ck0001467831-20210930
ETFMG Travel Tech ETF (AWAY)
ETFMG 2x Daily Travel Tech ETF
(AWYX)
Listed
on NYSE Arca, Inc.
Each
Fund is a series of ETF Managers Trust
PROSPECTUS
January
31, 2022
THE
SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
About
This Prospectus
This
prospectus has been arranged into different sections so that you can easily
review this important information. For detailed information about the Fund,
please see:
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ETFMG
Travel Tech ETF - FUND SUMMARY |
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ETFMG
2x Daily Travel Tech ETF - FUND SUMMARY |
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Summary
Information about Purchases, Sales, Taxes, and Financial Intermediary
Compensation |
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ETFMG
TRAVEL TECH ETF — FUND SUMMARY
Investment Objective
The ETFMG Travel Tech ETF (the
“Fund” or the “Travel Tech ETF”) seeks to provide investment results that,
before fees and expenses, correspond generally to the total return performance
of the Prime Travel Technology Index NTR (the
“Index”).
Fees and Expenses
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
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Management
Fee |
0.75 |
% |
Distribution
and Service (12b-1) Fees |
None |
Other
Expenses |
0.00 |
% |
Total
Annual Fund Operating Expenses |
0.75 |
% |
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. This
Example does not take into account the brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your cost would be:
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1
Year |
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3
Years |
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5
Years |
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10
Years |
$77 |
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$240 |
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$417 |
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$930 |
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when the Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. For the fiscal year ended
September 30, 2021, the Fund’s portfolio turnover rate was 57% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund uses a “passive” or indexing approach to try to achieve its investment
objective. Unlike many investment companies, the Fund does not try to “beat” the
Index and does not seek temporary defensive positions when markets decline or
appear overvalued other than those indicated in the Index.
The
Fund will use a replication strategy. A replication strategy is an indexing
strategy that involves investing in the securities of the Index in approximately
the same proportions as in the Index. However, the Fund may utilize a
representative sampling strategy with respect to the Index when a replication
strategy might be detrimental to shareholders, such as when there are practical
difficulties or substantial costs involved in compiling a portfolio of equity
securities to follow the Index, in instances in which a security in the Index
becomes temporarily illiquid, unavailable or less liquid, or as a result of
legal restrictions or limitations (such as tax diversification requirements)
that apply to the Fund but not the Index.
The
Fund invests at least 80% of its total assets, exclusive of collateral held from
securities lending, in the component securities of the Index and in ADRs and
GDRs based on the component securities in the Index. The Fund may invest up to
20% of its total assets in securities that are not in the Fund’s Index to the
extent that the Fund’s adviser believes such investments should help the Fund’s
overall portfolio track the Index. The Fund may also invest in other investment
companies that principally invest in the types of instruments allowed by the
investment strategies of the Fund.
The
Fund may lend its portfolio securities to brokers, dealers, and other financial
organizations. These loans, if and when made, may not exceed 33 1/3% of the
total asset value of the Fund (including the loan collateral). By lending its
securities, the Fund may increase its income by receiving payments from the
borrower.
Prime
Travel Technology Index NTR
The
Index tracks the performance of globally exchange-listed equity securities (or
corresponding American Depositary Receipts (“ADRs”) or Global Depositary
Receipts (“GDRs”)) of companies across the globe that are engaged in “Travel
Technology Business” which is defined as providing technology, via the internet
and internet-connected devices such as mobile phones, to facilitate the
following activities: travel bookings and reservations, ride sharing and
hailing, travel price comparison, and travel advice. Companies
with
products and services that are primarily engaged in any of the categories of
Travel Technology Business are collectively called “Travel Technology
Companies.”
The
companies included in the Index are identified by Prime Indexes (the “Index
Provider”). The Index Provider determines whether a company is a Travel
Technology Company based on its assessment of: i) descriptions of a company’s
primary business activities in its regulatory filings (e.g.,
annual reports, financial statements and other public filings), investor
presentations, as well as third-party industry research, reports, and analyses;
and ii) if a company derives more than 50% of its revenue from Travel Technology
Business. The Index Provider screens candidate companies for the Travel
Technology Index for investability based on i) must be an equity security of an
operating company or an ADR of an operating company; ii) must have a minimum
market capitalization of $150 million; iii) must have an average daily trading
volume of $250,000 or greater; and iv) must be on an exchange in a country that
does not employ restrictions on foreign capital investment.
The
Index has a quarterly review in March, June, September, and December of each
year upon which the Index is reconstituted and rebalanced by the Index Provider.
The composition of the Index and the constituent weights are determined on the
two Thursdays before the second Friday of each March, June, September, and
December (or the next business day if this is a non-business day) (also known as
the “Selection Day”). Component changes are implemented as of the market close
on the third Friday of March, June, September, and December (or the next
business day if the third Friday is not a business day) and become effective at
the market opening on the next trading day.
At
the time of each reconstitution, the companies in the Index are weighted using a
proprietary weighting methodology (the “Methodology”) that weights the
securities based on market capitalization and average daily value traded. The
larger and more frequently traded companies, based on the Methodology, will
receive a higher score compared to smaller and less frequently traded companies.
As of January 14, 2022, the Index had 31 constituents.
The
Index is developed and owned by the Index Provider, and the Index is calculated
and maintained by Solactive AG (the “Calculation Agent”). The Index Provider is
independent of the Calculation Agent, the Fund, and the Fund’s investment
adviser.
The
Fund rebalances its portfolio in accordance with its Index, and, therefore, any
changes to the Index’s rebalance schedule will result in corresponding changes
to the Fund’s rebalance schedule.
Correlation:
Correlation
is the extent to which the values of different types of investments move in
tandem with one another in response to changing economic and market conditions.
An index is a theoretical financial calculation, while the Fund is an actual
investment portfolio. The performance of the Fund and the Index may vary
somewhat due to transaction costs, asset valuations, foreign currency
valuations, market impact, corporate actions (such as mergers and spin-offs),
legal restrictions or limitations, illiquid or unavailable securities, and
timing variances.
The
Fund’s investment adviser expects that, over time, the correlation between the
Fund’s performance and that of the Index, before fees and expenses, will exceed
95%. A correlation percentage of 100% would indicate perfect correlation. If the
Fund uses a replication strategy, it can be expected to have greater correlation
to the Index than if it uses a representative sampling strategy.
Industry
Concentration Policy: The
Fund will concentrate its investments (i.e.,
hold 25% or more of its net assets) in a particular industry or group of related
industries to approximately the same extent that the Index is
concentrated.
Principal Risks
As with all funds, a shareholder is subject to the risk
that his or her investment could lose money. The principal risks
affecting shareholders’ investments in the Fund are set forth below.
An investment in the Fund is not a
bank deposit and is not insured or guaranteed by the FDIC or any government
agency.
Technology
Companies Risk:
Companies in the technology field, including companies in the computers,
telecommunications and electronics industries, face intense competition, which
may have an adverse effect on profit margins. Technology companies may have
limited product lines, markets, financial resources or personnel. The products
of technology companies may face obsolescence due to rapid technological
developments and frequent new product introduction, and such companies may face
unpredictable changes in growth rates, competition for the services of qualified
personnel and competition from foreign competitors with lower production costs.
Companies in the technology sector are heavily dependent on patent and
intellectual property rights. The loss or impairment of these rights may
adversely affect the profitability of these companies.
The
remaining risks are presented in alphabetical order. Each risk summarized below
is considered a “principal risk” of investing in the Fund, regardless of the
order in which it appears.
Concentration
Risk: The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. To the extent the Fund invests more
heavily in particular industries, groups of industries, or sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those industries, groups of industries, or sectors of the
economy, and the value of Fund shares may rise and fall more than the value of
shares that invest in securities of companies in a broader range of industries
or sectors.
Equity
Market Risk:
The equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests such as
political, market and economic developments, as well as events that impact
specific issuers. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, acts of terrorism or other events
could result in increased premiums or discounts to the Fund’s NAV.
ETF
Risks:
Absence
of an Active Market: Although
the Fund’s shares are approved for listing on the NYSE
Arca, Inc.
(the “Exchange”), there can be no assurance that an active trading market will
develop and be maintained for Fund shares. There can be no assurance that the
Fund will grow to or maintain an economically viable size, in which case the
Fund may experience greater tracking error to its Index than it otherwise would
at higher asset levels or the Fund may ultimately liquidate.
Authorized
Participants (“APs”), Market Makers, and Liquidity Providers
Concentration: The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to net asset value (“NAV”) and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
Cash
Transactions:
The Fund may effect its creations and redemptions primarily for cash, rather
than in-kind securities. Paying redemption proceeds in cash rather than through
in-kind delivery of portfolio securities may require the Fund to dispose of or
sell portfolio investments at an inopportune time to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to incur certain costs
such as brokerage costs, and to recognize gains or losses that it might not have
incurred if it had made a redemption in-kind. As a result, the Fund may pay out
higher or lower annual capital gains distributions than ETFs that redeem
in-kind. In addition, the costs imposed on the Fund will decrease the Fund’s NAV
unless the costs are offset by a transaction fee payable by an AP.
Costs
of Buying or Selling Shares: Investors
buying or selling Fund shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of shares.
Fluctuation
of NAV: The
NAV of Fund shares will generally fluctuate with changes in the market value of
the Fund’s securities holdings. The market prices of shares will generally
fluctuate in accordance with changes in the Fund’s NAV and supply and demand of
shares on the Exchange. It cannot be predicted whether Fund shares will trade
below, at or above their NAV. During periods of unusual volatility or market
disruptions, market prices of Fund shares may deviate significantly from the
market value of the Fund’s securities holdings or the NAV of Fund shares. As a
result, investors in the Fund may pay significantly more or receive
significantly less for Fund shares than the value of the Fund’s underlying
securities or the NAV of Fund shares.
Trading
Issues:
Although
Fund shares are listed for trading on the Exchange, there can be no assurance
that an active trading market for such shares will develop or be maintained.
Trading in Fund shares may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in shares inadvisable. There can
be no assurance that the requirements of the Exchange necessary to maintain the
listing of any Fund will continue to be met or will remain unchanged or that the
shares will trade with any volume, or at all. Further, secondary markets may be
subject to erratic trading activity, wide bid/ask spreads and extended trade
settlement periods in times of market stress because market makers and APs may
step away from making a market in Fund shares and in executing creation and
redemption orders, which could cause a material deviation in the Fund’s market
price from its NAV.
Foreign
Investment Risk:
Returns
on investments in foreign stocks could be more volatile than, or trail the
returns on, investments in U.S. stocks. Since
foreign exchanges may be open on days when the Fund does not price its Shares,
the value of the securities in the Fund’s portfolio may change on days when
shareholders will not be able to purchase or sell the Shares. Conversely, Shares
may trade on days when foreign exchanges are closed. Because securities held by
the Fund trade on foreign exchanges that are closed when the Fund’s primary
listing exchange is open, the Fund is likely to experience premiums and
discounts greater than those of domestic ETFs. Each of these factors can make
investments in the Fund more volatile and potentially less liquid than other
types of investments.
