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Global
X MSCI China Energy ETF NYSE
Arca: CHIE |
Global
X DAX Germany ETF
NASDAQ:
DAX |
Global
X MSCI China Materials ETF
NYSE
Arca: CHIM |
Global
X MSCI Portugal ETF
NYSE
Arca: PGAL |
Global
X MSCI China Industrials ETF
NYSE
Arca: CHII |
Global
X MSCI Colombia ETF
NYSE Arca: GXG |
Global
X MSCI China Consumer Discretionary ETF NYSE
Arca: CHIQ |
Global
X MSCI Argentina ETF
NYSE
Arca: ARGT |
Global
X MSCI China Consumer Staples ETF
NYSE
Arca: CHIS |
Global
X MSCI Pakistan ETF
NYSE Arca: PAK |
Global
X MSCI China Health Care ETF
NYSE
Arca: CHIH |
Global
X MSCI Nigeria ETF
NYSE
Arca: NGE |
Global
X MSCI China Financials ETF
NYSE
Arca: CHIX |
Global
X MSCI Vietnam ETF
NYSE
Arca: VNAM |
Global
X MSCI China Information Technology ETF
NYSE
Arca: CHIK |
Global
X MSCI Next Emerging & Frontier ETF
NYSE
Arca: EMFM |
Global
X MSCI China Communication Services ETF
NYSE
Arca: CHIC |
Global
X MSCI Norway ETF
(formerly
known as the Global X FTSE Nordic Region ETF)
NYSE
Arca: NORW |
Global
X MSCI China Utilities ETF
NYSE
Arca: CHIU |
Global
X FTSE Southeast Asia ETF
NYSE Arca: ASEA |
Global
X MSCI China Real Estate ETF
NYSE
Arca: CHIR |
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Global
X MSCI Greece ETF
NYSE
Arca: GREK |
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Prospectus
March 1,
2022
The
Securities and Exchange Commission ("SEC") has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Shares
in a Fund (defined below) are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other agency of the U.S. Government, nor are shares
deposits or obligations of any bank. Such shares in a Fund involve investment
risks, including the loss of principal.
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As
permitted by regulations adopted by the SEC, paper copies of the Funds’
shareholder reports will no longer be sent by mail, unless you
specifically request paper copies of the reports from your financial
intermediary (such as a broker-dealer or bank). Instead, shareholder
reports will be available on the Funds’ website
(www.globalxetfs.com/explore), and you will be notified by mail each time
a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you
will not be affected by this change and you need not take any action. You
may elect to receive shareholder reports and other communications from the
Funds electronically anytime by contacting your financial intermediary.
You may elect to receive all future Fund shareholder reports in paper free
of charge. Please contact your financial intermediary to inform them that
you wish to continue receiving paper copies of Fund shareholder reports
and for details about whether your election to receive reports in paper
will apply to all funds held with your financial
intermediary. |
TABLE
OF CONTENTS
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FUND
SUMMARIES |
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ADDITIONAL
INFORMATION ABOUT THE FUNDS |
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A
FURTHER DISCUSSION OF PRINCIPAL RISKS |
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A
FURTHER DISCUSSION OF OTHER RISKS |
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PORTFOLIO
HOLDINGS INFORMATION |
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FUND
MANAGEMENT |
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DISTRIBUTOR |
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BUYING
AND SELLING FUND SHARES |
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FREQUENT
TRADING |
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DISTRIBUTION
AND SERVICE PLAN |
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DIVIDENDS
AND DISTRIBUTIONS |
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TAXES |
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DETERMINATION
OF NET ASSET VALUE |
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PREMIUM/DISCOUNT
AND SHARE INFORMATION |
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TOTAL
RETURN INFORMATION |
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INFORMATION
REGARDING THE INDICES AND THE INDEX PROVIDERS |
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OTHER
SERVICE PROVIDERS |
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ADDITIONAL
INFORMATION |
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FINANCIAL
HIGHLIGHTS |
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OTHER
INFORMATION |
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FUND
SUMMARIES
Global X MSCI China Energy
ETF
Ticker:
CHIE Exchange: NYSE Arca
INVESTMENT OBJECTIVE
The Global X MSCI China Energy
ETF ("Fund") seeks to provide investment results that correspond generally to
the price and yield performance, before fees and expenses, of the MSCI China
Energy IMI Plus 10/50 Index ("Underlying Index").
FEES AND EXPENSES
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares (“Shares”) of
the Fund. You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and examples
below.
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment):
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Management
Fees: |
0.65% |
Distribution
and Service (12b-1) Fees: |
None |
Other
Expenses: |
0.02% |
Total
Annual Fund Operating Expenses: |
0.67% |
Example:
The following example
is intended to help you compare the cost of investing in the Fund with the cost
of investing in other funds. This example does not take into account customary
brokerage commissions that you pay when purchasing or selling Shares of the Fund
in the secondary market. The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell all of your
Shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
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One
Year |
Three
Years |
Five
Years |
Ten
Years |
$68 |
$214 |
$373 |
$835 |
Portfolio
Turnover:
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or "turns over"
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
example, affect the Fund's performance. During the most recent fiscal year, the
Fund's portfolio turnover rate was 51.48% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund invests at least 80% of its total assets in the securities of the MSCI
China Energy IMI Plus 10/50 Index ("Underlying Index") and in American
Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") based on
the securities in the Underlying Index. The Fund also invests at least 80% of
its total assets in securities of energy companies that are economically tied to
China. For purposes of this policy, energy companies include those companies
that are classified in the energy sector under the Global Industry
Classification System ("GICS"). The Fund's 80% investment policies are
non-fundamental and require 60 days prior written notice to shareholders before
they can be changed.
The
Underlying Index tracks the performance of companies in the MSCI China
Investable Market Index (the "Parent Index") that are classified in the energy
sector, as defined by MSCI, Inc. ("MSCI") the provider of the Underlying Index
("Index Provider"). The Parent Index is a free float-adjusted market
capitalization-weighted index designed to measure the performance of securities
that are classified as operating in China according to the MSCI Global
Investable Markets Index Methodology, and that satisfy minimum market
capitalization and liquidity thresholds. The securities eligible for inclusion
in the Underlying Index include H-Shares (securities of companies incorporated
in China that are denominated in Hong Kong Dollars and listed on the Hong Kong
Stock Exchange (the "HKSE")), B-Shares (securities of companies denominated in
U.S. dollars or Hong Kong
dollars
and listed on Shanghai Stock Exchange (the "SSE") or Shenzen Stock Exchange (the
"SZSE")), Red Chips (securities of companies with a majority of their business
operations in mainland China and that are controlled by the national government
or local governments of China, traded on the HKSE in Hong Kong dollars), P-Chips
(securities of companies with the majority of their business operations in
mainland China and controlled by individuals in China, but that are incorporated
outside of China), A-Shares (securities of companies incorporated in mainland
China that trade on Chinese exchanges in renminbi) that are accessible through
the Shanghai-Hong Kong Stock Connect program ("Shanghai Connect") or the
Shenzhen-Hong Kong Stock Connect program ("Shenzhen Connect", and together with
Shanghai Connect, "Stock Connect Programs"), and foreign listings such as
American Depository Receipts ("ADRs"). The Stock Connect Programs are securities
trading and clearing programs that aim to achieve mutual stock market access
between China and Hong Kong. Under Stock Connect, the Fund's trading of eligible
A-shares listed on the SSE or the SZSE, as applicable, would be effectuated
through its Hong Kong brokers. Trading through the Stock Connect Programs is
subject to a daily quota, which limits the maximum net purchases under Stock
Connect Programs each day, and as such, buy orders for A-shares would be
rejected once the daily quota is exceeded (although the Fund will be permitted
to sell A-shares regardless of the daily quota balance). The daily quota is not
specific to the Fund. From time to time, other stock exchanges in China may
participate in Stock Connect, and A-shares listed and traded on such other stock
exchanges and accessible through Stock Connect may be added to the Underlying
Index, as determined by MSCI.
The
Underlying Index then follows a rules-based methodology that is designed to
select all constituents of the Parent Index that are classified in the energy
sector under the GICS. The Underlying Index is weighted according to each
component's free-float adjusted market capitalization, but is modified so that,
as of the rebalance date, no issuer constitutes more than 10% of the Underlying
Index and so that, in the aggregate, the issuers that would represent more than
5% of the Underlying Index represent no more than 50% of the Underlying Index
("10/50 Cap"). The Underlying Index is reconstituted and re-weighted quarterly.
The Underlying Index may include large-, mid- and small-capitalization
companies. As of December 31, 2021, the Underlying Index had 21
constituents. The Fund's investment objective and Underlying Index may be
changed without shareholder approval.
The
Adviser uses a "passive" or indexing approach to try to achieve the Fund's
investment objective. Unlike many investment companies, the Fund does not try to
outperform the Underlying Index and does not seek temporary defensive positions
when markets decline or appear overvalued.
The
Fund generally will use a replication strategy. A replication strategy is an
indexing strategy that involves investing in the securities of the Underlying
Index in approximately the same proportions as in the Underlying Index. However,
the Fund may utilize a representative sampling strategy with respect to the
Underlying Index when a replication strategy might be detrimental or
disadvantageous to shareholders, such as when there are practical difficulties
or substantial costs involved in compiling a portfolio of equity securities to
replicate the Underlying Index, in instances in which a security in the
Underlying Index becomes temporarily illiquid, unavailable or less liquid, or as
a result of legal restrictions or limitations (such as tax diversification
requirements) that apply to the Fund but not the Underlying Index.
The
Adviser expects that, over time, the correlation between the Fund's performance
and that of the Underlying Index, before fees and expenses, will exceed 95%. A
correlation percentage of 100% would indicate perfect correlation. If the Fund
uses a replication strategy, it can be expected to have greater correlation to
the Underlying Index than if it uses a representative sampling
strategy.
The
Fund concentrates its investments (i.e.,
holds 25% or more of its total assets) in a particular industry or group of
industries to approximately the same extent that the Underlying Index is
concentrated. As of December 31, 2021, the Underlying Index was
concentrated in the oil, gas and consumable fuels industry and had significant
exposure to the energy sector.
SUMMARY OF PRINCIPAL RISKS
As with any investment, you could lose all or part of
your investment in the Fund, and the Fund’s performance could trail that of
other investments. There is no guarantee that the Fund will
achieve its investment objective. An investment in the Fund is not a
bank deposit and it is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, the Adviser or any of its
affiliates. The Fund is subject to the principal risks noted
below, any of which may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and ability to meet its investment objective,
as well as other risks that are described in greater detail in the Additional
Information About the Funds
section of this Prospectus and in the Statement of Additional Information
(“SAI”). The order of the below risk factors does not indicate the significance
of any particular risk factor.
Asset
Class Risk:
Securities and other assets in the Underlying Index or otherwise held in the
Fund's portfolio may underperform in comparison to the general securities
markets, a particular securities market or other asset classes.
China
A-Shares Risk:
A-Shares are issued by companies incorporated in mainland China and are traded
on Chinese exchanges. Foreign investors can access A-Shares by obtaining a
Qualified Foreign Institutional Investor ("QFII") or a Renminbi Qualified
Foreign Institutional Investor ("RQFII") license, as well as through the Stock
Connect Program, which is a securities trading and clearing program with an aim
to achieve mutual stock market access between the China and Hong Kong markets.
