32 |
% |
|
-0.48 |
% |
|
Portfolio
Turnover Rate |
26 |
% |
|
71 |
% |
|
34 |
% |
|
36 |
% |
|
69 |
% |
|
1 Calculated
based on average shares outstanding during the year.
2 The
ratio of expenses to average net assets includes legal expense.
3 Amount
is less than $0.05.
ETFMG
Prime 2x Daily Junior Silver Miners ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
Ended
September
30,
20211 |
|
Net
Asset Value, Beginning of Period |
|
|
|
|
|
|
|
|
$ |
10.00 |
|
|
Income
(Loss) from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
Net
investment loss2 |
|
|
|
|
|
|
|
|
(0.02) |
|
|
Net
realized and unrealized loss on investments |
|
|
|
|
|
|
|
|
(5.38) |
|
|
Total
from investment operations |
|
|
|
|
|
|
|
|
(5.40) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, end period |
|
|
|
|
|
|
|
|
$ |
4.60 |
|
|
Total
Return |
|
|
|
|
|
|
|
|
-53.98 |
% |
3 |
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
|
|
|
Net
assets at end of period (000’s) |
|
|
|
|
|
|
|
|
$ |
506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Expenses to Average Net Assets |
|
|
|
|
|
|
|
|
0.95 |
% |
4 |
Net
Investment Loss to Average Net Assets |
|
|
|
|
|
|
|
|
-0.88 |
% |
4 |
Portfolio
Turnover Rate |
|
|
|
|
|
|
|
|
0 |
% |
3 |
1 The
Fund commenced operations on June 15, 2021.
2 Calculated
based on average shares outstanding during the period.
3 Not
annualized.
4 Annualized.
ETFMG
Prime 2x Daily Inverse Junior Silver Miners ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
Ended
September
30,
20211 |
|
Net
Asset Value, Beginning of Period |
|
|
|
|
|
|
|
|
$ |
10.00 |
|
|
Income
(Loss) from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
Net
investment loss2 |
|
|
|
|
|
|
|
|
(0.02) |
|
|
Net
realized and unrealized gain on investments |
|
|
|
|
|
|
|
|
7.14 |
|
|
Total
from investment operations |
|
|
|
|
|
|
|
|
7.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, end period |
|
|
|
|
|
|
|
|
$ |
17.12 |
|
|
Total
Return |
|
|
|
|
|
|
|
|
71.23 |
% |
3 |
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
|
|
|
Net
assets at end of period (000’s) |
|
|
|
|
|
|
|
|
$ |
856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Expenses to Average Net Assets |
|
|
|
|
|
|
|
|
0.95 |
% |
4 |
Net
Investment Income (Loss) to Average Net Assets |
|
|
|
|
|
|
|
|
-0.50 |
% |
4 |
Portfolio
Turnover Rate |
|
|
|
|
|
|
|
|
0 |
% |
3 |
1 The
Fund commenced operations on June 15, 2021.
2 Calculated
based on average shares outstanding during the period.
3 Not
annualized.
4 Annualized.
ETF
Managers Trust
30
Maple Street, 2nd
Floor
Summit,
New Jersey 07901
ANNUAL/SEMI-ANNUAL
REPORTS TO SHAREHOLDERS
Additional
information about the Funds’ investments is available in the Funds’ annual and
semi-annual reports to shareholders (when available). In the Funds’ annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds’ performance during its last
fiscal year.
STATEMENT
OF ADDITIONAL INFORMATION (SAI)
The
SAI provides more detailed information about the Funds. The SAI is incorporated
by reference into, and is thus legally a part of, this Prospectus.
FOR
MORE INFORMATION
To
request a free copy of the latest annual or semi-annual report, when available,
the SAI or to request additional information about the Funds or to make other
inquiries, please contact us as follows:
Call: 1-844-383-6477
Monday
through Friday
8:30
a.m. to 6:30 p.m. (Eastern Time)
Write: ETF
Managers Trust
30
Maple Street, 2nd
Floor
Summit,
New Jersey 07901
Visit: www.etfmg.com
INFORMATION
PROVIDED BY THE SECURITIES AND EXCHANGE COMMISSION
Reports
and other information about the Funds are available in the EDGAR Database on the
SEC’s Internet site at http://www.sec.gov, or you can receive copies of this
information, after paying a duplicating fee, by electronic request at the
following e-mail address: [email protected].
The
Trust’s Investment Company Act file number: 811-22310