Currency
Risk:
Indirect and direct exposure to foreign currencies subjects the Fund to the risk
that currencies will decline in value relative to the U.S. dollar. Currency
rates in foreign countries may fluctuate significantly over short periods of
time for a number of reasons, including changes in interest rates and the
imposition of currency controls or other political developments in the U.S. or
abroad.
Depositary
Receipts Risk:
The
Fund may invest in depositary receipts. Investment in ADRs and GDRs may be less
liquid than the underlying shares in their primary trading market and GDRs, many
of which are issued by companies in emerging markets, may be more volatile and
less liquid than depositary receipts issued by companies in more developed
markets.
Foreign
Market and Trading Risk:
The trading markets for many foreign securities are not as active as U.S.
markets and may have less governmental regulation and oversight. Foreign markets
also may have clearance and settlement procedures that make it difficult for the
Fund to buy and sell securities. These factors could result in a loss to the
Fund by causing the Fund to be unable to dispose of an investment or to miss an
attractive investment opportunity, or by causing Fund assets to be uninvested
for some period of time.
Foreign
Securities Risk:
The Fund invests a significant portion of its assets directly in securities of
issuers based outside of the U.S., or in depositary receipts that represent such
securities. Investments in securities of non-U.S. issuers involve certain risks
that may not be present with investments in securities of U.S. issuers, such as
risk of loss due to foreign currency fluctuations or to political or economic
instability, as well as varying regulatory requirements applicable to
investments in non-U.S. issuers. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may also
be subject to different regulatory, accounting, auditing, financial reporting
and investor protection standards than U.S. issuers.
Political
and Economic Risk:
The Fund is subject to foreign political and economic risk not associated with
U.S. investments, meaning that political events, social and economic events and
natural disasters occurring in a country where the Fund invests could cause the
Fund’s investments in that country to experience gains or losses. The Fund also
could be unable to enforce its ownership rights or pursue legal remedies in
countries where it invests.
Privatization
Risk:
Several
foreign countries in which the Fund invests have begun a process of privatizing
certain entities and industries. Privatized entities may lose money or be
re-nationalized.
Geographic
Concentration Risk:
To
the extent the Fund invests a significant portion of its assets, directly or
indirectly, in the securities of companies of a single country or region, it is
more likely to be impacted by events or conditions affecting that country or
region.
Risks
Related to Investing in Western Europe.
Most developed countries in Western Europe are members of the European Union
(EU), and many are also members of the European Monetary Union (EMU), which
requires compliance with restrictions on inflation rates, deficits, and debt
levels. Unemployment in certain European nations is historically high and
several countries face significant debt problems. These conditions can
significantly affect every country in Europe. The euro is the official currency
of the EU. Funds that invest in Europe may have significant exposure to the euro
and events affecting the euro. Recent market events affecting several of the EU
member countries have adversely affected the sovereign debt issued by those
countries, and ultimately may lead to a decline in the value of the euro. A
significant decline in the value of the euro may produce unpredictable effects
on trade and commerce generally and could lead to increased volatility in
financial markets worldwide.
The
risk of investing in Europe may be heightened due to steps taken by the United
Kingdom (“UK”) to exit the EU. On January 31, 2020, the UK officially withdrew
from the EU and entered a transition period, which ended on December 31, 2020.
On December 30, 2020, the EU and the UK signed the EU-UK Trade and Cooperation
Agreement (“TCA”), an agreement on the terms governing certain aspects of the
EU’s and the UK’s relationship following the end of the transition period.
Notwithstanding the TCA, following the transition period, there is likely to be
considerable uncertainty as to the UK’s post transition framework. The impact on
the UK and European economies and the broader global economy could be
significant, resulting in increased volatility and illiquidity, currency
fluctuations, impacts on arrangements for trading and on other existing
cross-border cooperation arrangements (whether economic, tax, fiscal, legal,
regulatory or otherwise), and in potentially lower growth for companies in the
UK, Europe and globally, which could have an adverse effect on the value of the
Fund’s investments. In addition, if one or more other countries were to exit the
EU or abandon the use of the euro as a currency, the value of investments tied
to those countries or the euro could decline significantly and
unpredictably.
These
events and the resulting market volatility may have an adverse effect on the
performance of the Fund.
Management
Risk: While
the Fund is not actively managed, the Fund is subject to the risks associated
with decisions made by the Fund’s investment adviser if the Fund utilizes a
representative sampling strategy or to the extent the Fund’s investment adviser
makes decisions regarding the investment of collateral from securities on loan.
Models
and Data Risk: The
Index relies heavily on proprietary models as well as information and data
supplied by third parties (“Models and Data”). When Models and Data prove to be
incorrect or incomplete, any decisions by the Index made in reliance thereon
expose the Fund to potential risks as the Fund tracks the Index.
Natural
Disaster/Epidemic Risk:
Natural or environmental disasters, such as earthquakes, fires, floods,
hurricanes, tsunamis and other severe weather-related phenomena generally, and
widespread disease, including pandemics and epidemics, have been and may be
highly disruptive to economies and markets, adversely impacting individual
companies, sectors, industries, markets, currencies, interest and inflation
rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Given the increasing interdependence among global
economies and markets, conditions in one country, market, or region are
increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have
a significant adverse impact on the value of the Fund’s investments.
Other
Investment Companies Risk:
The Fund will incur higher and duplicative expenses when it invests in other
investment companies. There is also the risk that the Fund may suffer losses due
to the investment practices of the underlying funds. When the
Fund
invests in other investment companies, the Fund will be subject to substantially
the same risks as those associated with the direct ownership of securities held
by such investment companies. Investments in ETFs are also subject to the
following risks: (i) the market price of an ETF’s shares may trade above or
below their net asset value; (ii) an active trading market for an ETF’s shares
may not develop or be maintained; and (iii) trading of an ETF’s shares may be
halted for a number of reasons.
Passive
Investment Risk:
The Fund is not actively managed and therefore would not sell an equity security
due to current or projected underperformance of a security, industry or sector,
unless that security is removed from the Index. Unlike with an actively managed
fund, the Fund’s investment adviser does not use techniques or defensive
strategies designed to lessen the effects of market volatility or to reduce the
impact of periods of market decline. This means that, based on market and
economic conditions, the Fund’s performance could be lower than other types of
funds that may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline.
Sector
Risk:
To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors.
Securities
Lending Risk:
The Fund may engage in securities lending. The Fund may lose money if the
borrower of the loaned securities delays returning in a timely manner or fails
to return the loaned securities. Securities lending involves the risk that the
Fund could lose money in the event of a decline in the value of collateral
provided for loaned securities. In addition, the Fund bears the risk of loss in
connection with its investment of the cash collateral it receives from a
borrower. To the extent that the value or return of the Fund’s investment of the
cash collateral declines below the amount owed to the borrower, the Fund may
incur losses that exceed the amount it earned on lending the security.
Smaller
Companies Risk:
The Fund’s Index may be composed primarily of, or have significant exposure to,
securities of smaller companies. Smaller companies may be more vulnerable to
adverse business or economic events than larger, more established companies, and
may underperform other segments of the market or the equity market as a whole.
The securities of smaller companies also tend to be bought and sold less
frequently and at significantly lower trading volumes than the securities of
larger companies. As a result, it may be more difficult for the Fund to buy or
sell a significant amount of the securities of a smaller company without an
adverse impact on the price of the company’s securities, or the Fund may have to
sell such securities in smaller quantities over a longer period of time, which
may increase the Fund’s tracking error.
Tracking
Error Risk:
The Fund’s return may not match or achieve a high degree of correlation with the
return of the Index. To the extent the Fund utilizes a sampling approach, it may
experience tracking error to a greater extent than if the Fund sought to
replicate the Index. In addition, in order to minimize the market impact of an
Index rebalance, the Fund may begin trading to effect the rebalance in advance
of the effective date of the rebalance and continue trading after the effective
date of the rebalance, which may contribute to tracking
error.
Performance
Information
The following
information provides some indication of the risks of investing in the
Fund. The bar chart shows the annual return for the Fund. The
table shows how the Fund’s average annual returns for one year and since
inception compare with those of the Index and a broad measure of market
performance. The Fund’s past performance,
before and after taxes, is not necessarily an indication of how the Fund will
perform in the future. Updated performance information is
available on the Fund’s website at www.etfmg.com.
Calendar Year Total Returns as of December
31,
During the period of time shown
in the bar chart, the Fund’s highest return for a calendar
quarter was 20.07% (quarter ended March 31, 2021) and the
Fund’s lowest return for a calendar
quarter was -13.76% (quarter ended December 31,
2021).
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Average
Annual Total Returns (for
the periods ended
December 31, 2021) |
1
Year |
Since
Inception
2/12/2020 |
ETFMG
Travel Tech ETF |
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Return Before
Taxes |
-5.10% |
-1.12% |
Return After Taxes on
Distributions |
-5.10% |
-1.13% |
Return After Taxes on Distributions and
Sale of Fund Shares |
-3.02% |
-0.86% |
Prime
Travel Technology Index GTR
(reflects no deduction for
fees, expenses or taxes) |
-4.79% |
-1.30% |
Prime
Travel Technology Index NTR
(reflects
no deduction for fees, expenses or taxes) |
-4.80% |
-1.32% |
S&P
500 Index
(reflects no deduction for fees, expenses or
taxes) |
28.71% |
21.97% |
After-tax returns are
calculated using the highest historical individual federal marginal income tax
rates and do not reflect the impact of state and local taxes.
Actual after-tax returns
depend on your tax situation and may differ from those shown and are not
relevant if you hold your shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. In some cases, the return
after taxes may exceed the return before taxes due to an assumed tax benefit
from any losses on a sale of Fund shares at the end of the measurement
period.
Investment
Adviser
ETF
Managers Group LLC (the “Adviser”) serves as the investment adviser to the Fund.
Portfolio
Managers
Samuel
R. Masucci, III, Chief Executive Officer of the Adviser, Frank Vallario, Chief
Investment Officer of the Adviser, Donal Bishnoi, Portfolio Manager of the
Adviser, and Devin Ryder, Portfolio Manager of the Adviser, have been the Fund’s
portfolio managers since the Fund’s inception in 2020.
For
important information about the purchase and sale of Fund shares, tax
information, and financial intermediary compensation, please turn to “Summary
Information about Purchases, Sales, Taxes, and Financial Intermediary
Compensation” on page 18 of the Prospectus.
ETFMG
2x Daily Travel Tech ETF — FUND SUMMARY
Important
Information About the Fund
ETFMG
2x Daily Travel Tech ETF (the “Fund”) seeks daily investment results, before
fees and expenses, that correspond to two times (2x) the return of the Prime
Travel Technology Index NTR (Net Total Return) (the “Index”) for
a single day,
not for any other period. A “single day” is measured from the time the Fund
calculates its net asset value (“NAV”) to the time of the Fund’s next NAV
calculation. The
return of the Fund for periods longer than a single day will be the result of
its return for each day compounded over the period. The Fund’s returns for
periods longer than a single day will very likely differ in amount, and possibly
even direction, from the Fund’s stated multiple (2x) times the return of the
Index for the same period. For periods longer than a single day, the Fund will
lose money if the Index’s performance is flat, and it is possible that the Fund
will lose money even if the level of the Index rises. Longer
holding periods, higher Index volatility, and greater leveraged exposure each
exacerbate the impact of compounding on an investor’s returns. During periods of
higher Index volatility, the volatility of the Index may affect the Fund’s
return as much as or more than the return of the Index.