Stock Connect was developed by Hong Kong Exchanges and Clearing Limited, the
Shanghai Stock Exchange ("SSE") (in the case of Shanghai Connect) or the
Shenzhen Stock Exchange ("SZSE") (in the case of Shenzhen Connect), and the
China Securities Depository and Clearing Corporation Limited (“CSDCC”). The Fund
currently intends to gain exposure to A-Shares through the Stock Connect
Programs. Investments in A-Shares are subject to various regulations and limits,
and the recoupment or repatriation of assets invested in A-Shares is subject to
restrictions by the Chinese government. In addition, investors from outside
mainland China may face difficulties or prohibitions accessing certain A-Shares
that are part of a restricted list in countries such as the U.S. A-Shares may be
subject to frequent and widespread trading halts and may become illiquid.
Trading suspensions in certain stock could lead to greater market execution risk
and costs for the Fund, and the creation and redemption of Creation Units (as
defined below) may also be disrupted. These risks, among others, could adversely
affect the value of the Fund’s investments.
Equity
Securities Risk:
Equity securities are subject to changes in value, and their values may be more
volatile than other asset classes, as a result of such factors as a company’s
business performance, investor perceptions, stock market trends and general
economic conditions.
Capitalization
Risk:
Investing in issuers within the same market capitalization category carries the
risk that the category may be out of favor due to current market conditions or
investor sentiment.
Large-Capitalization
Companies Risk: Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk: Mid-capitalization
companies may have greater price volatility, lower trading volume and less
liquidity than large-capitalization companies. In addition, mid-capitalization
companies may have smaller revenues, narrower product lines, less management
depth and experience, smaller shares of their product or service markets, fewer
financial resources and less competitive strength than large-capitalization
companies.
Small-Capitalization
Companies Risk:
Compared to mid- and large-capitalization companies, small-capitalization
companies may be less stable and more susceptible to adverse developments, and
their securities may be more volatile and less liquid.
Cash
Transaction Risk:
Unlike most exchange-traded funds ("ETFs"), the Fund intends to effect a
significant portion of creations and redemptions for cash, rather than in-kind
securities. As a result, an investment in the Fund may be less tax-efficient
than an investment in a more conventional ETF. Moreover, cash transactions may
have to be carried out over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and taxes. These factors
may result in wider spreads between the bid and the offered prices of the Fund’s
Shares than for more conventional ETFs.
Concentration
Risk:
To the extent that the Underlying Index concentrates in investments related to a
particular industry or group of industries, the Fund will also concentrate its
investments to approximately the same extent. Similarly, if the Underlying Index
has significant exposure to one or more sectors, the Fund’s investments will
likely have significant exposure to such sectors. In such event, the Fund’s
performance will be particularly susceptible to adverse events impacting such
industry or sector, which may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively
affect supply and demand; competition for resources; adverse labor relations;
political or world events; obsolescence of technologies; and increased
competition or new product introductions that may affect the profitability or
viability of companies in a particular industry or sector. As a result, the
value of the Fund’s investments may rise and fall more than the value of shares
of a fund that invests in securities of companies in a broader range of
industries or sectors.
Risks
Related to Investing in the Energy Sector:
The value of securities issued by companies in the energy sector may decline for
many reasons, including, without limitation, changes in energy prices;
international politics; energy conservation; the success of exploration
projects; natural disasters or other catastrophes; changes in exchange rates,
interest rates, or economic conditions; changes in demand for energy products
and services; and tax and other government regulatory policies. Actions taken by
central governments may dramatically impact supply and demand forces that
influence energy prices, resulting in sudden decreases in value for companies in
the energy sector.
Risks
Related to Investing in the Oil, Gas and Consumable Fuels Industry:
The oil, gas and consumable fuels industry is cyclical and highly dependent on
the market price of fuel. The market value of companies in the oil, gas and
consumable fuels industry are strongly affected by the levels and volatility of
global commodity prices, supply and demand, capital expenditures on exploration
and production, energy conservation efforts, the prices of alternative fuels,
exchange rates and technological advances. Companies in this sector are subject
to substantial government regulation and contractual fixed pricing, which may
increase the cost of business and limit these companies’ earnings. Actions taken
by central governments may dramatically impact supply and demand forces that
influence the market price of fuel, resulting in sudden decreases in value for
companies in the oil, gas and consumable fuels industry. A significant portion
of their revenues depends on a relatively small number of customers, including
governmental entities and utilities. As a result, governmental budget restraints
may have a material adverse effect on the stock prices of companies in the
industry.
Currency
Risk:
The Fund may invest in securities denominated in foreign currencies. Because the
Fund's NAV is determined in U.S. dollars, the Fund's NAV could decline if the
Chinese yuan depreciates against the U.S. dollar or if there are delays or
limits on repatriation of such currency. Currency exchange rates can be very
volatile and can change quickly and unpredictably. As a result, the Fund's NAV
may change quickly and without warning, which could have a significant negative
impact on the Fund. Additionally, the Chinese government heavily regulates the
domestic exchange of foreign currencies and yuan exchange rates in China, which
may adversely affect the operations and financial results of the Fund’s
investments in China. Shares purchased through the Stock Connect Programs will
be purchased using offshore yuan, the value of which may differ from and
experience greater volatility than the value of onshore yuan. Offshore yuan
cannot be freely remitted into or transferred out of China, and there is no
assurance that there will always be sufficient amounts of offshore yuan
available for the Fund to invest in all components of the Underlying Index.
Custody
Risk:
The Fund may hold foreign securities and cash with foreign banks, agents, and
securities depositories appointed by the Fund's custodian. Investments in
emerging markets may be subject to even greater custody risks than investments
in more developed markets. Less developed markets are more likely to experience
problems with the clearing and settling of trades and the holding of securities
by local banks, agents and depositories.
Foreign
Securities Risk:
The Fund may invest, within U.S. regulations, in foreign securities. The Fund's
investments in foreign securities can be riskier than U.S. securities
investments. Investments in the securities of foreign issuers (including
investments in ADRs and GDRs) are subject to the risks associated with investing
in those foreign markets, such as heightened risks of inflation or
nationalization. The prices of foreign securities and the prices of U.S.
securities have, at times, moved in opposite directions. In addition, securities
of foreign issuers may lose value due to political, economic and geographic
events affecting a foreign issuer or market. During periods of social, political
or economic instability in a country or region, the value of a foreign security
traded on U.S. exchanges could be affected by, among other things, increasing
price volatility, illiquidity, or the closure of the primary market on which the
security (or the security underlying the ADR or GDR) is traded. You may lose
money due to political, economic and geographic events affecting a foreign
issuer or market.
Geographic
Risk: A
natural, biological or other disaster could occur in a geographic region in
which the Fund invests, which could affect the economy or particular business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in the affected region or in a region
economically tied to the affected region. The securities in which the Fund
invests and, consequently, the Fund are also subject to specific risks as a
result of their business operations, including, but not limited to:
Risk
of Investing in China:
Investment exposure to China subjects the Fund to risks specific to China.
Economic,
Political and Social Risk
China
may be subject to considerable degrees of economic, political and social
instability. Concerns about the rising government and household debt levels
could impact the stability of the Chinese economy.
China
is an emerging market and demonstrates significantly higher volatility from time
to time in comparison to developed markets. Over the last few decades, the
Chinese government has undertaken reform of economic and market practices,
including recent reforms to liberalize its capital markets and expand the sphere
for private ownership of property in China. However, Chinese markets generally
continue to experience inefficiency, volatility and pricing anomalies resulting
from governmental influence, a lack of publicly available information and/or
political and social instability. Chinese companies are also subject to the risk
that Chinese authorities can intervene in their operations and structure.
Internal social unrest or confrontations with other neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of currency
fluctuations, currency convertibility, interest rate fluctuations and higher
rates of inflation.
China
has experienced major health crises. These health crises include, but are not
limited to, the rapid and pandemic spread of novel viruses commonly known as
SARS, MERS, and COVID-19 (Coronavirus). Such health crises could exacerbate
political, social, and economic risks previously mentioned.
Export
growth continues to be a major driver of China’s rapid economic growth. Elevated
trade tensions between China and its trading partners, including the imposition
of U.S. tariffs on certain Chinese goods and increased international pressure
related to Chinese trade policy and forced technology transfers and intellectual
property protections, may have a substantial impact on the Chinese economy.
Reduction in spending on Chinese products and services, institution of
additional tariffs or other trade barriers (including as a result of heightened
trade tensions between China and the U.S. or in response to actual or alleged
Chinese cyber activity), or a downturn in any of the economies of China’s key
trading partners may have an adverse impact on the Chinese economy. The
continuation or worsening of the current political climate between China and the
U.S. could result in additional regulatory restrictions being contemplated or
imposed in the U.S. or in China that could impact the Fund’s ability to invest
in certain companies.
Security
Risk
China
has experienced security concerns, such as terrorism and strained international
relations. Additionally, China is alleged to have participated in
state-sponsored cyberattacks against foreign companies and foreign governments.
Actual and threatened responses to such activity, including purchasing
restrictions, sanctions, tariffs or cyberattacks on the Chinese government or
Chinese companies, may impact China’s economy and Chinese issuers of securities
in which the Fund invests. Incidents involving China’s or the region’s security,
including the contagion of infectious viruses or diseases, may cause uncertainty
in Chinese markets and may adversely affect the Chinese economy and the Fund’s
investments.
Heavy
Government Control and Regulation
Chinese
companies, including Chinese companies that are listed on U.S. exchanges, are
not subject to the same degree of regulatory requirements, accounting standards
or auditor oversight as companies in more developed countries, and as a result,
information about the Chinese securities in which the Fund invests may be less
reliable or complete. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against Chinese
companies and shareholders may have limited legal remedies. Investments in China
may be subject to loss due to expropriation or nationalization of assets and
property or the imposition of restrictions on foreign investments and
repatriation of capital.
Tax
Risk
China
has implemented a number of tax reforms in recent years and may amend or revise
its existing tax laws and/or procedures in the future, possibly with retroactive
effect. Changes in applicable Chinese tax law could reduce the after-tax profits
of the Fund, directly or indirectly, including by reducing the after-tax profits
of companies in China in which the Fund invests. Uncertainties in Chinese tax
rules could result in unexpected tax liabilities for the Fund. Should
legislation limit U.S. investors’ ability to invest in specific Chinese
companies through A-shares or other share class listings that are part of the
underlying holdings, these shares may be excluded from Fund
holdings.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the Chinese government restricts foreign
ownership to raise capital from foreign investors. While the shell company has
no equity ownership of the VIE, these contractual arrangements permit the shell
company to consolidate the VIE’s financial statements with its own for
accounting purposes and provide for economic exposure to the performance of the
underlying Chinese operating company.