The
Fund presents different risks than other types of funds. The Fund uses leverage
and is riskier than similarly benchmarked funds that do not use leverage. The
Fund may not be suitable for all investors and should be used only by
knowledgeable investors who understand the consequences of seeking daily
leveraged (2x) investment results, including the impact of compounding on Fund
performance. Investors in the Fund should actively manage and monitor their
investments, as frequently as daily. An investor in the Fund could potentially
lose the full principal value of their investment within a single
day.
Investment Objective
The
ETFMG 2x Daily Travel Tech ETF (the “Fund” or the “2x Daily Travel Tech ETF”)
seeks to provide daily investment results that, before fees and expenses,
correspond to two times (2x) the daily total return of the Index. The
Fund does not seek to achieve its stated investment objective over a period of
time greater than a single day.
Fees and Expenses
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment) |
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Management
Fee |
0.95 |
% |
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Distribution
and Service (12b-1) Fees |
None |
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Other
Expenses1,
2 |
0.00 |
% |
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Total
Annual Fund Operating Expenses |
0.95 |
% |
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1
Based on estimated amounts
for the current fiscal year.
2
Other Expenses do not
reflect the costs of investing in swap agreements, including any fees paid to
the counterparty of the swap agreement. The estimated annual costs of investing
in swap agreements for the Fund are 2.60% of the Fund’s average daily net
assets. The performance of the Fund is net of all such costs of investing in
swap agreements.
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. This
Example does not take into account the brokerage commissions that you may pay on
your purchases and sales of Shares. Although your actual costs may be higher
or lower, based on these assumptions your cost would be:
Portfolio
Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when the Fund shares are held in a taxable
account. These costs, which are not reflected in annual fund operating expenses
or in the example, affect the Fund’s performance. For the fiscal period June 15,
2021 (commencement of operations) through September 30, 2021, the Fund’s
portfolio turnover rate was 0% of the average value of its
portfolio.
Principal Investment
Strategies
The
Fund invests in financial instruments, such as swap agreements, securities of
the Index, and exchange-traded funds (“ETFs”) that track the Index (including
affiliated ETFs) that provide daily leveraged exposure to the Index or to ETFs
that track the Index to seek returns equal to 200% of the daily return of the
Index. The financial instruments in which the Fund most commonly invests are
swap agreements which are intended to produce economically leveraged investment
results. The Fund expects that its cash balances maintained in connection with
the use of financial instruments will typically be held in money market
instruments.
The
Index tracks the performance of globally exchange-listed equity securities (or
corresponding American Depositary Receipts (“ADRs”) or Global Depositary
Receipts (“GDRs”)) of companies across the globe that are engaged in “Travel
Technology Business” which is defined as providing technology, via the internet
and internet-connected devices such as mobile phones, to facilitate the
following activities: travel bookings and reservations, ride sharing and
hailing, travel price comparison, and travel advice. Companies with products and
services that are primarily engaged in any of the categories of Travel
Technology Business are collectively called “Travel Technology
Companies.”
The
companies included in the Index are identified by Prime Indexes (the “Index
Provider”). The Index Provider determines whether a company is a Travel
Technology Company based on its assessment of: i) descriptions of a company’s
primary business activities in its regulatory filings (e.g.,
annual reports, financial statements and other public filings), investor
presentations, as well as third-party industry research, reports, and analyses;
and ii) if a company derives more than 50% of its revenue from Travel Technology
Business. The Index Provider screens candidate companies for the Travel
Technology Index for investability based on i) must be an equity security of an
operating company or an ADR of an operating company; ii) must have a minimum
market capitalization of $150 million; iii) must have an average daily trading
volume of $250,000 or greater; and iv) must be on an exchange in a country that
does not employ restrictions on foreign capital investment.
The
Index has a quarterly review in March, June, September, and December of each
year upon which the Index is reconstituted and rebalanced by the Index Provider.
The composition of the Index and the constituent weights are determined on the
two Thursdays before the second Friday of each March, June, September, and
December (or the next business day if this is a non-business day) (also known as
the “Selection Day”). Component changes are implemented as of the market close
on the third Friday of March, June, September, and December (or the next
business day if the third Friday is not a business day) and become effective at
the market opening on the next trading day.
At
the time of each reconstitution, the companies in the Index are weighted using a
proprietary weighting methodology (the “Methodology”) that weights the
securities based on market capitalization and average daily value traded. The
larger and more frequently traded companies, based on the Methodology, will
receive a higher score compared to smaller and less frequently traded companies.
As of January 14, 2022, the Index had 31 constituents.
The
Index is developed and owned by the Index Provider, and the Index is calculated
and maintained by Solactive AG (the “Calculation Agent”). The Index Provider is
independent of the Calculation Agent, the Fund, and the Fund’s investment
adviser.
The
Fund has adopted the following policy to comply with Rule 35d-1 under the
Investment Company Act of 1940. Such policy has been adopted as a
non-fundamental investment policy and may be changed without shareholder
approval upon 60 days’ written notice to shareholders. Under normal
circumstances, the Fund invests at least 80% of its net assets (plus borrowing
for investment purposes) in financial instruments, such as swap agreements,
securities of the Index, and exchange-traded funds that track the Index and
other financial instruments that provide daily leveraged exposure to the Index
or to ETFs that track the Index.
Industry
Concentration Policy: The
Fund will concentrate its investments (i.e.,
hold 25% or more of its net assets) in a particular industry or group of related
industries to approximately the same extent that the Index is concentrated. As
of January 14, 2022, the Index was concentrated in companies in the Hotels,
Restaurants & Leisure group of industries.
The
Fund may invest in the securities of the Index, a representative sample of the
securities in the Index that has aggregate characteristics similar to those of
the Index, an ETF that tracks the Index (including investing in an affiliated
series of ETF Managers Trust, ETFMG Travel Tech ETF) or a substantially similar
index, and may utilize derivatives, such as swaps on the Index or on an ETF that
tracks the same Index or a substantially similar index, that provide leveraged
exposure to the above. Derivatives are financial instruments that derive value
from the underlying reference asset or assets, such as stocks, bonds, or funds
(including ETFs), interest rates or indexes.
The
Fund seeks to remain fully invested at all times, consistent with its stated
investment objective but may not always have investment exposure to all of the
securities in the Index, or its weighting of investment exposure to securities
or industries may be different from that of the Index. In addition, the Fund may
invest in securities or financial instruments not included in the
Index.
The
Fund will attempt to achieve its investment objective without regard to overall
market movement or the increase or decrease of the value of the securities in
the Index. At the close of the markets each trading day, ETF Managers Group LLC
(the “Adviser”) determines the type, quantity and mix of investment positions so
that its exposure to the Index is consistent with the Fund’s investment
objective. The impact of the Index’s movements during the day will affect
whether the Fund’s portfolio needs to be re-positioned. For example, if the
Index has risen on a given day, net assets of the Fund should rise, meaning the
Fund’s exposure will need to be
increased.
Conversely, if the Index has fallen on a given day, net assets of the Fund
should fall, meaning the Fund’s exposure will need to be reduced. This
re-positioning strategy typically results in high portfolio turnover. On a
day-to-day basis, the Fund is expected to hold ETFs and money market funds,
deposit accounts with institutions with high credit ratings, and/or short-term
debt instruments that have terms-to-maturity of less than 397 days and exhibit
high quality credit profiles, including U.S. government securities and
repurchase agreements.
The
Fund may lend its portfolio securities to brokers, dealers, and other financial
organizations. These loans, if and when made, may not exceed 33 1/3% of the
total asset value of the Fund (including the loan collateral). By lending its
securities, the Fund may increase its income by receiving payments from the
borrower.
The
terms “daily,” “day,” and “trading day” refer to the period from the close of
the markets on one trading day to the close of the markets on the next trading
day.
Daily rebalancing and the compounding of
each day’s return over time means that the return of the Fund for a period
longer than a single day will be the result of each day’s returns compounded
over the period, which will very likely differ in amount, and possibly even
direction, from two times (2x) the return of the Index for the same period. The
Fund will lose money if the Index’s performance is flat over time, and the Fund
can lose money regardless of the performance of the Index, as a result of daily
rebalancing, the Index’s volatility, compounding of each day’s return and other
factors. See “Principal Risks” below.
Principal Risks
As with all funds, a shareholder is subject to the risk
that his or her investment could lose money. The Fund may not
achieve its leveraged investment objective and there is a risk that you could
lose all of your money invested in the Fund. The Fund is not a complete
investment program. The Fund presents risks not traditionally associated with
other mutual funds and ETFs. For example, due to the Fund’s daily leveraged
investment objective, a small adverse move in the Index will result in larger
and potentially substantial declines in the Fund. It is important that investors
closely review all of the risks listed below and understand them before making
an investment in the Fund.
Effects
of Compounding and Market Volatility Risk:
The
Fund has a daily leveraged investment objective and the Fund’s performance for
periods greater than a trading day will be the result of each day’s returns
compounded over the period, which is very likely to differ from two times (2x)
the Index’s performance, before fees and expenses. Compounding affects all
investments, but has a more significant impact on funds that are leveraged and
that rebalance daily. For a leveraged fund, if adverse daily performance of the
index reduces the amount of a shareholder’s investment, any further adverse
daily performance will lead to a smaller dollar loss because the shareholder’s
investment had already been reduced by the prior adverse performance. Equally,
however, if favorable daily performance of the index increases the amount of a
shareholder’s investment, the dollar amount lost due to future adverse
performance will increase because the shareholder’s investment has
increased.
The
effect of compounding becomes more pronounced as Index volatility and the
holding period increase. The impact of compounding will impact each shareholder
differently depending on the period of time an investment in the Fund is held
and the volatility of the Index during shareholder’s holding period of an
investment in the Fund.
The
chart below provides examples of how Index volatility could affect the Fund’s
performance. The chart illustrates the impact of two factors that affect the
Fund’s performance: Index volatility and Index return. Index returns show the
percentage change in the value of the Index over the specified time period,
while Index volatility is a statistical measure of the magnitude of fluctuations
in the returns during that time period. As illustrated below, even if the Index
return over two equal time periods is identical, different Index volatility
(i.e.,
fluctuations in the rates of return) during the two time periods could result in
drastically different Fund performance for the two time periods due to the
effects of compounding daily returns during the time periods.