Therefore,
an investor in the listed shell company, such as the Fund, will have exposure to
the Chinese-based operating company only through contractual arrangements and
has no ownership in the Chinese-based operating company. Furthermore, because
the shell company only has specific rights provided for in these service
agreements with the VIE, its abilities to control the activities at the
Chinese-based operating company are limited and the operating company may engage
in activities that negatively impact investment value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign
ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or forfeiture of ownership interest. In addition, the listed
shell company’s control over a VIE may also be jeopardized if a natural person
who holds the equity interest in the VIE breaches the terms of the agreement, is
subject to legal proceedings or if any physical instruments for authenticating
documentation, such as chops and seals, are used without the Chinese-based
issuer’s authorization to enter into contractual arrangements in China. Chops
and seals, which are carved stamps used to sign documents, represent a legally
binding commitment by the company. Moreover, any future regulatory action may
prohibit the ability of the shell company to receive the economic benefits of
the Chinese-based operating company, which may cause the value of the Fund’s
investment in the listed shell company to suffer a significant loss. For
example, in 2021, the Chinese government prohibited use of the VIE structure for
investment in after-school tutoring companies. There is no guarantee that the
Chinese government will not place similar restrictions on other industries.
Risk
of Investing in Emerging Markets:
As of the date of this Prospectus, China is an emerging market country.
Investments in emerging markets may be subject to a greater risk of loss than
investments in developed markets. Securities markets of emerging market
countries are less liquid, subject to greater price volatility, have smaller
market capitalizations, have less government regulation, and are not subject to
as extensive and frequent accounting, financial, and other reporting
requirements as the securities markets of more developed countries, and there
may be greater risk associated with the custody of securities in emerging
markets. It may be difficult or impossible for the Fund to pursue claims against
an emerging market issuer in the courts of an emerging market
country.
There
may be significant obstacles to obtaining information necessary for
investigations into or litigation against emerging market companies and
shareholders may have limited legal rights and remedies. Emerging markets may be
more likely to experience inflation, political turmoil and rapid changes in
economic conditions than more developed markets. Emerging market economies’
exposure to specific industries, such as tourism, and lack of efficient or
sufficient health care systems, could make these economies especially vulnerable
to global crises, including but not limited to, pandemics such as the global
COVID-19 pandemic. Certain emerging market countries may have privatized, or
have begun the process of privatizing, certain entities and industries.
Privatized entities may lose money or be re-nationalized.
Risk
of Investing in Hong Kong: Investments
in Hong Kong issuers may subject the Fund to legal, regulatory, political,
currency, security, and economic risk specific to Hong Kong. China is Hong
Kong’s largest trading partner, both in terms of exports and imports. Any
changes in the Chinese economy, trade regulations or currency exchange rates, or
a tightening of China’s control over Hong Kong, including in connection with
recent protests and unrest, may have an adverse impact on Hong Kong’s
economy.
International
Closed Market Trading Risk: To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote from the closed foreign market).
These deviations could result in premiums or discounts to the Fund’s NAV that
may be greater than those experienced by other exchange-traded funds
("ETFs").
Investable
Universe of Companies Risk:
The investable universe of companies in which the Fund may invest may be
limited. If a company no longer meets the Index Provider’s criteria for
inclusion in the Underlying Index, the Fund may need to reduce or eliminate its
holdings in that company. The reduction or elimination of the Fund’s holdings in
the company may have an adverse impact on the liquidity of the Fund’s overall
portfolio holdings and on Fund performance.
Issuer
Risk:
Fund performance depends on the performance of individual companies in which the
Fund invests. Changes to the financial condition of any of those companies may
cause the value of such company's securities to decline.
Market
Risk:
Turbulence in the financial markets and reduced liquidity may negatively affect
issuers, which could have an adverse effect on the Fund. If the securities held
by the Fund experience poor liquidity, the Fund may be unable to transact at
advantageous times or prices, which may decrease the Fund’s returns. In
addition, there is a risk that policy changes by central governments and
governmental agencies, including the U.S. Federal Reserve or the European
Central Bank, which could include increasing interest rates, could cause
increased volatility in financial markets and lead to higher levels of Fund
redemptions from Authorized Participants, which could have a negative impact on
the Fund. Furthermore, local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health issues,
recessions, or other events could have a significant impact on the Fund and its
investments and trading of its Shares. For example, at the start of 2022,
expectations for higher policy interest rates and the removal of monetary policy
support resulted in elevated market volatility and a weak start to January as
markets rotated away from companies with weaker fundamentals and/or higher
valuations. Sustained elevated inflation, global supply chain bottlenecks and
labor shortages encouraged a U.S. Federal Reserve policy shift to increase
interest rates. With central bankers needing to reflect that they remain ahead
of the curve on inflation, there are concerns that monetary policy may provide
less support should economic growth slow. The slowing growth of gross
domestic
product in China may weigh on global economic growth, while the COVID-19
pandemic remains a risk to both global economic growth and supply chain
normalization. Market risk factors may result in increased volatility and/or
decreased liquidity in the securities markets. The Fund’s NAV could decline over
short periods due to short-term market movements and over longer periods during
market downturns.
Non-Diversification
Risk:
The Fund is classified as a “non-diversified” investment company under the
Investment Company Act of 1940 ("1940 Act"). As a result, the Fund is subject to
the risk that it may be more volatile than a diversified fund because the Fund
may invest its assets in a smaller number of issuers or may invest a larger
proportion of its assets in a single issuer. As a result, the gains and losses
on a single investment may have a greater impact on the Fund’s NAV and may make
the Fund more volatile than more diversified funds.
Operational
Risk:
The Fund is exposed to operational risk arising from a number of factors,
including but not limited to human error, processing and communication errors,
errors of the Fund's service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. Additionally,
cyber security failures or breaches of the electronic systems of the Fund, the
Adviser, and the Fund's other service providers, market makers, Authorized
Participants or the issuers of securities in which the Fund invests have the
ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. The Fund and the Adviser seek to reduce these operational risks
through controls and procedures. However, these measures do not address every
possible risk and may be inadequate for those risks that they are intended to
address.
Passive
Investment Risk:
The Fund is not actively managed, and the Adviser does not attempt to take
defensive positions in declining markets. Unlike many investment companies, the
Fund does not seek to outperform its Underlying Index. Therefore, it would not
necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is
underperforming. Additionally, if a constituent of the Underlying Index were
removed, even outside of a regular rebalance of the Underlying Index, the
Adviser anticipates that the Fund would sell such security. Maintaining
investments in securities regardless of market conditions or the performance of
individual securities could cause the Fund’s return to be lower than if the Fund
employed an active strategy.
Index-Related
Risk:
There is no guarantee that the Fund will achieve a high degree of correlation to
the Underlying Index and therefore achieve its investment objective. Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Underlying Index. Errors in index data, index computations and/or the
construction of the Underlying Index in accordance with its methodology may
occur from time to time and may not be identified and corrected by the Index
Provider for a period of time or at all, which may have an adverse impact on the
Fund and its shareholders.
Management
Risk:
The Fund may not fully replicate its Underlying Index and may hold securities
not included in its Underlying Index. The Adviser’s investment strategy, the
implementation of which is subject to a number of constraints, may cause the
Fund to underperform the market or its relevant benchmark or adversely affect
the ability of the Fund to achieve its investment objective.
Tracking
Error Risk:
Tracking error may occur because of differences between the instruments held in
the Fund's portfolio and those included in the Underlying Index, pricing
differences, transaction costs incurred by the Fund, the Fund's holding of
uninvested cash, size of the Fund, differences in timing of the accrual of or
the valuation of dividends or interest, tax gains or losses, changes to the
Underlying Index or the costs to the Fund of complying with various new or
existing regulatory requirements. This risk may be heightened during times of
increased market volatility or other unusual market conditions. Tracking error
also may result because the Fund incurs fees and expenses, while the Underlying
Index does not. ETFs that track indices with significant weight in emerging
markets issuers may experience higher tracking error than other ETFs that do not
track such indices.
Reliance
on Trading Partners Risk:
The Fund invests in the Chinese economy, which is heavily dependent upon trading
with key partners. Any reduction in this trading, including as a result of
adverse economic conditions in a trading partner's economy, may cause an adverse
impact on the Chinese economy in which the Fund invests. Through its portfolio
companies' trading partners, the Fund is specifically exposed to Asian
Economic Risk,
European
Economic Risk,
and North
American Economic Risk.
Risks
Associated with Exchange-Traded Funds:
As an ETF, the Fund is subject to the following risks:
Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants and engage in creation or redemption transactions
directly with the Fund, and none of those
Authorized
Participants is obligated to engage in creation and/or redemption transactions.
To the extent that those Authorized Participants exit the business or are unable
to process creation and/or redemption orders, Shares may be more likely to trade
at a premium or discount to NAV, and possibly face trading halts and/or
delisting from an exchange. Authorized Participants Concentration Risk may be
heightened because the Fund invests in non-U.S. securities.
Large
Shareholder Risk: Redemptions
by large shareholders could have a significant negative impact on the Fund. If a
large shareholder were to redeem all, or a large portion, of its Shares, there
is no guarantee that the Fund will be able to maintain sufficient assets to
continue operations in which case the Board of Trustees may determine to
liquidate the Fund. In addition, transactions by large shareholders may account
for a large percentage of the trading volume on a national securities exchange
and may, therefore, have a material upward or downward effect on the market
price of the Shares.
Listing
Standards Risk: The
Fund is required to comply with listing requirements adopted by the listing
exchange. Non-compliance with such requirements may result in the Fund's shares
being delisted by the listing exchange. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs and could result in
negative tax consequences for its shareholders.
Market
Trading Risks and Premium/Discount Risks:
Shares of the Fund are publicly traded on a national securities exchange, which
may subject shareholders to numerous market trading risks. Disruptions to
creations and redemptions, the existence of extreme market volatility or
potential lack of assets in the Fund or an active trading market for Shares may
result in Shares trading at a significant premium or discount to NAV. If a
shareholder purchases Shares at a time when the market price is at a premium to
the NAV or sells Shares at a time when the market price is at a discount to the
NAV, the shareholder may sustain losses. The
NAV of the Fund is calculated at the end of each business day and fluctuates
with changes in the market value of the Fund’s holdings. The trading price of
the Fund’s shares fluctuates, in some cases materially, throughout trading hours
in response to changes in the Fund’s NAV.
Risks
Related to Stock Connect Programs:
The Stock Connect Programs are subject to daily and aggregate quota limitations,
which could affect the Fund’s ability to enter into and exit Stock Connect
positions on a timely basis. The Shenzen and Shanghai markets may operate when
the Stock Connect Programs are not active, and consequently the prices of shares
held via Stock Connect Programs may fluctuate at times when the Fund is unable
to add to or exit its positions. The Stock Connect Programs are new, and the
effect of the introduction of large numbers of foreign investors on the market
for trading Chinese-listed securities is not well understood. Regulations, such
as limitations on redemptions or suspension of trading, may adversely impact the
value of the Fund’s investments. The Fund's investments in A-Shares though the
Stock Connect Program are held by its custodian in accounts in Central Clearing
and Settlement System ("CCASS") maintained by the Hong Kong Securities Clearing
Company Limited ("HKSCC"), which in turn holds the A-Shares, as the nominee
holder, through an omnibus securities account in its name registered with the
CSDCC. The precise nature and rights of the Fund as the beneficial owner of the
SSE Securities or SZSE Securities through HKSCC as nominee is not well defined
under Chinese law. There is no guarantee that the Shenzen, Shanghai, and Hong
Kong Stock Exchanges will continue to support the Stock Connect Programs in the
future.
Trading
Halt Risk:
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading
losses.
Valuation
Risk: The sales price the Fund could receive for
a security may differ from the Fund’s valuation of the security and may differ
from the value used by the Underlying Index, particularly for securities that
trade in low value or volatile markets or that are valued using a fair value
methodology (such as during trading halts). The value of the securities in
the Fund's portfolio may change on days when shareholders will not be able to
purchase or sell the Fund's Shares.
PERFORMANCE
INFORMATION
The bar chart
and table that follow show how the Fund performed on a calendar year basis and
provide an indication of the risks of investing in the Fund by showing changes
in the Fund's performance from year to year and by showing how the Fund's
average annual returns for the indicated periods compare with the Fund's
benchmark index and a broad measure of market performance. On
December 6, 2018, the name of the Fund changed from the Global X China Energy
ETF to the Global X MSCI China Energy ETF to reflect a change to the Fund's
Index Provider from Solactive AG to MSCI, Inc. and a change in the Fund's
underlying index from the Solactive China Energy Total Return Index to the MSCI
China Energy IMI Plus 10/50 Index. The Fund's past performance
(before and after taxes) is not necessarily indicative of how the Fund will
perform in the future. Updated performance information is
available online at www.globalxetfs.com.
Annual Total Returns (Years Ended December
31)
|
|
|
|
|
|
|
|
|
Best
Quarter: |
9/30/2021 |
27.30% |
Worst
Quarter: |
3/31/2020 |
-24.63% |
Average Annual Total Returns (for the Periods
Ended December 31, 2021)
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Year Ended December 31, 2021 |
Five
Years Ended December 31, 2021 |
Ten
Years Ended December 31, 2021 |
Global
X MSCI China Energy ETF: |
|
|
|
·Return before
taxes |
42.29% |
7.18% |
1.91% |
·Return
after taxes on distributions1 |
42.02% |
6.44% |
1.35% |
·Return
after taxes on distributions and sale of Fund Shares1 |
25.89% |
5.64% |
1.52% |
Hybrid
MSCI China Energy IMI Plus 10/50 Index (net)2
(Index returns reflect
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
44.53% |
8.29% |
2.83% |
MSCI
Emerging Markets Index (net)
(Index returns reflect
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
-2.54% |
9.87% |
5.49% |
1
After-tax returns are
calculated using the historical highest individual U.S. federal marginal income
tax rates and do not reflect the impact of state and local
taxes. Your actual after-tax returns
will depend on your specific tax situation and may differ from those shown
above. After-tax returns are not relevant to investors who hold Shares of the
Fund through tax-advantaged arrangements, such as 401(k) plans or individual
retirement accounts (IRAs).
2
Hybrid index performance
reflects the performance of the Solactive China Energy Total Return Index
through December 5, 2018, and the MSCI China Energy IMI Plus 10/50 Index
thereafter.
FUND
MANAGEMENT
Investment
Adviser:
Global X Management Company LLC.
Portfolio
Managers:
The professionals primarily responsible for the day-to-day management of the
Fund are Nam To, CFA; Wayne Xie; Kimberly Chan; Vanessa Yang; William Helm, CFA;
and Sandy Lu, CFA (“Portfolio Managers”). Mr. To has been a Portfolio Manager of
the Fund since March 1, 2018. Mr. Xie has been a Portfolio Manager of the Fund
since March 1, 2019. Ms. Chan has been a Portfolio Manager of the Fund since
June 10, 2019. Ms. Yang has been a Portfolio Manager of the Fund since December
2020. Messrs. Helm and Lu have been Portfolio Managers of the Fund since March
2022.
PURCHASE
AND SALE OF FUND SHARES
Shares
of the Fund are or will be listed and traded at market prices on a national
securities exchange. Shares may only be purchased and sold on the exchange
through a broker-dealer. The price of Shares is based on market price, and
because ETF shares trade at market prices rather than at NAV, Shares may trade
at a price greater than NAV (a premium) or less than NAV (a discount). Only
“Authorized Participants” (as defined in the SAI) who have entered into
agreements with the Fund’s distributor, SEI Investments Distribution Co.
(“Distributor”), may engage in creation or redemption transactions directly with
the Fund. The Fund will only issue or redeem Shares that have been aggregated
into blocks called Creation Units. The Fund will issue or redeem Creation Units
in return for a basket of cash and/or securities that the Fund specifies any day
that the national securities exchanges are open for business (“Business Day”).
An investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase shares of the Fund (bid) and the
lowest price a seller is willing to accept for shares of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”). To
access information regarding the Fund’s net asset value, market price, premiums
and discounts, and bid-ask spreads, please go to https://www.globalxetfs.com.
TAX
INFORMATION
The
Fund intends to make distributions that may be taxable to you as ordinary income
or capital gains, unless you are investing through a tax-advantaged arrangement,
such as a 401(k) plan or an individual retirement account ("IRA"), in which case
distributions from such tax-advantaged arrangement may be taxable to you.
PAYMENTS
TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
The
Adviser and its related companies may pay broker-dealers or other financial
intermediaries (such as a bank) for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer, sales persons or other intermediary or its employees or
associated persons to recommend the Fund over another investment. Ask your
financial adviser or visit your financial intermediary’s website for more
information.
Global X MSCI China Materials
ETF
Ticker:
CHIM Exchange: NYSE Arca
INVESTMENT OBJECTIVE
The Global X MSCI China
Materials ETF ("Fund") seeks to provide investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
MSCI China Materials 10/50 Index ("Underlying
Index").
FEES AND EXPENSES
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares (“Shares”) of
the Fund. You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and examples
below.
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment):
|
|
|
|
|
|
Management
Fees: |
0.65% |
Distribution
and Service (12b-1) Fees: |
None |
Other
Expenses: |
0.01% |
Total
Annual Fund Operating Expenses: |
0.66% |
Example:
The following example
is intended to help you compare the cost of investing in the Fund with the cost
of investing in other funds. This example does not take into account customary
brokerage commissions that you pay when purchasing or selling Shares of the Fund
in the secondary market. The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell all of your
Shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
One
Year |
Three
Years |
Five
Years |
Ten
Years |
$67 |
$211 |
$368 |
$822 |
Portfolio
Turnover:
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or "turns over"
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
example, affect the Fund's performance. During the most recent fiscal year, the
Fund's portfolio turnover rate was 26.64% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund invests at least 80% of its total assets in the securities of the MSCI
China Materials 10/50 Index ("Underlying Index") and in American Depositary
Receipts ("ADRs") and Global Depositary Receipts ("GDRs") based on the
securities in the Underlying Index. The Fund also invests at least 80% of its
total assets in securities of materials companies that are economically tied to
China. For purposes of this policy, materials companies include those companies
that are classified in the materials sector under the Global Industry
Classification System ("GICS"). The Fund's 80% investment policies are
non-fundamental and require 60 days prior written notice to shareholders before
they can be changed.
The
Underlying Index tracks the performance of companies in the MSCI China Index
(the "Parent Index") that are classified in the materials sector, as defined by
MSCI, Inc. ("MSCI") the provider of the Underlying Index ("Index Provider"). The
Parent Index is a free float-adjusted market capitalization-weighted index
designed to measure the performance of securities that are classified as
operating in China according to the MSCI Global Investable Markets Index
Methodology, and that satisfy minimum market capitalization and liquidity
thresholds. The securities eligible for inclusion in the Underlying Index
include H-Shares (securities of companies incorporated in China that are
denominated in Hong Kong Dollars and listed on the Hong Kong Stock Exchange (the
"HKSE")), B-Shares (securities of companies denominated in U.S. dollars or Hong
Kong dollars and listed on Shanghai Stock Exchange (the "SSE") or Shenzen Stock
Exchange (the "SZSE")), Red Chips (securities of companies with a majority of
their business operations in mainland China and that are controlled by the
national government or local
governments
of China, traded on the HKSE in Hong Kong dollars), P-Chips (securities of
companies with the majority of their business operations in mainland China and
controlled by individuals in China, but that are incorporated outside of China),
A-Shares (securities of companies incorporated in mainland China that trade on
Chinese exchanges in renminbi) that are accessible through the Shanghai-Hong
Kong Stock Connect program ("Shanghai Connect") or the Shenzhen-Hong Kong Stock
Connect program ("Shenzhen Connect", and together with Shanghai Connect, "Stock
Connect Programs"), and foreign listings such as American Depository Receipts
("ADRs"). The Stock Connect Programs are securities trading and clearing
programs that aim to achieve mutual stock market access between China and Hong
Kong. Under Stock Connect, the Fund's trading of eligible A-shares listed on the
SSE or the SZSE, as applicable, would be effectuated through its Hong Kong
brokers. Trading through the Stock Connect Programs is subject to a daily quota,
which limits the maximum net purchases under Stock Connect Programs each day,
and as such, buy orders for A-shares would be rejected once the daily quota is
exceeded (although the Fund will be permitted to sell A-shares regardless of the
daily quota balance). The daily quota is not specific to the Fund. From time to
time, other stock exchanges in China may participate in Stock Connect, and
A-shares listed and traded on such other stock exchanges and accessible through
Stock Connect may be added to the Underlying Index, as determined by
MSCI.
The
Underlying Index then follows a rules-based methodology that is designed to
select all constituents of the Parent Index that are classified in the materials
sector under the GICS. The Underlying Index is weighted according to each
component's free-float adjusted market capitalization, but is modified so that,
as of the rebalance date, no group entity (defined by the Index Provider as
companies with a controlling stake owned by one entity) constitutes more than
10% of the Underlying Index and so that, in the aggregate, the individual group
entities that would represent more than 5% of the Underlying Index represent no
more than 50% of the Underlying Index ("10/50 Cap"). The Underlying Index is
reconstituted and re-weighted quarterly. The Underlying Index may include large-
and mid-capitalization companies. As of December 31, 2021, the Underlying
Index had 93 constituents. The Fund's investment objective and Underlying Index
may be changed without shareholder approval.
The
Adviser uses a "passive" or indexing approach to try to achieve the Fund's
investment objective. Unlike many investment companies, the Fund does not try to
outperform the Underlying Index and does not seek temporary defensive positions
when markets decline or appear overvalued.
The
Fund generally will use a replication strategy. A replication strategy is an
indexing strategy that involves investing in the securities of the Underlying
Index in approximately the same proportions as in the Underlying Index. However,
the Fund may utilize a representative sampling strategy with respect to the
Underlying Index when a replication strategy might be detrimental or
disadvantageous to shareholders, such as when there are practical difficulties
or substantial costs involved in compiling a portfolio of equity securities to
replicate the Underlying Index, in instances in which a security in the
Underlying Index becomes temporarily illiquid, unavailable or less liquid, or as
a result of legal restrictions or limitations (such as tax diversification
requirements) that apply to the Fund but not the Underlying Index.
The
Adviser expects that, over time, the correlation between the Fund's performance
and that of the Underlying Index, before fees and expenses, will exceed 95%. A
correlation percentage of 100% would indicate perfect correlation. If the Fund
uses a replication strategy, it can be expected to have greater correlation to
the Underlying Index than if it uses a representative sampling
strategy.
The Fund concentrates its investments
(i.e., holds 25% or more of its total assets) in a particular industry or group
of industries to approximately the same extent that the Underlying Index is
concentrated. As of December 31, 2021, the Underlying Index was
concentrated in the chemicals, and metals and mining industries and had
significant exposure to the materials
sector.