Fund
performance for periods greater than one single day can be estimated given any
set of assumptions for the following factors: a) Index volatility; b) Index
performance; c) period of time; d) financing rates associated with leveraged
exposure; e) other Fund expenses; and f) dividends or interest paid with respect
to securities in the Index. The chart below illustrates the impact of two
principal factors – Index volatility and Index performance – on Fund
performance. The chart shows estimated Fund returns for a number of combinations
of Index volatility and Index performance over a one-year period. Performance
shown in the chart assumes that: (i) no dividends were paid with respect to the
securities included in the Index; (ii) there were no Fund expenses; and
(iii) borrowing/lending rates (to obtain leveraged exposure) of 0%. If Fund
expenses and/or actual borrowing/lending rates were reflected, the estimated
returns would be different than those shown. Particularly during periods of
higher Index volatility, compounding will cause results for periods longer than
a trading day to vary from two times (2x) the performance of the Index.
As
shown in the chart below, the Fund would be expected to lose 6.1% if the Index
provided no return over a one year period during which the Index experienced
annualized volatility of 25%. At higher ranges of volatility, there is a chance
of a significant loss of value in the Fund, even if the Index’s return is flat.
For
instance, if the Index’s annualized volatility is 100%, the Fund would be
expected to lose 63.2% of its value, even if the cumulative Index return for the
year was 0%. Areas
shaded red (or dark gray) represent those scenarios where the Fund can be
expected to return less than two times (2x) the performance of the Index and
those shaded green (or light gray) represent those scenarios where the Fund can
be expected to return more than two times (2x) the
performance
of the Index. The Fund’s actual returns may be significantly better or worse
than the returns shown below as a result of any of the factors discussed above
or in “Daily Index Correlation/Tracking Risk” below.
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One
Year Index |
Two
Times (2x) One Year Index |
Volatility
Rate |
Return |
Return |
10% |
25% |
50% |
75% |
100% |
-60% |
-120% |
-84.2% |
-85.0% |
-87.5% |
-90.9% |
-94.1% |
-50% |
-100% |
-75.2% |
-76.5% |
-80.5% |
-85.8% |
-90.8% |
-40% |
-80% |
-64.4% |
-66.2% |
-72.0% |
-79.5% |
-86.8% |
-30% |
-60% |
-51.5% |
-54.0% |
-61.8% |
-72.1% |
-82.0% |
-20% |
-40% |
-36.6% |
-39.9% |
-50.2% |
-63.5% |
-76.5% |
-10% |
-20% |
-19.8% |
-23.9% |
-36.9% |
-53.8% |
-70.2% |
0% |
0% |
-1.0% |
-6.1% |
-22.1% |
-43.0% |
-63.2% |
10% |
20% |
19.8% |
13.7% |
-5.8% |
-31.1% |
-55.5% |
20% |
40% |
42.6% |
35.3% |
12.1% |
-18.0% |
-47.0% |
30% |
60% |
67.3% |
58.8% |
31.6% |
-3.7% |
-37.8% |
40% |
80% |
94.0% |
84.1% |
52.6% |
11.7% |
-27.9% |
50% |
100% |
122.8% |
111.4% |
75.2% |
28.2% |
-17.2% |
60% |
120% |
153.5% |
140.5% |
99.4% |
45.9% |
-5.8% |
The
Index’s annualized historical volatility rate for the period from September 20,
2019, (the inception date of the Index) to December 31, 2021 was 34.2%. The
Index’s highest volatility rate for any one calendar year for the period from
September 20, 2019 (the inception date of the Index) through December 31, 2021
was 45.0% and volatility for a shorter period of time may have been
substantially higher. The Index’s annualized performance for the period from
September 20, 2019 (the inception date of the Index) to December 31, 2021 was
-0.03%. Historical Index volatility and performance are not indications of what
the Index volatility and performance will be in the future. The volatility of
ETFs or instruments that reflect the value of the Index, such as swaps, may
differ from the volatility of the Index.
For
information regarding the effects of volatility and Index performance on the
long-term performance of the Fund, see “Additional Information about the Fund’s
Investment Objective and Strategies” in the Fund’s statutory prospectus, and
“Special Note Regarding the Correlation Risks of the Fund” in the Fund’s
Statement of Additional Information.
Leverage
Risk:
The
Fund obtains investment exposure in excess of its net assets by utilizing
leverage and may lose more money in market conditions that are adverse to its
investment objective than a fund that does not utilize leverage. An investment
in the Fund is exposed to the risk that a decline in the daily performance of
the Index will be magnified. This means that an investment in the Fund will be
reduced by an amount equal to 2% for every 1% daily decline in the Index, not
including the costs of financing leverage and other operating expenses, which
would further reduce its value. The Fund could theoretically lose an amount
greater than its net assets in the event of an Index decline of more than 50%.
Leverage will also have the effect of magnifying any differences in the Fund’s
correlation with the Index.
Technology
Companies Risk:
Companies in the technology field, including companies in the computers,
telecommunications and electronics industries, face intense competition, which
may have an adverse effect on profit margins. Technology companies may have
limited product lines, markets, financial resources or personnel. The products
of technology companies may face obsolescence due to rapid technological
developments and frequent new product introduction, and such companies may face
unpredictable changes in growth rates, competition for the services of qualified
personnel and competition from foreign competitors with lower production costs.
Companies in the technology sector are heavily dependent on patent and
intellectual property rights. The loss or impairment of these rights may
adversely affect the profitability of these companies.
Market
Disruption Risk:
Geopolitical and other events, including public health crises and natural
disasters, have recently led to increased market volatility and significant
market losses. Significant market volatility and market downturns may limit the
Fund’s ability to sell securities and obtain long exposure to securities, and
the Fund’s sales and long exposures may exacerbate the market volatility and
downturn. Under such circumstances, the Fund may have difficulty achieving its
investment objective for one or more trading days, which may adversely impact
the Fund’s returns on those days and periods inclusive of those days.
Alternatively, the Fund may incur higher costs (including swap financing costs)
in order to achieve its investment objective and may be forced to purchase and
sell securities (including other ETFs’ shares) at market prices that do not
represent their fair value (including in the case of an ETF, its net asset
value) or at times that result in differences between the price the Fund
receives for the security or the value of the swap exposure and the market
closing price of the security or the market closing value of the swap exposure.
Under those
circumstances,
the Fund’s ability to track its Index is likely to be adversely affected, the
market price of Fund shares may reflect a greater premium or discount to net
asset value and bid-ask spreads in the Fund’s shares may widen, resulting in
increased transaction costs for secondary market purchasers and sellers. The
Fund may also incur additional tracking error due to the use of securities that
are not perfectly correlated to the Index.
Aggressive
Investment Techniques Risk:
Using
investment techniques that may be considered aggressive, such as swap
agreements, includes the risk of potentially dramatic changes (losses) in the
value of the instruments, imperfect correlations between the price of the
instrument and the underlying security or index, and volatility of the Fund.
Derivatives
Risk:
Derivatives
are financial instruments that derive value from the underlying reference asset
or assets, such as stocks, bonds, or funds (including ETFs), interest rates or
indexes. The Fund’s investments in derivatives may pose risks in addition to,
and greater than, those associated with directly investing in securities or
other ordinary investments, including risk related to the market, leverage,
imperfect daily correlations with underlying investments or the Fund’s other
portfolio holdings, higher price volatility, lack of availability, counterparty
risk, liquidity, valuation and legal restrictions. The use of derivatives is a
highly specialized activity that involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions.
The use of derivatives may result in larger losses or smaller gains than
directly investing in securities. When the Fund uses derivatives, there may be
imperfect correlation between the value of the reference assets and the
derivative, which may prevent the Fund from achieving its investment objective.
Because derivatives often require only a limited initial investment, the use of
derivatives may expose the Fund to losses in excess of those amounts initially
invested.
The
Fund may use a combination of swaps on the Index and swaps on an ETF whose
investment objective is to track the performance of the same, or a substantially
similar index to achieve its investment objective. The reference ETF may not
closely track the performance of the Index due to fees and other costs borne by
the ETF and other factors, such as an ETF’s premium or discount. Thus, to the
extent that the Fund invests in swaps that use an ETF as a reference asset, the
Fund may be subject to greater correlation risk and may not achieve as high a
degree of correlation with the Index as it would if the Fund used swaps that
utilized the Index as the reference asset. Any financing, borrowing or other
costs associated with using derivatives may also reduce the Fund’s return.
In
addition, the Fund’s investments in derivatives are subject to the following
risks:
Swap
Agreements:
Swap
agreements are entered into primarily with major global financial institutions
for a specified period, which may range from one day to more than one year. The
derivative transactions in which the Fund invests are generally traded in the
over-the-counter market, which generally has less transparency than
exchange-traded derivatives instruments. In a standard swap transaction, two
parties agree to exchange the return (or differentials in rates of return)
earned or realized on particular predetermined reference assets or underlying
securities or instruments. The gross return to be exchanged or swapped between
the parties is calculated based on a notional amount or the return on or change
in value of a particular dollar amount invested in a basket of securities
representing a particular index or an ETF that seeks to track an index.
If
the Index has a dramatic move that causes a material decline in the Fund’s net
assets, the terms of a swap agreement between the Fund and its counterparty may
permit the counterparty to immediately close out the swap transaction with the
Fund. In that event, the Fund may be unable to enter into another swap agreement
or invest in other derivatives to achieve exposure consistent with the Fund’s
investment objective. This may prevent the Fund from achieving its leveraged
investment objective, even if the Index later reverses all or a portion of its
movement.
Counterparty
Risk:
A counterparty may be unwilling or unable to make timely payments to meet its
contractual obligations or may fail to return holdings that are subject to the
agreement with the counterparty. If the counterparty or its affiliate becomes
insolvent, bankrupt or defaults on its payment obligations to the Fund, the
value of an investment held by the Fund may decline. Additionally, if any
collateral posted by the counterparty for the benefit of the Fund is
insufficient or there are delays in the Fund’s ability to access such
collateral, the Fund may not be able to achieve its leveraged investment
objective. In addition, the Fund may enter into swap agreements with a limited
number of counterparties, which may increase the Fund’s exposure to counterparty
credit risk. Further, there is a risk that no suitable counterparties will be
willing to enter into, or continue to enter into, transactions with the Fund
and, as a result, the Fund may not be able to achieve its leveraged investment
objective or may decide to change its leveraged investment objective.
Intra-Day
Investment Risk:
The
Fund seeks leveraged investment results from the close of the market on a given
trading day until the close of the market on the subsequent trading day. The
exact exposure of an investment in the Fund intraday in the secondary market is
a function of the difference between the value of the Index at the market close
on the first trading day and the value of the Index at the time of purchase. If
the Index gains value, the Fund’s net assets will rise by the same amount as the
Fund’s exposure. Conversely, if the Index declines, the Fund’s net assets will
decline by the same amount as the Fund’s exposure. Thus, an investor that
purchases shares intra-day may experience performance that is greater than, or
less than, the Fund’s stated multiple of the Index.
If
there is a significant intra-day market event and/or the securities of the Index
experience a significant decrease, the Fund may not meet its investment
objective or rebalance its portfolio appropriately. Additionally, the Fund may
close to purchases and sales of Shares prior to the close of regular trading on
the NYSE Arca, Inc. and incur significant losses.
Daily
Index Correlation/Tracking Risk:
There
is no guarantee that the Fund will achieve a high degree of correlation to the
Index and therefore achieve its daily leveraged investment objective. To achieve
a high degree of correlation with the Index, the Fund seeks to rebalance its
portfolio daily to keep leverage consistent with its daily leveraged investment
objective. In addition, the Fund’s exposure to the Index is impacted by the
Index’s movement. Because of this, it is unlikely that the Fund will be
perfectly exposed to the Index at the end of each day. The possibility of the
Fund being materially over- or under-exposed to the Index increases on days when
the Index is volatile near the close of the trading day. Market disruptions,
regulatory restrictions and high volatility will also adversely affect the
Fund’s ability to adjust exposure to the required levels.
The
Fund may have difficulty achieving its daily leveraged investment objective due
to fees, expenses, transaction costs, financing costs related to the use of
derivatives, investments in ETFs, directly or indirectly, income items,
valuation methodology, accounting standards, regulatory reasons (such as,
diversification requirements) and disruptions or illiquidity in the markets for
the securities or derivatives held by the Fund. The Fund may be subject to large
movements of assets into and out of the Fund, potentially resulting in the Fund
being over- or under-exposed to the Index. The Fund may not have investment
exposure to all of the securities in the Index or its weighting of investment
exposure to the securities may be different from that of the Index. In addition,
the Fund may invest in securities that are not included in the Index. The Fund
may also invest directly in or use other investment companies, such as ETFs,
which may result in increased tracking error for the Fund. Additionally, an
ETF’s performance may differ from the index it tracks, thus resulting in
additional tracking error for the Fund. Activities surrounding periodic Index
reconstitutions and other Index rebalancing events may also hinder the Fund’s
ability to meet its daily leveraged investment objective. For example, the Fund
may take or refrain from taking positions to improve tax efficiency or to comply
with various regulatory restrictions, which may negatively impact the Fund’s
correlation to the Index. Any of these factors could decrease correlation
between the performance of the Fund and the Index and may hinder the Fund’s
ability to meet its daily investment objective.
Non-Diversification
Risk:
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a small number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer or a small number of
issuers could cause the Fund’s overall value to decline to a greater degree than
if the Fund held a more diversified portfolio. This may increase the Fund’s
volatility and have a greater impact on the Fund’s performance.
Foreign
Investment Risk:
Returns on investments in foreign stocks could be more volatile than, or trail
the returns on, investments in U.S. stocks. Since foreign exchanges may be open
on days when the Fund does not price its Shares, the value of the securities in
the Fund’s portfolio may change on days when shareholders will not be able to
purchase or sell the Shares. Conversely, Shares may trade on days when foreign
exchanges are closed. Because securities held by the Fund trade on foreign
exchanges that are closed when the Fund’s primary listing exchange is open, the
Fund is likely to experience premiums and discounts greater than those of
domestic ETFs. Each of these factors can make investments in the Fund more
volatile and potentially less liquid than other types of
investments.
Currency
Risk:
Indirect and direct exposure to foreign currencies subjects the Fund to the risk
that currencies will decline in value relative to the U.S. dollar. Currency
rates in foreign countries may fluctuate significantly over short periods of
time for a number of reasons, including changes in interest rates and the
imposition of currency controls or other political developments in the U.S. or
abroad.
Depositary
Receipts Risk:
The
Fund may invest in depositary receipts. Investment in ADRs and GDRs may be less
liquid than the underlying shares in their primary trading market and GDRs, many
of which are issued by companies in emerging markets, may be more volatile and
less liquid than depositary receipts issued by companies in more developed
markets.
Foreign
Market and Trading Risk:
The trading markets for many foreign securities are not as active as U.S.
markets and may have less governmental regulation and oversight. Foreign markets
also may have clearance and settlement procedures that make it difficult for the
Fund to buy and sell securities. These factors could result in a loss to the
Fund by causing the Fund to be unable to dispose of an investment or to miss an
attractive investment opportunity, or by causing Fund assets to be uninvested
for some period of time.
Foreign
Securities Risk:
The Fund invests a significant portion of its assets directly in securities of
issuers based outside of the U.S., or in depositary receipts that represent such
securities. Investments in securities of non-U.S. issuers involve certain risks
that may not be present with investments in securities of U.S. issuers, such as
risk of loss due to foreign currency fluctuations or to political or economic
instability, as well as varying regulatory requirements applicable to
investments in non-U.S. issuers. There may be less information publicly
available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may also
be subject to different regulatory, accounting, auditing, financial reporting
and investor protection standards than U.S. issuers.
Political
and Economic Risk:
The Fund is subject to foreign political and economic risk not associated with
U.S. investments, meaning that political events, social and economic events and
natural disasters occurring in a country where the Fund invests could cause the
Fund’s investments in that country to experience gains or losses. The Fund also
could be unable to enforce its ownership rights or pursue legal remedies in
countries where it invests.
Privatization
Risk:
Several
foreign countries in which the Fund invests have begun a process of privatizing
certain entities and industries. Privatized entities may lose money or be
re-nationalized.
Geographic
Concentration Risk:
To
the extent the Fund invests a significant portion of its assets, directly or
indirectly, in the securities of companies of a single country or region, it is
more likely to be impacted by events or conditions affecting that country or
region.
Risks
Related to Investing in Western Europe.
Most developed countries in Western Europe are members of the European Union
(EU), and many are also members of the European Monetary Union (EMU), which
requires compliance with restrictions on inflation rates, deficits, and debt
levels. Unemployment in certain European nations is historically high and
several countries face significant debt problems. These conditions can
significantly affect every country in Europe. The euro is the official currency
of the EU. Funds that invest in Europe may have significant exposure to the euro
and events affecting the euro. Recent market events affecting several of the EU
member countries have adversely affected the sovereign debt issued by those
countries, and ultimately may lead to a decline in the value of the euro. A
significant decline in the value of the euro may produce unpredictable effects
on trade and commerce generally and could lead to increased volatility in
financial markets worldwide.
The
risk of investing in Europe may be heightened due to steps taken by the United
Kingdom (“UK”) to exit the EU. On January 31, 2020, the UK officially withdrew
from the EU and entered a transition period, which ended on December 31, 2020.
On December 30, 2020, the EU and the UK signed the EU-UK Trade and Cooperation
Agreement (“TCA”), an agreement on the terms governing certain aspects of the
EU’s and the UK’s relationship following the end of the transition period.
Notwithstanding the TCA, following the transition period, there is likely to be
considerable uncertainty as to the UK’s post transition framework. The impact on
the UK and European economies and the broader global economy could be
significant, resulting in increased volatility and illiquidity, currency
fluctuations, impacts on arrangements for trading and on other existing
cross-border cooperation arrangements (whether economic, tax, fiscal, legal,
regulatory or otherwise), and in potentially lower growth for companies in the
UK, Europe and globally, which could have an adverse effect on the value of the
Fund’s investments. In addition, if one or more other countries were to exit the
EU or abandon the use of the euro as a currency, the value of investments tied
to those countries or the euro could decline significantly and
unpredictably.
These
events and the resulting market volatility may have an adverse effect on the
performance of the Fund.
The
remaining risks are presented in alphabetical order. Each risk summarized below
is considered a “principal risk” of investing in the Fund, regardless of the
order in which it appears.
Concentration
Risk: The
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. To the extent the Fund invests more
heavily in particular industries, groups of industries, or sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those industries, groups of industries, or sectors of the
economy, and the value of Fund shares may rise and fall more than the value of
shares that invest in securities of companies in a broader range of industries
or sectors.
Early
Close/Late Close/Trading Halt Risk:
An exchange or market may close early, close late or issue trading halts on
specific securities or financial instruments. As a result, the ability to trade
certain securities or financial instruments may be restricted, which may disrupt
the Fund’s creation and redemption process, potentially affect the price at
which the Fund’s shares trade in the secondary market, and/or result in the Fund
being unable to trade certain securities or financial instruments at all. In
these circumstances, the Fund may be unable to rebalance its portfolio, may be
unable to accurately price its investments and/or may incur substantial trading
losses. If trading in the Fund’s shares are halted, investors may be temporarily
unable to trade shares of the Fund.
Equity
Market Risk:
The equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries, or sectors in which the Fund invests such as
political, market and economic developments, as well as events that impact
specific issuers. Additionally, natural or environmental disasters, widespread
disease or other public health issues, war, acts of terrorism or other events
could result in increased premiums or discounts to the Fund’s NAV.
ETF
Risks:
Absence
of an Active Market: Although
the Fund’s shares are approved for listing on the NYSE Arca, Inc. (the
“Exchange”), there can be no assurance that an active trading market will
develop and be maintained for Fund shares. There can be no assurance that the
Fund will grow to or maintain an economically viable size, in which case the
Fund may experience greater tracking error to its Index than it otherwise would
at higher asset levels or the Fund may ultimately liquidate.
Authorized
Participants (“APs”), Market Makers, and Liquidity Providers
Concentration: The
Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to net asset value (“NAV”) and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
Cash
Transactions:
The Fund may effect its creations and redemptions primarily for cash, rather
than in-kind securities. Paying redemption proceeds in cash rather than through
in-kind delivery of portfolio securities may require the Fund to dispose of or
sell portfolio investments at an inopportune time to obtain the cash needed to
distribute redemption proceeds. This may cause the
Fund
to incur certain costs such as brokerage costs, and to recognize gains or losses
that it might not have incurred if it had made a redemption in-kind. As a
result, the Fund may pay out higher or lower annual capital gains distributions
than ETFs that redeem in-kind. In addition, the costs imposed on the Fund will
decrease the Fund’s NAV unless the costs are offset by a transaction fee payable
by an AP.
Costs
of Buying or Selling Shares: Investors
buying or selling Fund shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of shares.
Fluctuation
of NAV: The
NAV of Fund shares will generally fluctuate with changes in the market value of
the Fund’s securities holdings. The market prices of shares will generally
fluctuate in accordance with changes in the Fund’s NAV and supply and demand of
shares on the Exchange. It cannot be predicted whether Fund shares will trade
below, at or above their NAV. During periods of unusual volatility or market
disruptions, market prices of Fund shares may deviate significantly from the
market value of the Fund’s securities holdings or the NAV of Fund shares. As a
result, investors in the Fund may pay significantly more or receive
significantly less for Fund shares than the value of the Fund’s underlying
securities or the NAV of Fund shares.
Market
Trading:
An investment in the Fund faces numerous market trading risks, including the
potential lack of an active market for Fund shares, losses from trading in
secondary markets, periods of high volatility and disruption in the
creation/redemption process of the Fund. Any of these factors, among others, may
lead to the Fund’s shares trading at a premium or discount to NAV.
Trading
Issues:
Although
Fund shares are listed for trading on the Exchange, there can be no assurance
that an active trading market for such shares will develop or be maintained.