SUMMARY OF PRINCIPAL RISKS
As with any investment, you could lose all or part of
your investment in the Fund, and the Fund’s performance could trail that of
other investments. There is no guarantee that the Fund will
achieve its investment objective. An investment in the Fund is not a
bank deposit and it is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, the Adviser or any of its
affiliates. The Fund is subject to the principal risks noted
below, any of which may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and ability to meet its investment objective,
as well as other risks that are described in greater detail in the Additional
Information About the Funds
section of this Prospectus and in the Statement of Additional Information
(“SAI”). The order of the below risk factors does not indicate the significance
of any particular risk factor.
Asset
Class Risk:
Securities and other assets in the Underlying Index or otherwise held in the
Fund's portfolio may underperform in comparison to the general securities
markets, a particular securities market or other asset classes.
China
A-Shares Risk:
A-Shares are issued by companies incorporated in mainland China and are traded
on Chinese exchanges. Foreign investors can access A-Shares by obtaining a
Qualified Foreign Institutional Investor ("QFII") or a Renminbi Qualified
Foreign Institutional Investor ("RQFII") license, as well as through the Stock
Connect Program, which is a securities trading and clearing program with an aim
to achieve mutual stock market access between the China and Hong Kong markets.
Stock Connect was developed by Hong Kong Exchanges and Clearing Limited, the
Shanghai Stock Exchange ("SSE") (in the case of Shanghai Connect) or the
Shenzhen Stock Exchange ("SZSE") (in the case of Shenzhen Connect), and the
China Securities Depository and Clearing Corporation Limited (“CSDCC”). The Fund
currently intends to gain exposure to A-Shares through the Stock Connect
Programs. Investments in A-Shares are subject to various regulations and limits,
and the recoupment or repatriation of assets invested in A-Shares is subject to
restrictions by the Chinese government. In addition, investors from outside
mainland China may face difficulties or prohibitions accessing certain A-Shares
that are part of a restricted list in countries such as the U.S. A-Shares may be
subject to frequent and widespread trading halts and may become illiquid.
Trading suspensions in certain stock could lead to greater market execution risk
and costs for the Fund, and the creation and redemption of Creation Units (as
defined below) may also be disrupted. These risks, among others, could adversely
affect the value of the Fund’s investments.
Equity
Securities Risk:
Equity securities are subject to changes in value, and their values may be more
volatile than other asset classes, as a result of such factors as a company’s
business performance, investor perceptions, stock market trends and general
economic conditions.
Capitalization
Risk:
Investing in issuers within the same market capitalization category carries the
risk that the category may be out of favor due to current market conditions or
investor sentiment.
Large-Capitalization
Companies Risk: Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk: Mid-capitalization
companies may have greater price volatility, lower trading volume and less
liquidity than large-capitalization companies. In addition, mid-capitalization
companies may have smaller revenues, narrower product lines, less management
depth and experience, smaller shares of their product or service markets, fewer
financial resources and less competitive strength than large-capitalization
companies.
Cash
Transaction Risk:
Unlike most exchange-traded funds ("ETFs"), the Fund intends to effect a
significant portion of creations and redemptions for cash, rather than in-kind
securities. As a result, an investment in the Fund may be less tax-efficient
than an investment in a more conventional ETF. Moreover, cash transactions may
have to be carried out over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and taxes. These factors
may result in wider spreads between the bid and the offered prices of the Fund’s
Shares than for more conventional ETFs.
Concentration
Risk:
To the extent that the Underlying Index concentrates in investments related to a
particular industry or group of industries, the Fund will also concentrate its
investments to approximately the same extent. Similarly, if the Underlying Index
has significant exposure to one or more sectors, the Fund’s investments will
likely have significant exposure to such sectors. In such event, the Fund’s
performance will be particularly susceptible to adverse events impacting such
industry or sector, which may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively
affect supply and demand; competition for resources; adverse labor relations;
political or world events; obsolescence of technologies; and increased
competition or new product introductions that may affect the profitability or
viability of companies in a particular industry or sector. As a result, the
value of the Fund’s investments may rise and fall more than the value of shares
of a fund that invests in securities of companies in a broader range of
industries or sectors.
Risks
Related to Investing in the Chemicals Industry: The
chemicals industry can be significantly affected by intense competition, product
obsolescence, raw materials prices, and government regulation, and can be
subject to risks associated with the production, handling and disposal of
hazardous components, and litigation arising out of environmental contamination.
Risks
Related to Investing in the Materials Sector:
Companies in the materials sector are affected by commodity price volatility,
exchange rates, import controls and worldwide competition. At times, worldwide
production of industrial materials has exceeded demand, leading to poor
investment returns or outright losses. Issuers in the materials sector are at
risk of depletion of resources, technological progress, labor relations,
governmental regulations and environmental damage and product liability
claims.
Risks
Related to Investing in the Metals and Mining Industry:
Securities in the Fund's portfolio may be significantly subject to the effects
of competitive pressures in the mining industry and commodity prices generally.
Commodity prices may be affected by changes in inflation rates, interest rates,
monetary policy, economic conditions, and political stability. Commodity prices
may fluctuate substantially over short periods of time; therefore, the Fund’s
Share price may be more volatile than other types of investments. In addition,
metals and mining companies may also be significantly affected by import
controls, worldwide competition, liability for environmental damage, depletion
of resources, and mandated expenditures for safety and pollution control
devices. Metals and mining companies may have significant operations in areas at
risk for social and political unrest, security concerns and environmental
damage. These companies may also be at risk for increased government regulation
and intervention. Such risks may adversely affect the issuers to which the Fund
has exposure.
Currency
Risk:
The Fund may invest in securities denominated in foreign currencies. Because the
Fund's NAV is determined in U.S. dollars, the Fund's NAV could decline if the
Chinese yuan depreciates against the U.S. dollar or if there are delays or
limits on repatriation of such currency. Currency exchange rates can be very
volatile and can change quickly and unpredictably. As a result, the Fund's NAV
may change quickly and without warning, which could have a significant negative
impact on the Fund. Additionally, the Chinese government heavily regulates the
domestic exchange of foreign currencies and yuan exchange rates in China, which
may adversely affect the operations and financial results of the Fund’s
investments in China. Shares purchased through the Stock Connect Programs will
be purchased using offshore yuan, the value of which may differ from and
experience greater volatility than the value of onshore yuan. Offshore yuan
cannot be freely remitted into or transferred out of China, and there is no
assurance that there will always be sufficient amounts of offshore yuan
available for the Fund to invest in all components of the Underlying Index.
Custody
Risk:
The Fund may hold foreign securities and cash with foreign banks, agents, and
securities depositories appointed by the Fund's custodian. Investments in
emerging markets may be subject to even greater custody risks than investments
in more developed markets. Less developed markets are more likely to experience
problems with the clearing and settling of trades and the holding of securities
by local banks, agents and depositories.
Foreign
Securities Risk:
The Fund may invest, within U.S. regulations, in foreign securities. The Fund's
investments in foreign securities can be riskier than U.S. securities
investments. Investments in the securities of foreign issuers (including
investments in ADRs and GDRs) are subject to the risks associated with investing
in those foreign markets, such as heightened risks of inflation or
nationalization. The prices of foreign securities and the prices of U.S.
securities have, at times, moved in opposite directions. In addition, securities
of foreign issuers may lose value due to political, economic and geographic
events affecting a foreign issuer or market. During periods of social, political
or economic instability in a country or region, the value of a foreign security
traded on U.S. exchanges could be affected by, among other things, increasing
price volatility, illiquidity, or the closure of the primary market on which the
security (or the security underlying the ADR or GDR) is traded. You may lose
money due to political, economic and geographic events affecting a foreign
issuer or market.
Geographic
Risk: A
natural, biological or other disaster could occur in a geographic region in
which the Fund invests, which could affect the economy or particular business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in the affected region or in a region
economically tied to the affected region. The securities in which the Fund
invests and, consequently, the Fund are also subject to specific risks as a
result of their business operations, including, but not limited to:
Risk
of Investing in China:
Investment exposure to China subjects the Fund to risks specific to China.
Economic,
Political and Social Risk
China
may be subject to considerable degrees of economic, political and social
instability. Concerns about the rising government and household debt levels
could impact the stability of the Chinese economy.
China
is an emerging market and demonstrates significantly higher volatility from time
to time in comparison to developed markets. Over the last few decades, the
Chinese government has undertaken reform of economic and market practices,
including recent reforms to liberalize its capital markets and expand the sphere
for private ownership of property in China. However, Chinese markets generally
continue to experience inefficiency, volatility and pricing anomalies resulting
from governmental influence, a lack of publicly available information and/or
political and social instability. Chinese companies are also subject to the risk
that Chinese authorities can intervene in their operations and structure.
Internal social unrest or confrontations with other neighboring countries,
including military conflicts in response to such events, may also disrupt
economic development in China and result in a greater risk of currency
fluctuations, currency convertibility, interest rate fluctuations and higher
rates of inflation.
China
has experienced major health crises. These health crises include, but are not
limited to, the rapid and pandemic spread of novel viruses commonly known as
SARS, MERS, and COVID-19 (Coronavirus). Such health crises could exacerbate
political, social, and economic risks previously mentioned.
Export
growth continues to be a major driver of China’s rapid economic growth. Elevated
trade tensions between China and its trading partners, including the imposition
of U.S. tariffs on certain Chinese goods and increased international pressure
related to Chinese trade policy and forced technology transfers and intellectual
property protections, may have a substantial impact on the Chinese economy.
Reduction in spending on Chinese products and services, institution of
additional tariffs or other trade barriers (including as a result of heightened
trade tensions between China and the U.S. or in response to actual or alleged
Chinese cyber activity), or a downturn in any of the economies of China’s key
trading partners may have an adverse impact on the Chinese economy. The
continuation or worsening of the current political climate between China and the
U.S. could result in additional regulatory restrictions being contemplated or
imposed in the U.S. or in China that could impact the Fund’s ability to invest
in certain companies.
Security
Risk
China
has experienced security concerns, such as terrorism and strained international
relations. Additionally, China is alleged to have participated in
state-sponsored cyberattacks against foreign companies and foreign governments.
Actual and threatened responses to such activity, including purchasing
restrictions, sanctions, tariffs or cyberattacks on the Chinese government or
Chinese companies, may impact China’s economy and Chinese issuers of securities
in which the Fund invests. Incidents involving China’s or the region’s security,
including the contagion of infectious viruses or diseases, may cause uncertainty
in Chinese markets and may adversely affect the Chinese economy and the Fund’s
investments.
Heavy
Government Control and Regulation
Chinese
companies, including Chinese companies that are listed on U.S. exchanges, are
not subject to the same degree of regulatory requirements, accounting standards
or auditor oversight as companies in more developed countries, and as a result,
information about the Chinese securities in which the Fund invests may be less
reliable or complete. There may be significant obstacles to obtaining
information necessary for investigations into or litigation against Chinese
companies and shareholders may have limited legal remedies. Investments in China
may be subject to loss due to expropriation or nationalization of assets and
property or the imposition of restrictions on foreign investments and
repatriation of capital.