Trading in Fund shares may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in shares inadvisable. There can
be no assurance that the requirements of the Exchange necessary to maintain the
listing of any Fund will continue to be met or will remain unchanged or that the
shares will trade with any volume, or at all. Further, secondary markets may be
subject to erratic trading activity, wide bid/ask spreads and extended trade
settlement periods in times of market stress because market makers and APs may
step away from making a market in Fund shares and in executing creation and
redemption orders, which could cause a material deviation in the Fund’s market
price from its NAV.
Gain
Limitation Risk:
The Adviser will attempt to position the Fund’s portfolio to ensure that the
Fund does not gain or lose more than 90% of its NAV on a given day. As a
consequence, the Fund’s portfolio should not be responsive to Index movements of
more than 45% in a given day. For example, for the Fund, if the Index were to
gain 50%, its gains should be limited to a daily gain of 90% (i.e.,
two times (2x) 45%) rather than 100% (i.e.,
two times (2x) 50%).
Liquidity
Risk:
In
certain circumstances, such as the disruption of the orderly markets for the
financial instruments in which the Fund invests, the Fund might not be able to
acquire or dispose of certain holdings quickly or at prices that represent true
market value in the judgment of the Adviser. Markets for the financial
instruments in which the Fund invests may be disrupted by a number of events,
including but not limited to economic crises, health crises, natural disasters,
excessive volatility, new legislation, or regulatory changes inside or outside
of the U.S. For example, regulation limiting the ability of certain financial
institutions to invest in certain financial instruments would likely reduce the
liquidity of those instruments. These situations may prevent the Fund from
limiting losses, realizing gains or achieving a high leveraged correlation with
the Index.
Money
Market Instrument Risk:
The
Fund may use a variety of money market instruments for cash management purposes,
including money market funds, depositary accounts and repurchase agreements.
Money market funds may be subject to credit risk with respect to the debt
instruments in which they invest. Depository accounts may be subject to credit
risk with respect to the financial institution in which the depository account
is held. Repurchase agreements are contracts in which a seller of securities
agrees to buy the securities back at a specified time and price. Repurchase
agreements may be subject to market and credit risk related to the collateral
securing the repurchase agreement. Money market instruments may lose money.
Natural
Disaster/Epidemic Risk:
Natural or environmental disasters, such as earthquakes, fires, floods,
hurricanes, tsunamis and other severe weather-related phenomena generally, and
widespread disease, including pandemics and epidemics, have been and may be
highly disruptive to economies and markets, adversely impacting individual
companies, sectors, industries, markets, currencies, interest and inflation
rates, credit ratings, investor sentiment, and other factors affecting the value
of the Fund’s investments. Given the increasing interdependence among global
economies and markets, conditions in one country, market, or region are
increasingly likely to adversely affect markets, issuers, and/or foreign
exchange rates in other countries, including the U.S. Any such events could have
a significant adverse impact on the value of the Fund’s investments.
New
Fund Risk: The
Fund is a recently organized investment company with limited operating history.
As a result, prospective investors have a limited track record or history on
which to base their investment decision. There can be no assurance that the Fund
will grow to or maintain an economically viable size.
Other
Investment Companies Risk:
The Fund will incur higher and duplicative expenses when it invests in other
investment companies. There is also the risk that the Fund may suffer losses due
to the investment practices of the underlying funds. When the Fund invests in
other investment companies, the Fund will be subject to substantially the same
risks as those associated with the direct ownership of securities held by such
investment companies. Investments in ETFs are also subject to the following
risks: (i) the market
price
of an ETF’s shares may trade above or below their net asset value; (ii) an
active trading market for an ETF’s shares may not develop or be maintained; and
(iii) trading of an ETF’s shares may be halted for a number of
reasons.
Portfolio
Turnover Risk:
The
Fund may buy and sell investments frequently. Such a strategy often involves
higher expenses, including brokerage commissions, and may increase the amount of
capital gains (in particular, short-term capital gains taxable to shareholders
at ordinary income rates) realized by the Fund.
Reliance
on Trading Partners Risk:
The Fund invests in some economies that are heavily dependent upon trading with
key partners. Any reduction in this trading may cause an adverse impact on the
economy in which the Fund invests.
Sector
Risk:
To
the extent the Fund invests more heavily in particular sectors of the economy,
its performance will be especially sensitive to developments that significantly
affect those sectors.
Securities
Lending Risk:
The Fund may engage in securities lending. The Fund may lose money if the
borrower of the loaned securities delays returning in a timely manner or fails
to return the loaned securities. Securities lending involves the risk that the
Fund could lose money in the event of a decline in the value of collateral
provided for loaned securities. In addition, the Fund bears the risk of loss in
connection with its investment of the cash collateral it receives from a
borrower. To the extent that the value or return of the Fund’s investment of the
cash collateral declines below the amount owed to the borrower, the Fund may
incur losses that exceed the amount it earned on lending the
security.
Smaller
Companies Risk:
The Fund’s Index may be composed primarily of, or have significant exposure to,
securities of smaller companies. Smaller companies may be more vulnerable to
adverse business or economic events than larger, more established companies, and
may underperform other segments of the market or the equity market as a whole.
The securities of smaller companies also tend to be bought and sold less
frequently and at significantly lower trading volumes than the securities of
larger companies. As a result, it may be more difficult for the Fund to buy or
sell a significant amount of the securities of a smaller company without an
adverse impact on the price of the company’s securities, or the Fund may have to
sell such securities in smaller quantities over a longer period of time, which
may increase the Fund’s tracking error.
Tax
Risk:
To qualify for the favorable tax treatment generally available to regulated
investment companies, the Fund must satisfy certain diversification requirements
under the Internal Revenue Code of 1986, as amended (the “Code”). In particular,
the Fund generally may not acquire a security if, as a result of the
acquisition, more than 50% of the value of the Fund’s assets would be invested
in (a) issuers in which the Fund has, in each case, invested more than 5%
of the Fund’s assets and (b) issuers more than 10% of whose outstanding
voting securities are owned by the Fund. When the Index is concentrated in a
relatively small number of securities, it may not be possible for the Fund to
fully implement a replication strategy or a representative sampling strategy
while satisfying these diversification requirements. The Fund’s efforts to
satisfy the diversification requirements may cause the Fund’s return to deviate
from that of the Index, and the Fund’s efforts to replicate the Index may cause
it inadvertently to fail to satisfy the diversification requirements. If the
Fund were to fail to qualify as a regulated investment company, it would be
taxed in the same manner as an ordinary corporation, and distributions to its
shareholders would not be deductible by the Fund in computing its taxable
income.
Valuation
Risk: The sales price that the Fund could
receive for a security may differ from the Fund’s valuation of the security and
may differ from the value used by the Index, particularly for securities that
trade in low volume or volatile markets or that are valued using a fair value
methodology. In addition, the value of the securities in the Fund’s portfolio
may change on days when shareholders will not be able to purchase or sell the
Fund’s shares.
Performance
Information
The Fund is new and therefore does not have
performance history for a full calendar year. Once the Fund has
completed a full calendar year of operations, a bar chart and table will be
included that will provide some indication of the risks of investing in the Fund
by showing the variability of the Fund’s returns and comparing the Fund’s
performance to a broad measure of market performance. Updated performance
information is available at www.etfmg.com.
Investment
Adviser
ETF
Managers Group LLC (the “Adviser”) serves as the investment adviser to the Fund.
Portfolio
Managers
Samuel
R. Masucci, III, Chief Executive Officer of the Adviser, Frank Vallario, Chief
Investment Officer of the Adviser, Donal Bishnoi, Portfolio Manager of the
Adviser, and Devin Ryder, Portfolio Manager of the Adviser, have been the Fund’s
portfolio managers since the Fund’s inception in 2020.
For
important information about the purchase and sale of Fund shares, tax
information, and financial intermediary compensation, please turn to “Summary
Information about Purchases, Sales, Taxes, and Financial Intermediary
Compensation” on page 18 of the Prospectus.
Summary
Information about Purchases, Sales, Taxes, and Financial Intermediary
Compensation
Purchase
and Sale of Fund Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
Each
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. Each
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities (the “Deposit Securities”) and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Funds,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Funds’ website at www.etfmg.com.
Except
when aggregated in Creation Units, each Fund’s shares are not redeemable
securities.
Tax
Information
The
distributions made by the Funds are taxable, and will be taxed as ordinary
income, qualified dividend income, or capital gains (or a combination), unless
your investment is in an Individual Retirement Account (“IRA”) or other
tax-advantaged account. However, subsequent withdrawals from such a
tax-advantaged account may be subject to federal income tax. You should consult
your tax advisor about your specific tax situation.
Financial
Intermediary Compensation
If
you purchase shares of the Funds through a broker-dealer or other financial
intermediary (such as a bank) (an “Intermediary”), the Adviser or its affiliates
may pay Intermediaries for certain activities related to the Funds, including
participation in activities that are designed to make Intermediaries more
knowledgeable about exchange traded products, including the Funds, or for other
activities, such as marketing, educational training or other initiatives related
to the sale or promotion of a Fund’s shares. These payments may create a
conflict of interest by influencing the Intermediary and your salesperson to
recommend the Funds over another investment. Any such arrangements do not result
in increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
Additional
Information about the Funds’ Investment Objectives and Strategies
This
section contains additional details about the Funds’ investment objective,
principal investment strategies and related risks.
Each
Fund’s investment objective is non-fundamental, meaning that it may be changed
by the Board of Trustees (the “Board”) of ETF Managers Trust (the “Trust”),
without the approval of Fund shareholders. Each Fund reserves the right to
substitute a different index for the Index without shareholder approval.
Additionally, in accordance with rules under the Investment Company Act of 1940,
as amended (the “1940 Act”), each Fund’s 80% Policy has been adopted as a
non-fundamental investment policy and may be changed without shareholder
approval upon 60 days’ written notice to shareholders.
The
Funds, as part of their securities lending program, may invest collateral in an
affiliated series of ETF Managers Trust, ETFMG Sit Ultra Short ETF. ETF Managers
Group LLC serves as the investment adviser to ETFMG Sit Ultra Short ETF. Other
investment companies, including Ultra Short ETF, in which a Fund may invest cash
collateral can be expected to incur fees and expenses for operations, such as
investment advisory and administration fees, which would be in addition to those
incurred by the Funds, and which, with respect to Ultra Short ETF, will be
received in full or in part by the Adviser.
Investment
Objective for the ETFMG Travel Tech ETF
The
Fund uses an “indexing” investment approach, and seeks to provide investment
results that, before fees and expenses, corresponds generally to the price and
yield performance of the Index. A number of factors may affect the Fund’s
ability to achieve a high correlation with the Index, including the degree to
which the Fund utilizes a sampling methodology. There can be no guarantee that
the Fund will achieve a high degree of correlation. The Fund’s investment
adviser (“Adviser”) may sell securities that are represented in the Index or
purchase securities not yet represented in the Index, in anticipation of their
removal from or addition to the Index. There may also be instances in which the
Adviser may choose to overweight securities in the Index, thus causing the Fund
to purchase or sell securities not in the Index, but which the Adviser believes
are appropriate to substitute for certain securities in the Index. The Fund will
not take defensive positions.
The
Fund will invest at least 80% of its total assets, exclusive of collateral held
from securities lending, in the component securities of its respective Index and
in American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”)
based on the component securities in the Index (the “80% Policy”). The Fund may
invest up to 20% of its total assets in securities that are not in the Fund’s
Index to the extent that the Fund’s Adviser believes that such investments
should help the applicable Fund’s overall portfolio
track
its Index. The Fund will also concentrate its investments (i.e.,
hold 25% or more of its net assets) in a particular industry or group of related
industries to approximately the same extent that its Index is
concentrated.
The
Travel Tech ETF has adopted the following policy to comply with Rule 35d-1 under
the Investment Company Act of 1940. Such policy has been adopted as a
non-fundamental investment policy and may be changed without shareholder
approval upon 60 days’ written notice to shareholders. Under normal
circumstances, the Travel Tech ETF will not invest less than 80% of its net
assets, plus the amount of any borrowings for investment purposes, in companies
that are travel technology companies. The Travel Tech ETF considers such
securities to be those that comprise its Index. For purposes of this policy,
depositary receipts representing the component securities of the Index are
treated as component securities of the Travel Tech ETF’s Index.
Investment
Objective for the ETFMG 2x Daily Travel Tech ETF
The
Fund is designed to seek daily investment results, before fees and expenses,
that corresponds to two times (2x) the daily total return of the respective
Index. If, on a given day, an Index gains 1%, the 2x Daily Travel Tech ETF is
designed to gain approximately 2% (which is equal to two times 1%). Conversely,
if an Index loses 1% on a given day, a 2x Fund is designed to lose approximately
2% . The Fund seeks leveraged investment results on a daily basis – from the
close of regular trading on one trading day to the close on the next trading day
– which should not be equated with seeking a leveraged investment objective for
any other period. The
Fund is designed as a short-term trading vehicle. The Fund is intended to be
used by investors who intend to actively monitor and manage their
portfolios.
Principal
Investment Strategies for the ETFMG 2x Daily Travel Tech ETF
The
Adviser uses a number of investment techniques in an effort to achieve the
stated investment objective for the Fund. The 2x
Daily Travel Tech ETF
seeks two times (2x) the daily total return of its respective Index on a given
day. The
Adviser attempts to provide the returns of a Index for a one-day period
consistent with its Fund’s stated investment objective. To do this, the Adviser
creates net “long” positions for the 2x Daily Travel Tech ETF Fund. The Adviser
may create short positions in the Fund even though the net exposure in the Fund
will be long. Long positions move in the same direction as an Index, advancing
when an Index advances and declining when such Index declines.
In
seeking to achieve the Fund’s investment objective, the Adviser uses statistical
and quantitative analysis to determine the investments the Fund makes and the
techniques it employs. The Adviser determines the type, quantity and mix of
investment positions that it believes in combination should produce daily
returns consistent with the Fund’s investment objective. In general, if the Fund
is performing as designed, the return of its respective Index will dictate the
return for the Fund. The Adviser does not invest the assets of the Fund in
securities, derivatives or other investments based on the Adviser’s view of the
investment merit of a particular security, instrument or company, nor does it
conduct conventional investment research or analysis or forecast market
movements or trends. The Fund generally pursues its investment objective
regardless of the market conditions and does not take defensive
positions.
The
Fund has a clearly articulated daily leveraged investment objective which
requires the Fund to seek economic exposure in excess of its net assets
(i.e.,
economic leverage). To meet its objectives, the Fund invests in some combination
of financial instruments so that it generates economic exposure consistent with
the Fund’s investment objective.
The
Funds may invest significantly in: swap agreements and ETFs to obtain economic
“leverage.” Leveraging allows the Adviser to generate a greater positive or
negative return for the Funds than what would be generated on the invested
capital without leverage, thus changing small market movements into larger
changes in the value of the investments of the Funds.
The
Fund generally may hold a representative sample of the securities in their
respective Index. The sampling of securities that is held by the Fund are
intended to maintain high correlation with, and similar aggregate
characteristics (e.g.,
market capitalization and industry weightings) to, its respective Index. The
Fund also may invest in securities that are not included in its respective Index
or may overweight or underweight certain components of such Index. Certain
assets may be concentrated in an industry or group of industries to the extent
that a Index concentrates in a particular industry or group of industries. In
addition, the Funds offered in this Prospectus are non-diversified, which means
that it may invest in the securities of a limited number of
issuers.
At
the close of the markets each trading day, the Fund will position its portfolio
to ensure that the Fund’s exposure to its respective Index is consistent with
the Fund’s stated investment objective. The impact of market movements during
the day determines whether a portfolio needs to be repositioned. If an Index has
risen on a given day, the 2x Daily Travel Tech ETF’s net assets should rise,
meaning its exposure will typically need to be increased. Conversely, if an
Index has fallen on a given day, the 2x Daily Travel Tech ETF’s net assets
should fall, meaning its exposure will typically need to be reduced. the Fund’s
portfolio may also need to be changed to reflect changes in the composition of
its respective Index.
The
Fund may have difficulty in achieving its daily leveraged investment objective
due to fees, expenses, transaction costs, income items, accounting standards,
significant purchase and redemption activity by Fund shareholders and/or
disruptions or a temporary lack of liquidity in the markets for the securities
held by the Fund. Additionally, if an Index includes foreign securities or
tracks a foreign market index where the foreign market closes before or after
the New York Stock Exchange (“NYSE”) closes (generally at 4 p.m. Eastern Time),
the daily leveraged performance of the Fund may deviate from its expected
performance relative to the Index.
An
exchange or market may close or issue trading halts on specific securities, or
the ability to buy or sell certain securities or financial instruments may be
restricted, which may result in 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.
If
the Fund is unable to obtain sufficient leveraged exposure to its respective
Index due to the limited availability of necessary investments or financial
instruments, the Fund could, among other things, limit or suspend creation units
until the Adviser determines that the requisite exposure to its respective Index
is obtainable. During the period that creation units are suspended, the Fund
could trade at a significant premium or discount to its NAV and could experience
substantial redemptions.
A
Cautionary Note to Investors Regarding Dramatic Index Movement for the 2x Daily
Travel Tech ETF
The
2x Daily Travel Tech ETF seeks daily exposure to the Index equal to 200% of its
net assets. As a consequence, the Fund could lose an amount greater than its net
assets in the event of a decline in the value of its Index in excess of 50% of
the value of the Index. The Adviser will attempt to position the Fund’s
portfolio to ensure that the Fund does not gain or lose more than 90% of its NAV
on a given day. If the Adviser successfully positions the Fund’s portfolio to
provide such limits, the Fund’s portfolio and NAV will not be responsive to
movements in its respective Index beyond 45% in a given day, whether that
movement is favorable or adverse to the Fund. For example, if an Index were to
gain 55%, the 2x Daily Travel Tech ETF would be limited to a daily gain of 90%,
which corresponds to two times the Index gain of 45%, rather than 110%, which is
two times the Index gain of 55%. It may not be possible to limit the Fund’s
losses, and shareholders should not expect such protection. The risk of total
loss exists.
If
a Index has a dramatic adverse move that causes a material decline in its
respective Fund’s net assets, the terms of the Fund’s swap agreements may permit
the counterparty to immediately close out the swap transaction. In that event,
the Fund may be unable to enter into another swap agreement or invest in other
derivatives to achieve exposure consistent with the Fund’s investment objective.
This may prevent the Fund from achieving its leveraged or inverse leveraged
investment objective, even if its Index later reverses all or a portion the
move.
Understanding
the Risks and Long-Term Performance of Daily Objective Funds – the Impact of
Compounding
The
2x Daily Travel Tech ETF is designed to provide leveraged (2x) results on a
daily basis. The Fund, however, is unlikely to provide a simple multiple
(i.e.,
2x) of an index’s performance over periods longer than a single
day.
•Why?
The hypothetical example below illustrates how daily leveraged fund returns can
behave for periods longer than a single day.
Take
a hypothetical fund XYZ that seeks to achieve twice the daily performance of
index XYZ. On each day, fund XYZ performs in line with its objective (2x the
index’s daily performance before fees and expenses). Notice that over the entire
five-day period, the Fund’s total return is considerably less than two times
that of the period return of the index. For the five-day period, index XYZ
gained 5.1% while fund XYZ gained 9.9% (versus 2 x 5.1% or 10.2%). In other
scenarios, the return of a daily rebalanced fund could be greater than three
times the index’s return.
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Index
XYZ |
Fund
XYZ |
|
Level |
Daily
Performance |
Daily
Performance |
Net
Asset
Value |
Start |
100.0 |
|
|
$100.00 |
Day
1 |
103.0 |
3.0% |
6.0% |
$106.00 |
Day
2 |
99.9 |
-3.0% |
-6.0% |
$99.62 |
Day
3 |
103.9 |
4.0% |
8.0% |
$107.60 |
Day
4 |
101.3 |
-2.5% |
-5.0% |
$102.21 |
Day
5 |
105.1 |
3.8% |
7.5% |
$109.88 |
Total
Return |
|
5.1% |
9.9% |
|
•Why
does this happen? This
effect is caused by compounding, which exists in all investments, but has a more
significant impact on a daily leveraged fund. The return of a daily leveraged
fund for a period longer than a single day is the result of its return for each
day compounded over the period and usually will differ in amount, and possibly
even direction, from the daily leveraged fund’s stated multiple times the return
of the daily leveraged fund’s index for the same period. In general, during
periods of higher index volatility, compounding will cause longer term results
to be less than the multiple of the return of the index. This effect becomes
more pronounced as volatility increases. Conversely, in periods of lower index
volatility, fund returns over longer periods can be higher than the multiple of
the return of the index. Actual results for a particular period, before fees and
expenses, are also dependent on the following factors: a) the index’s
volatility; b) the index’s performance; c) period of time; d) financing rates
associated with derivatives; e) other fund expenses; and f) dividends or
interest paid with respect to the securities in the index. The examples herein
illustrate the impact of two principal factors — index volatility and index
performance — on fund performance.
The
graphs that follow illustrate this point. Each of the graphs shows a simulated
hypothetical one year performance of an index compared with the performance of
the Fund that perfectly achieves its investment objective. The graphs
demonstrate that, for periods longer than a single day, a daily leveraged fund
is likely to underperform or overperform (but not match) the index performance
times the stated multiple in the Fund’s investment objective. Investors should
understand the consequences of holding daily rebalanced funds for periods longer
than a single day, including the impact of compounding on fund performance.
Investors should actively manage and monitor their investments, as frequently as
daily. A one-year period is used for illustrative purposes only. Deviations from
the index return times the Fund multiple can occur over periods as short as a
single day (as measured from one day’s NAV to the next day’s NAV) and may also
occur in periods shorter than a single day (when measured intraday as opposed to
NAV to NAV). An investor in a daily leveraged fund could potentially lose the
full principal value of his/her investment within a single day.