Tax
Risk
China
has implemented a number of tax reforms in recent years and may amend or revise
its existing tax laws and/or procedures in the future, possibly with retroactive
effect. Changes in applicable Chinese tax law could reduce the after-tax profits
of the Fund, directly or indirectly, including by reducing the after-tax profits
of companies in China in which the Fund invests. Uncertainties in Chinese tax
rules could result in unexpected tax liabilities for the Fund. Should
legislation limit U.S. investors’ ability to invest in specific Chinese
companies through A-shares or other share class listings that are part of the
underlying holdings, these shares may be excluded from Fund
holdings.
Special
Risk Considerations of Investing in China – Variable Interest Entity
Investments
For
purposes of raising capital offshore on exchanges outside of China, including on
U.S. exchanges, many Chinese-based operating companies are structured as
Variable Interest Entities (“VIEs”). In this structure, the Chinese-based
operating company is the VIE and establishes a shell company in a foreign
jurisdiction, such as the Cayman Islands. The shell company lists on a foreign
exchange and enters into contractual arrangements with the VIE. This structure
allows Chinese companies in which the Chinese government restricts foreign
ownership to raise capital from foreign investors. While the shell company has
no equity ownership of the VIE, these contractual arrangements permit the shell
company to consolidate the VIE’s financial statements with its own for
accounting purposes and provide for economic exposure to the performance of the
underlying Chinese operating company.
Therefore,
an investor in the listed shell company, such as the Fund, will have exposure to
the Chinese-based operating company only through contractual arrangements and
has no ownership in the Chinese-based operating company. Furthermore, because
the shell company only has specific rights provided for in these service
agreements with the VIE, its abilities to control the activities at the
Chinese-based operating company are limited and the operating company may engage
in activities that negatively impact investment value.
While
the VIE structure has been widely adopted, it is not formally recognized under
Chinese law and therefore there is a risk that the Chinese government could
prohibit the existence of such structures or negatively impact the VIE’s
contractual arrangements with the listed shell company by making them invalid.
If these contracts were found to be unenforceable under Chinese law, investors
in the listed shell company, such as the Fund, may suffer significant losses
with little or no recourse available. If the Chinese government determines that
the agreements establishing the VIE structures do not comply with Chinese law
and regulations, including those related to restrictions on foreign ownership,
it could subject a Chinese-based issuer to penalties, revocation of business and
operating licenses, or
forfeiture
of ownership interest. In addition, the listed shell company’s control over a
VIE may also be jeopardized if a natural person who holds the equity interest in
the VIE breaches the terms of the agreement, is subject to legal proceedings or
if any physical instruments for authenticating documentation, such as chops and
seals, are used without the Chinese-based issuer’s authorization to enter into
contractual arrangements in China. Chops and seals, which are carved stamps used
to sign documents, represent a legally binding commitment by the company.
Moreover, any future regulatory action may prohibit the ability of the shell
company to receive the economic benefits of the Chinese-based operating company,
which may cause the value of the Fund’s investment in the listed shell company
to suffer a significant loss. For example, in 2021, the Chinese government
prohibited use of the VIE structure for investment in after-school tutoring
companies. There is no guarantee that the Chinese government will not place
similar restrictions on other industries.
Risk
of Investing in Emerging Markets:
As of the date of this Prospectus, China is an emerging market country.
Investments in emerging markets may be subject to a greater risk of loss than
investments in developed markets. Securities markets of emerging market
countries are less liquid, subject to greater price volatility, have smaller
market capitalizations, have less government regulation, and are not subject to
as extensive and frequent accounting, financial, and other reporting
requirements as the securities markets of more developed countries, and there
may be greater risk associated with the custody of securities in emerging
markets. It may be difficult or impossible for the Fund to pursue claims against
an emerging market issuer in the courts of an emerging market
country.
There
may be significant obstacles to obtaining information necessary for
investigations into or litigation against emerging market companies and
shareholders may have limited legal rights and remedies. Emerging markets may be
more likely to experience inflation, political turmoil and rapid changes in
economic conditions than more developed markets. Emerging market economies’
exposure to specific industries, such as tourism, and lack of efficient or
sufficient health care systems, could make these economies especially vulnerable
to global crises, including but not limited to, pandemics such as the global
COVID-19 pandemic. Certain emerging market countries may have privatized, or
have begun the process of privatizing, certain entities and industries.
Privatized entities may lose money or be re-nationalized.
Risk
of Investing in Hong Kong: Investments
in Hong Kong issuers may subject the Fund to legal, regulatory, political,
currency, security, and economic risk specific to Hong Kong. China is Hong
Kong’s largest trading partner, both in terms of exports and imports. Any
changes in the Chinese economy, trade regulations or currency exchange rates, or
a tightening of China’s control over Hong Kong, including in connection with
recent protests and unrest, may have an adverse impact on Hong Kong’s
economy.
International
Closed Market Trading Risk: To
the extent that the underlying investments held by the Fund trade on foreign
exchanges that may be closed when the securities exchange on which the Fund’s
Shares trade is open, there are likely to be deviations between the current
price of such an underlying security and the last quoted price for the
underlying security (i.e., the Fund’s quote from the closed foreign market).
These deviations could result in premiums or discounts to the Fund’s NAV that
may be greater than those experienced by other exchange-traded funds
("ETFs").
Investable
Universe of Companies Risk:
The investable universe of companies in which the Fund may invest may be
limited. If a company no longer meets the Index Provider’s criteria for
inclusion in the Underlying Index, the Fund may need to reduce or eliminate its
holdings in that company. The reduction or elimination of the Fund’s holdings in
the company may have an adverse impact on the liquidity of the Fund’s overall
portfolio holdings and on Fund performance.
Issuer
Risk:
Fund performance depends on the performance of individual companies in which the
Fund invests. Changes to the financial condition of any of those companies may
cause the value of such company's securities to decline.
Market
Risk:
Turbulence in the financial markets and reduced liquidity may negatively affect
issuers, which could have an adverse effect on the Fund. If the securities held
by the Fund experience poor liquidity, the Fund may be unable to transact at
advantageous times or prices, which may decrease the Fund’s returns. In
addition, there is a risk that policy changes by central governments and
governmental agencies, including the U.S. Federal Reserve or the European
Central Bank, which could include increasing interest rates, could cause
increased volatility in financial markets and lead to higher levels of Fund
redemptions from Authorized Participants, which could have a negative impact on
the Fund. Furthermore, local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health issues,
recessions, or other events could have a significant impact on the Fund and its
investments and trading of its Shares. For example, at the start of 2022,
expectations for higher policy interest rates and the removal of monetary policy
support resulted in elevated market volatility and a weak start to January as
markets rotated away from companies with weaker fundamentals and/or higher
valuations. Sustained elevated inflation, global supply chain bottlenecks and
labor shortages encouraged a U.S. Federal Reserve policy shift to increase
interest rates. With central bankers needing to reflect that they remain ahead
of the curve on inflation, there are concerns that monetary policy may provide
less support should economic growth slow. The slowing growth of gross domestic
product in China may weigh on global economic growth, while the COVID-19
pandemic remains a risk to both global
economic
growth and supply chain normalization. Market risk factors may result in
increased volatility and/or decreased liquidity in the securities markets. The
Fund’s NAV could decline over short periods due to short-term market movements
and over longer periods during market downturns.
Non-Diversification
Risk:
The Fund is classified as a “non-diversified” investment company under the
Investment Company Act of 1940 ("1940 Act"). As a result, the Fund is subject to
the risk that it may be more volatile than a diversified fund because the Fund
may invest its assets in a smaller number of issuers or may invest a larger
proportion of its assets in a single issuer. As a result, the gains and losses
on a single investment may have a greater impact on the Fund’s NAV and may make
the Fund more volatile than more diversified funds.
Operational
Risk:
The Fund is exposed to operational risk arising from a number of factors,
including but not limited to human error, processing and communication errors,
errors of the Fund's service providers, counterparties or other third-parties,
failed or inadequate processes and technology or systems failures. Additionally,
cyber security failures or breaches of the electronic systems of the Fund, the
Adviser, and the Fund's other service providers, market makers, Authorized
Participants or the issuers of securities in which the Fund invests have the
ability to cause disruptions and negatively impact the Fund's business
operations, potentially resulting in financial losses to the Fund and its
shareholders. The Fund and the Adviser seek to reduce these operational risks
through controls and procedures. However, these measures do not address every
possible risk and may be inadequate for those risks that they are intended to
address.
Passive
Investment Risk:
The Fund is not actively managed, and the Adviser does not attempt to take
defensive positions in declining markets. Unlike many investment companies, the
Fund does not seek to outperform its Underlying Index. Therefore, it would not
necessarily buy or sell a security unless that security is added or removed,
respectively, from the Underlying Index, even if that security generally is
underperforming. Additionally, if a constituent of the Underlying Index were
removed, even outside of a regular rebalance of the Underlying Index, the
Adviser anticipates that the Fund would sell such security. Maintaining
investments in securities regardless of market conditions or the performance of
individual securities could cause the Fund’s return to be lower than if the Fund
employed an active strategy.
Index-Related
Risk:
There is no guarantee that the Fund will achieve a high degree of correlation to
the Underlying Index and therefore achieve its investment objective. Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Underlying Index. Errors in index data, index computations and/or the
construction of the Underlying Index in accordance with its methodology may
occur from time to time and may not be identified and corrected by the Index
Provider for a period of time or at all, which may have an adverse impact on the
Fund and its shareholders.
Management
Risk:
The Fund may not fully replicate its Underlying Index and may hold securities
not included in its Underlying Index. The Adviser’s investment strategy, the
implementation of which is subject to a number of constraints, may cause the
Fund to underperform the market or its relevant benchmark or adversely affect
the ability of the Fund to achieve its investment objective.
Tracking
Error Risk:
Tracking error may occur because of differences between the instruments held in
the Fund's portfolio and those included in the Underlying Index, pricing
differences, transaction costs incurred by the Fund, the Fund's holding of
uninvested cash, size of the Fund, differences in timing of the accrual of or
the valuation of dividends or interest, tax gains or losses, changes to the
Underlying Index or the costs to the Fund of complying with various new or
existing regulatory requirements. This risk may be heightened during times of
increased market volatility or other unusual market conditions. Tracking error
also may result because the Fund incurs fees and expenses, while the Underlying
Index does not. ETFs that track indices with significant weight in emerging
markets issuers may experience higher tracking error than other ETFs that do not
track such indices.
Reliance
on Trading Partners Risk:
The Fund invests in the Chinese economy, which is heavily dependent upon trading
with key partners. Any reduction in this trading, including as a result of
adverse economic conditions in a trading partner's economy, may cause an adverse
impact on the Chinese economy in which the Fund invests. Through its portfolio
companies' trading partners, the Fund is specifically exposed to Asian
Economic Risk,
European
Economic Risk,
and North
American Economic Risk.
Risks
Associated with Exchange-Traded Funds:
As an ETF, the Fund is subject to the following risks:
Authorized
Participants Concentration Risk:
The Fund has a limited number of financial institutions that may act as
Authorized Participants and engage in creation or redemption transactions
directly with the Fund, and none of those Authorized Participants is obligated
to engage in creation and/or redemption transactions. To the extent that those
Authorized
Participants exit the business or are unable to process creation and/or
redemption orders, Shares may be more likely to trade at a premium or discount
to NAV, and possibly face trading halts and/or delisting from an exchange.
Authorized Participants Concentration Risk may be heightened because the Fund
invests in non-U.S. securities.
Large
Shareholder Risk: Redemptions
by large shareholders could have a significant negative impact on the Fund. If a
large shareholder were to redeem all, or a large portion, of its Shares, there
is no guarantee that the Fund will be able to maintain sufficient assets to
continue operations in which case the Board of Trustees may determine to
liquidate the Fund. In addition, transactions by large shareholders may account
for a large percentage of the trading volume on a national securities exchange
and may, therefore, have a material upward or downward effect on the market
price of the Shares.
Listing
Standards Risk: The
Fund is required to comply with listing requirements adopted by the listing
exchange. Non-compliance with such requirements may result in the Fund's shares
being delisted by the listing exchange. Any resulting liquidation of the Fund
could cause the Fund to incur elevated transaction costs and could result in
negative tax consequences for its shareholders.
Market
Trading Risks and Premium/Discount Risks:
Shares of the Fund are publicly traded on a national securities exchange, which
may subject shareholders to numerous market trading risks. Disruptions to
creations and redemptions, the existence of extreme market volatility or
potential lack of assets in the Fund or an active trading market for Shares may
result in Shares trading at a significant premium or discount to NAV. If a
shareholder purchases Shares at a time when the market price is at a premium to
the NAV or sells Shares at a time when the market price is at a discount to the
NAV, the shareholder may sustain losses. The
NAV of the Fund is calculated at the end of each business day and fluctuates
with changes in the market value of the Fund’s holdings. The trading price of
the Fund’s shares fluctuates, in some cases materially, throughout trading hours
in response to changes in the Fund’s NAV.
Risks
Related to Stock Connect Programs:
The Stock Connect Programs are subject to daily and aggregate quota limitations,
which could affect the Fund’s ability to enter into and exit Stock Connect
positions on a timely basis. The Shenzen and Shanghai markets may operate when
the Stock Connect Programs are not active, and consequently the prices of shares
held via Stock Connect Programs may fluctuate at times when the Fund is unable
to add to or exit its positions. The Stock Connect Programs are new, and the
effect of the introduction of large numbers of foreign investors on the market
for trading Chinese-listed securities is not well understood. Regulations, such
as limitations on redemptions or suspension of trading, may adversely impact the
value of the Fund’s investments. The Fund's investments in A-Shares though the
Stock Connect Program are held by its custodian in accounts in Central Clearing
and Settlement System ("CCASS") maintained by the Hong Kong Securities Clearing
Company Limited ("HKSCC"), which in turn holds the A-Shares, as the nominee
holder, through an omnibus securities account in its name registered with the
CSDCC. The precise nature and rights of the Fund as the beneficial owner of the
SSE Securities or SZSE Securities through HKSCC as nominee is not well defined
under Chinese law. There is no guarantee that the Shenzen, Shanghai, and Hong
Kong Stock Exchanges will continue to support the Stock Connect Programs in the
future.
Trading
Halt Risk:
An exchange or market may close or issue trading halts on specific securities,
or the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in the Fund being unable to buy or sell certain
securities or financial instruments. In such circumstances, the Fund may be
unable to rebalance its portfolio, may be unable to accurately price its
investments and/or may incur substantial trading
losses.
Valuation
Risk: The sales price the Fund could receive for
a security may differ from the Fund’s valuation of the security and may differ
from the value used by the Underlying Index, particularly for securities that
trade in low value or volatile markets or that are valued using a fair value
methodology (such as during trading halts). The value of the securities in
the Fund's portfolio may change on days when shareholders will not be able to
purchase or sell the Fund's Shares.
PERFORMANCE
INFORMATION
The bar chart
and table that follow show how the Fund performed on a calendar year basis and
provide an indication of the risks of investing in the Fund by showing changes
in the Fund's performance from year to year and by showing how the Fund's
average annual returns for the indicated periods compare with the Fund's
benchmark index and a broad measure of market performance. On
December 6, 2018, the name of the Fund changed from the Global X China Materials
ETF to the Global X MSCI China Materials ETF to reflect a change to the Fund's
Index Provider from Solactive AG to MSCI, Inc. and a change in the Fund's
underlying index from the Solactive China Materials Total Return Index to the
MSCI China Materials 10/50 Index. The Fund's past performance
(before and after taxes) is not necessarily indicative of how the Fund will
perform in the future. Updated performance information is
available online at www.globalxetfs.com.
Annual Total Returns (Years Ended December
31)
|
|
|
|
|
|
|
|
|
Best
Quarter: |
12/31/2020 |
23.90% |
Worst
Quarter: |
9/30/2015 |
-33.32% |
Average Annual Total Returns (for the Periods
Ended December 31, 2021)
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Year Ended December 31, 2021 |
Five
Years Ended December 31, 2021 |
Ten
Years Ended December 31, 2021 |
Global
X MSCI China Materials ETF: |
|
|
|
·Return before
taxes |
10.31% |
14.43% |
5.86% |
·Return
after taxes on distributions1 |
9.96% |
13.58% |
5.21% |
·Return
after taxes on distributions and sale of Fund Shares1 |
6.45% |
11.32% |
4.48% |
Hybrid
MSCI China Materials 10/50 Index (net)2 (Index returns reflect
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
11.16% |
14.35% |
5.98% |
MSCI
Emerging Markets Index (net) (Index returns reflect
invested dividends net of withholding taxes, but reflect no deduction for
fees, expenses, or other
taxes) |
-2.54% |
9.87% |
5.49% |
1
After-tax returns are
calculated using the historical highest individual U.S. federal marginal income
tax rates and do not reflect the impact of state and local
taxes. Your actual after-tax returns
will depend on your specific tax situation and may differ from those shown
above. After-tax returns are not relevant to investors who hold Shares of the
Fund through tax-advantaged arrangements, such as 401(k) plans or individual
retirement accounts (IRAs).
2
Hybrid index performance
reflects the performance of the Solactive China Materials Total Return Index
through December 5, 2018, and the MSCI China Materials 10/50 Index thereafter.
FUND
MANAGEMENT
Investment
Adviser:
Global X Management Company LLC.
Portfolio
Managers:
The professionals primarily responsible for the day-to-day management of the
Fund are Nam To, CFA; Wayne Xie; Kimberly Chan; Vanessa Yang; William Helm, CFA;
and Sandy Lu, CFA (“Portfolio Managers”). Mr. To has been a Portfolio Manager of
the Fund since March 1, 2018. Mr. Xie has been a Portfolio Manager of the Fund
since March 1, 2019. Ms. Chan has been a Portfolio Manager of the Fund since
June 10, 2019. Ms. Yang has been a Portfolio Manager of the Fund since December
2020. Messrs. Helm and Lu have been Portfolio Managers of the Fund since March
2022.
PURCHASE
AND SALE OF FUND SHARES
Shares
of the Fund are or will be listed and traded at market prices on a national
securities exchange. Shares may only be purchased and sold on the exchange
through a broker-dealer. The price of Shares is based on market price, and
because ETF shares trade at market prices rather than at NAV, Shares may trade
at a price greater than NAV (a premium) or less than NAV (a discount). Only
“Authorized Participants” (as defined in the SAI) who have entered into
agreements with the Fund’s distributor, SEI Investments Distribution Co.
(“Distributor”), may engage in creation or redemption transactions directly with
the Fund. The Fund will only issue or redeem Shares that have been aggregated
into blocks called Creation Units. The Fund will issue or redeem Creation Units
in return for a basket of cash and/or securities that the Fund specifies any day
that the national securities exchanges are open for business (“Business Day”).
An investor may incur costs attributable to the difference between the highest
price a buyer is willing to pay to purchase shares of the Fund (bid) and the
lowest price a seller is willing to accept for shares of the Fund (ask) when
buying or selling shares in the secondary market (the “bid-ask spread”). To
access information regarding the Fund’s net asset value, market price, premiums
and discounts, and bid-ask spreads, please go to https://www.globalxetfs.com.
TAX
INFORMATION
The
Fund intends to make distributions that may be taxable to you as ordinary income
or capital gains, unless you are investing through a tax-advantaged arrangement,
such as a 401(k) plan or an individual retirement account ("IRA"), in which case
distributions from such tax-advantaged arrangement may be taxable to you.
PAYMENTS
TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
The
Adviser and its related companies may pay broker-dealers or other financial
intermediaries (such as a bank) for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing your
broker-dealer, sales persons or other intermediary or its employees or
associated persons to recommend the Fund over another investment. Ask your
financial adviser or visit your financial intermediary’s website for more
information.
Global X MSCI China Industrials
ETF
Ticker:
CHII Exchange: NYSE Arca
INVESTMENT OBJECTIVE
The Global X MSCI China
Industrials ETF ("Fund") seeks to provide investment results that correspond
generally to the price and yield performance, before fees and expenses, of the
MSCI China Industrials 10/50 Index ("Underlying
Index").
FEES AND EXPENSES
This table describes the fees
and expenses that you may pay if you buy, hold, and sell shares (“Shares”) of
the Fund. You may pay other fees, such as brokerage commissions and other fees
to financial intermediaries, which are not reflected in the table and examples
below.
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment):
|
|
|
|
|
|
Management
Fees: |
0.65% |
Distribution
and Service (12b-1) Fees: |
None |
Other
Expenses: |
0.01% |
Total
Annual Fund Operating Expenses: |
0.66% |
Example:
The following example
is intended to help you compare the cost of investing in the Fund with the cost
of investing in other funds. This example does not take into account customary
brokerage commissions that you pay when purchasing or selling Shares of the Fund
in the secondary market. The example assumes that you invest
$10,000 in the Fund for the time periods indicated and then sell all of your
Shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions, your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
One
Year |
Three
Years |
Five
Years |
Ten
Years |
$67 |
$211 |
$368 |
$822 |
Portfolio
Turnover:
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or "turns over"
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
example, affect the Fund's performance. During the most recent fiscal year, the
Fund's portfolio turnover rate was 66.09% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund invests at least 80% of its total assets in the securities of the MSCI
China Industrials 10/50 Index ("Underlying Index") and in American Depositary
Receipts ("ADRs") and Global Depositary Receipts ("GDRs") based on the
securities in the Underlying Index. The Fund also invests at least 80% of its
total assets in securities of industrials companies that are economically tied
to China. For purposes of this policy, industrials companies include those
companies that are classified in the industrials sector under the Global
Industry Classification System ("GICS"). The Fund's 80% investment policies are
non-fundamental and require 60 days prior written notice to shareholders before
they can be changed.
The
Underlying Index tracks the performance of companies in the MSCI China Index
(the "Parent Index") that are classified in the industrials sector, as defined
by MSCI, Inc. ("MSCI") the provider of the Underlying Index ("Index Provider").
The Parent Index is a free float-adjusted market capitalization-weighted index
designed to measure the performance of securities that are classified as
operating in China according to the MSCI Global Investable Markets Index
Methodology, and that satisfy minimum market capitalization and liquidity
thresholds. The securities eligible for inclusion in the Underlying Index
include H-Shares (securities of companies incorporated in China that are
denominated in Hong Kong Dollars and listed on the Hong Kong Stock Exchange (the
"HKSE")), B-Shares (securities of companies denominated in U.S. dollars or Hong
Kong dollars and listed on Shanghai Stock Exchange (the "SSE") or Shenzen Stock
Exchange (the "SZSE")), Red Chips (securities of companies with a majority of
their business operations in mainland China and that are controlled by the
national government or local
governments
of China, traded on the HKSE in Hong Kong dollars), P-Chips (securities of
companies with the majority of their business operations in mainland China and
controlled by individuals in China, but that are incorporated outside of China),
A-Shares (securities of companies incorporated in mainland China that trade on
Chinese exchanges in renminbi) that are accessible through the Shanghai-Hong
Kong Stock Connect program ("Shanghai Connect") or the Shenzhen-Hong Kong Stock
Connect program ("Shenzhen Connect", and together with Shanghai Connect, "Stock
Connect Programs"), and foreign listings such as American Depository Receipts
("ADRs"). The Stock Connect Programs are securities trading and clearing
programs that aim to achieve mutual stock market access between China and Hong
Kong. Under Stock Connect, the Fund's trading of eligible A-shares listed on the
SSE or the SZSE, as applicable, would be effectuated through its Hong Kong
brokers. Trading through the Stock Connect Programs is subject to a daily quota,
which limits the maximum net purchases under Stock Connect Programs each day,
and as such, buy orders for A-shares would be rejected once the daily quota is
exceeded (although the Fund will be permitted to sell A-shares regardless of the
daily quota balance). The daily quota is not specific to the Fund. From time to
time, other stock exchanges in China may participate in Stock Connect, and
A-shares listed and traded on such other stock exchanges and accessible through
Stock Connect may be added to the Underlying Index, as determined by
MSCI.
The
Underlying Index then follows a rules-based methodology that is designed to
select all constituents of the Parent Index that are classified in the
industrials sector under the GICS. The Underlying Index is weighted according to
each component's free-float adjusted market capitalization, but is modified so
that, as of the rebalance date, no group entity (defined by the Index Provider
as companies with a controlling stake owned by one entity) constitutes more than
10% of the Underlying Index and so that, in the aggregate, the individual group
entities that would represent more than 5% of the Underlying Index represent no
more than 50% of the Underlying Index ("10/50 Cap"). The Underlying Index is
reconstituted and re-weighted quarterly. The Underlying Index may include large-
and mid-capitalization companies. As of December 31, 2021, the Underlying
Index had 103 constituents. The Fund's investment objective and Underlying Index
may be changed without shareholder approval.
The
Fund generally will use a replication strategy. A replication strategy is an
indexing strategy that involves investing in the securities of the Underlying
Index in approximately the same proportions as in the Underlying Index. However,
the Fund may utilize a representative sampling strategy with respect to the
Underlying Index when a replication strategy might be detrimental or
disadvantageous to shareholders, such as when there are practical difficulties
or substantial costs involved in compiling a portfolio of equity securities to
replicate the Underlying Index, in instances in which a security in the
Underlying Index becomes temporarily illiquid, unavailable or less liquid, or as
a result of legal restrictions or limitations (such as tax diversification
requirements) that apply to the Fund but not the Underlying Index.
The
Adviser expects that, over time, the correlation between the Fund's performance
and that of the Underlying Index, before fees and expenses, will exceed 95%. A
correlation percentage of 100% would indicate perfect correlation. If the Fund
uses a replication strategy, it can be expected to have greater correlation to
the Underlying Index than if it uses a representative sampling
strategy.
The Fund concentrates its investments
(i.e., holds 25% or more of its total assets) in a particular industry or group
of industries to approximately the same extent that the Underlying Index is
concentrated. As of December 31, 2021, the Underlying Index had significant
exposure to the industrials
sector.
SUMMARY OF PRINCIPAL RISKS
As with any investment, you could lose all or part of
your investment in the Fund, and the Fund’s performance could trail that of
other investments. There is no guarantee that the Fund will
achieve its investment objective. An investment in the Fund is not a
bank deposit and it is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency, the Adviser or any of its
affiliates. The Fund is subject to the principal risks noted
below, any of which may adversely affect the Fund’s net asset value (“NAV”),
trading price, yield, total return and ability to meet its investment objective,
as well as other risks that are described in greater detail in the Additional
Information About the Funds
section of this Prospectus and in the Statement of Additional Information
(“SAI”). The order of the below risk factors does not indicate the significance
of any particular risk factor.
Asset
Class Risk:
Securities and other assets in the Underlying Index or otherwise held in the
Fund's portfolio may underperform in comparison to the general securities
markets, a particular securities market or other asset classes.
China
A-Shares Risk:
A-Shares are issued by companies incorporated in mainland China and are traded
on Chinese exchanges. Foreign investors can access A-Shares by obtaining a
Qualified Foreign Institutional Investor ("QFII") or a Renminbi Qualified
Foreign Institutional Investor ("RQFII") license, as well as through the Stock
Connect Program, which is a securities trading and clearing program with an aim
to achieve mutual stock market access between the China and Hong Kong markets.
Stock Connect was developed by Hong Kong Exchanges and Clearing Limited, the
Shanghai
Stock Exchange ("SSE") (in the case of Shanghai Connect) or the Shenzhen Stock
Exchange ("SZSE") (in the case of Shenzhen Connect), and the China Securities
Depository and Clearing Corporation Limited (“CSDCC”). The Fund currently
intends to gain exposure to A-Shares through the Stock Connect Programs.
Investments in A-Shares are subject to various regulations and limits, and the
recoupment or repatriation of assets invested in A-Shares is subject to
restrictions by the Chinese government. In addition, investors from outside
mainland China may face difficulties or prohibitions accessing certain A-Shares
that are part of a restricted list in countries such as the U.S. A-Shares may be
subject to frequent and widespread trading halts and may become illiquid.
Trading suspensions in certain stock could lead to greater market execution risk
and costs for the Fund, and the creation and redemption of Creation Units (as
defined below) may also be disrupted. These risks, among others, could adversely
affect the value of the Fund’s investments.
Equity
Securities Risk:
Equity securities are subject to changes in value, and their values may be more
volatile than other asset classes, as a result of such factors as a company’s
business performance, investor perceptions, stock market trends and general
economic conditions.
Capitalization
Risk:
Investing in issuers within the same market capitalization category carries the
risk that the category may be out of favor due to current market conditions or
investor sentiment.
Large-Capitalization
Companies Risk: Large-capitalization
companies may trail the returns of the overall stock market.
Large-capitalization stocks tend to go through cycles of doing better - or worse
- than the stock market in general. These periods have, in the past, lasted for
as long as several years.
Mid-Capitalization
Companies Risk: Mid-capitalization
companies may have greater price volatility, lower trading volume and less
liquidity than large-capitalization companies. In addition, mid-capitalization
companies may have smaller revenues, narrower product lines, less management
depth and experience, smaller shares of their product or service markets, fewer
financial resources and less competitive strength than large-capitalization
companies.
Cash
Transaction Risk:
Unlike most exchange-traded funds ("ETFs"), the Fund intends to effect a
significant portion of creations and redemptions for cash, rather than in-kind
securities. As a result, an investment in the Fund may be less tax-efficient
than an investment in a more conventional ETF. Moreover, cash transactions may
have to be carried out over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and taxes. These factors
may result in wider spreads between the bid and the offered prices of the Fund’s
Shares than for more conventional ETFs.
Concentration
Risk:
To the extent that the Underlying Index concentrates in investments related to a
particular industry or group of industries, the Fund will also concentrate its
investments to approximately the same extent. Similarly, if the Underlying Index
has significant exposure to one or more sectors, the Fund’s investments will
likely have significant exposure to such sectors. In such event, the Fund’s
performance will be particularly susceptible to adverse events impacting such
industry or sector, which may include, but are not limited to, the following:
general economic conditions or cyclical market patterns that could negatively
affect supply and demand; competition for resources; adverse labor relations;
political or world events; obsolescence of technologies; and increased
competition or new product introductions that may affect the profitability or
viability of companies in a particular industry or sector. As a result, the
value of the Fund’s investments may rise and fall more than the value of shares
of a fund that invests in securities of companies in a broader range of
industries or sectors.
Risks
Related to Investing in the Industrials Sector:
Companies in the industrials sector are subject to fluctuations in supply and
demand for their specific product or service. The products of manufacturing
companies may face product obsolescence due to rapid technological developments.
Government regulation, world events and economic conditions affect the
performance of companies in the industrials sector. Companies also may be
adversely affected by environmental damage and product liability claims.
Companies in the Industrial Sector face increased risk from trade agreements
between countries that develop these technologies and countries in which
customers of these technologies are based. Lack of resolution or potential
imposition of trade tariffs may hinder on the companies’ ability to successfully
deploy their inventories.
Currency
Risk:
The Fund may invest in securities denominated in foreign currencies. Because the
Fund's NAV is determined in U.S. dollars, the Fund's NAV could decline if the
Chinese yuan depreciates against the U.S. dollar or if there are delays or
limits on repatriation of such currency. Currency exchange rates can be very
volatile and can change quickly and unpredictably. As a result, the Fund's NAV
may change quickly and without warning, which could have a significant negative
impact on the Fund. Additionally, the Chinese government heavily regulates the
domestic exchange of foreign currencies and yuan exchange rates in China, which
may adversely affect the operations and financial results of the Fund’s
investments in China. Shares purchased through the Stock Connect Programs will
be purchased using offshore yuan, the value of which may differ from and
experience
greater volatility than the value of onshore yuan. Offshore yuan cannot be
freely remitted into or transferred out of China, and there is no assurance that
there will always be sufficient amounts of offshore yuan available for the Fund
to invest in all components of the Underlying Index.
Custody
Risk:
The Fund may hold foreign securities and cash with foreign banks, agents, and
securities depositories appointed by the Fund's custodian. Investments in
emerging markets may be subject to even greater custody risks than investments
in more developed markets. Less developed markets are more likely to experience
problems with the clearing and settling of trades and the holding of securities
by local banks, agents and depositories.
Foreign
Securities Risk:
The Fund may invest, within U.S. regulations, in foreign securities. The Fund's
investments in foreign securities can be riskier than U.S. securities
investments. Investments in the securities of foreign issuers (including
investments in ADRs and GDRs) are subject to the risks associated with investing
in those foreign markets, such as heightened risks of inflation or
nationalization. The prices of foreign securities and the prices of U.S.
securities have, at times, moved in opposite directions. In addition, securities
of foreign issuers may lose value due to political, economic and geographic
events affecting a foreign issuer or market. During periods of social, political
or economic instability in a country or region, the value of a foreign security
traded on U.S. exchanges could be affected by, among other things, increasing
price volatility, illiquidity, or the closure of the primary market on which the
security (or the security underlying the ADR or GDR) is traded. You may lose
money due to political, economic and geographic events affecting a foreign
issuer or market.
Geographic
Risk: A
natural, biological or other disaster could occur in a geographic region in
which the Fund invests, which could affect the economy or particular business
operations of companies in the specific geographic region, causing an adverse
impact on the Fund’s investments in the affected region or in a region
economically tied to the affected region. The securities in which the Fund
invests and, consequently, the Fund are also subject to specific risks as a
result of their business operations, including, but not limited to:
Risk
of Investing in China:
Investment exposure to China subjects the Fund to risks specific to China.
Economic,
Political and Social Risk