To
isolate the impact of leverage, these graphs assume: a) no dividends paid with
respect to securities in the index; b) no fund expenses; and c)
borrowing/lending rates (to obtain required leverage) of zero percent. If these
were reflected, the Fund’s performance would be different than that shown. Each
of the graphs also assumes a volatility rate of 30%, which is the approximate
average of the five-year historical volatility rate of the Prime Travel
Technology Index NTR. An index’s volatility rate is a statistical measure of the
magnitude of fluctuations in the returns of an index.
One-Year
Simulation for Leveraged (2x) Fund; Index Return 0%
(Annualized
Index Volatility 30%)
The
graph above shows a scenario where the index, which exhibits day-to-day
volatility, is flat or trendless over the year (i.e.,
begins and ends the year at 0%), but the 2x Fund is down.
One-Year
Simulation for Leveraged (2x) Fund; Index Return 1.87%
(Annualized
Index Volatility 30%)
The
graph above shows a scenario where the index, which exhibits day-to-day
volatility, is up over the year, but the 2x Fund is up less than two times the
index.
One-Year
Simulation for Leveraged (2x) Fund; Index Return –1.23%
(Annualized
Index Volatility 30%)
The
graph above shows a scenario where the index, which exhibits day-to-day
volatility, is down over the year, the 2x Fund is down more than two times the
index.
•What
it means to you.
Daily leveraged funds, if used properly and in conjunction with the investor’s
view on the future direction and volatility of the markets, can be useful tools
for knowledgeable investors who want to manage their exposure to various markets
and market segments. Investors should understand the consequences of seeking
daily investment results, before fees and expenses, that correspond to the
performance of a daily benchmark such as the multiple (i.e.,
2x) of the daily performance of an index for a single day, not for any other
period, including the impact of compounding on fund performance. Investors
should monitor and/or periodically rebalance their portfolios (which will
possibly trigger transaction costs and tax consequences), as frequently as
daily. Investors considering these funds should understand that they are
designed to provide a positive or negative multiple of an index for a single
day, not for any other period.
Additionally,
investors should recognize that the degree of volatility of the Fund’s index can
have a dramatic effect on the Fund’s longer-term performance. The more volatile
an index is, the more the Fund’s longer-term performance will negatively deviate
from a simple multiple (e.g.,
2x) of its index’s longer-term return. The return of the Fund for a period
longer than a single day is the result of its return for each day compounded
over the period and usually will differ in amount, and possibly even direction,
from the Fund’s stated multiple times the return of the Fund’s index for the
same period. For periods longer than a single day, the Fund will lose money if
its index’s performance is flat over time, and it is possible that the Fund will
lose money over time regardless of the performance of its index, as a result of
daily rebalancing, the index’s volatility, compounding and other factors. An
investor in the Fund could potentially lose the full principal value of his/her
investment within a single day.
Additional
Risk Information
You
may lose the full principal value of your investment within a single
day.
The
following section provides additional information regarding the principal risks
identified under “Principal Risks” in each Fund’s summary.
Effects
of Compounding and Market Volatility Risk (2x Daily Travel Tech ETF
only):
The 2x Daily Travel Tech ETF has a daily leveraged investment objective and the
Fund’s performance for periods greater than a trading day will be the result of
each day’s returns compounded over the period, which is very likely to differ
from underlying index’s performance times the stated multiple in the Fund’s
investment objective, before fees and expenses. Compounding affects all
investments, but has a more significant impact on leveraged funds and funds
that, rebalance daily.
Over
time, the cumulative percentage increase or decrease in the value of the Fund’s
portfolio may diverge significantly from the cumulative percentage increase or
decrease in 200% of the return of the Fund’s underlying index due to the
compounding effect of losses and gains on the returns of the Fund. It also is
expected that the Fund’s use of leverage will cause the Fund to underperform the
return of 200% of its underlying index in a trendless or flat market.
The
chart below provides examples of how index volatility could affect the Fund’s
performance. The chart illustrates the impact of two factors that affect the
Fund’s performance: Index volatility and Index return. Index returns show the
percentage change in the value of the Index over the specified time period,
while Index volatility is a statistical measure of the magnitude of fluctuations
in the returns during that time period. As illustrated below, even if the Index
return over two equal time periods is identical, different Index volatility
(i.e.,
fluctuations in the rates of return) during the two time periods could result in
drastically different Fund performance for the two time periods due to the
effects of compounding daily returns during the time periods.
Fund
performance for periods greater than one single day can be estimated given any
set of assumptions for the following factors: a) index volatility; b) index
performance; c) period of time; d) financing rates associated with leveraged
exposure; e) other Fund expenses; and f) dividends or interest paid with respect
to securities in its underlying index. The chart below illustrates the impact of
two principal factors – index volatility and index performance – on Fund
performance. The chart shows estimated Fund returns for a number of combinations
of index volatility and index performance over a one-year period.
Performance
shown in the chart assumes that: (i) no dividends were paid with respect to the
securities included in its underlying index; (ii) there were no Fund expenses;
and (iii) borrowing/lending rates (to obtain leveraged exposure for the 2x Daily
Travel Tech ETF) of 0%. If Fund expenses and/or actual borrowing/lending rates
were reflected, the estimated returns would be worse than those
shown.
As
shown below, the 2x Daily Travel Tech ETF would be expected to lose 6.1% if the
underlying index provided no return over a one year period during which the
underlying index experienced annualized volatility of 25%. If the underlying
index’s annualized volatility were to rise to 75%, the hypothetical loss for a
one year period widens to approximately 43% for the 2x Daily Travel Tech ETF. At
higher ranges of volatility, there is a chance of a significant loss of value
even if the underlying index is flat. For instance, if the underlying index’s
annualized volatility is 100%, it is likely that the 2x Daily Travel Tech ETF
would lose 63.2% of its value, even if the underlying index’s cumulative return
for the year was only 0%. The volatility of ETFs or instruments that reflect the
value of the underlying index such as swaps, may differ from the volatility of
the Fund’s underlying index.
2x
Chart
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One
Year Index |
Two
Times (2x) One Year Index |
Volatility
Rate |
Return |
Return |
10% |
25% |
50% |
75% |
100% |
-60% |
-120% |
-84.2% |
-85.0% |
-87.5% |
-90.9% |
-94.1% |
-50% |
-100% |
-75.2% |
-76.5% |
-80.5% |
-85.8% |
-90.8% |
-40% |
-80% |
-64.4% |
-66.2% |
-72.0% |
-79.5% |
-86.8% |
-30% |
-60% |
-51.5% |
-54.0% |
-61.8% |
-72.1% |
-82.0% |
-20% |
-40% |
-36.6% |
-39.9% |
-50.2% |
-63.5% |
-76.5% |
-10% |
-20% |
-19.8% |
-23.9% |
-36.9% |
-53.8% |
-70.2% |
0% |
0% |
-1.0% |
-6.1% |
-22.1% |
-43.0% |
-63.2% |
10% |
20% |
19.8% |
13.7% |
-5.8% |
-31.1% |
-55.5% |
20% |
40% |
42.6% |
35.3% |
12.1% |
-18.0% |
-47.0% |
30% |
60% |
67.3% |
58.8% |
31.6% |
-3.7% |
-37.8% |
40% |
80% |
94.0% |
84.1% |
52.6% |
11.7% |
-27.9% |
50% |
100% |
122.8% |
111.4% |
75.2% |
28.2% |
-17.2% |
60% |
120% |
153.5% |
140.5% |
99.4% |
45.9% |
-5.8% |
Holding
an unmanaged position opens the investor to the risk of market volatility
adversely affecting the performance of the investment. The Fund is not
appropriate for investors who do not intend to actively monitor and manage their
portfolios. Each table is intended to underscore the fact that the Fund is
designed as a short-term trading vehicle for investors who intend to actively
monitor and manage their portfolios.
Leverage
Risk (2x Daily Travel Tech ETF only):
To
achieve its daily investment objective, a Fund employs leverage and is exposed
to the risk that adverse daily performance of the Index will be magnified. This
means that, if the Index experiences an adverse daily performance, an investment
in the Fund will change by an amount equal to 2% for every 1% of adverse
performance, not including the costs of financing leverage and other operating
expenses, which would further reduce its value. A Fund could theoretically lose
an amount greater than its net assets if the Index moves more than 50% in a
direction adverse to the Fund (meaning a decline in the value of the Index).
Leverage will also have the effect of magnifying any differences in a Fund’s
correlation with the Index.
Technology
Companies Risk:
Companies in the technology field, including companies in the computers,
telecommunications and electronics industries, face intense competition, which
may have an adverse effect on profit margins. Technology companies may have
limited product lines, markets, financial resources or personnel. The products
of technology companies may face obsolescence due to rapid technological
development expenses, imperfect correlation between a Fund’s investments and
those of its Index, rounding of share prices, changes to the composition of the
Index, regulatory policies, and high portfolio turnover rate. In addition,
mathematical compounding may prevent a Fund from correlating with the monthly,
quarterly, annual or other period performance of its Index. Tracking error may
cause a Fund’s performance to be less than expected.
Market
Disruption Risk (2x Daily Travel Tech ETF only):
Geopolitical and other events, including public health crises and natural
disasters, have recently led to increased market volatility and significant
market losses. Significant market volatility and market downturns may limit a
Fund’s ability to sell securities and obtain long or short exposure to
securities, and a Fund’s sales and long or short exposures may exacerbate the
market volatility and downturn. Under such circumstances, a Fund may have
difficulty achieving its investment objective for one or more trading days,
which may adversely impact a Fund’s returns on those days and periods inclusive
of those days. Alternatively, a Fund may incur higher costs (including swap
financing costs) in order to achieve its investment objective and may be forced
to purchase and sell securities (including other ETFs’ shares) at market prices
that do not represent their fair value (including in the case of an ETF, its net
asset value) or at times that result in differences between the price a Fund
receives for the security or the value of the swap exposure and the market
closing price of the security or the market closing value of the swap exposure.
Under those circumstances, a Fund’s ability to track its Index is likely to be
adversely affected, the market price of Fund shares may reflect a greater
premium or discount to net asset value and bid-ask spreads in a Fund’s shares
may widen, resulting in increased transaction costs for secondary market
purchasers and sellers. A Fund may also incur additional tracking error due to
the use of securities that are not perfectly correlated to the Index.
Aggressive
Investment Techniques Risk (2x Daily Travel Tech ETF only):
Using investment techniques that may be considered aggressive, such as swap
agreements, includes the risk of potentially dramatic changes (losses) in the
value of the instruments, imperfect correlations between the price of the
instrument and the underlying security or index, and volatility of the Fund.
Derivatives
Risk (2x Daily Travel Tech ETF only):
The Fund uses investment techniques, including investments in derivatives, such
as swaps that may be considered aggressive. The use of derivatives may result in
larger losses or smaller gains than investing in the underlying securities
directly. Investments in these derivatives may generally be subject to market
risks that cause their prices to fluctuate more than an investment directly in a
security and may increase the volatility of the Fund. The use of derivatives may
expose the Fund to additional risks such as counterparty risk, liquidity risk
and increased daily correlation risk. When the Fund uses derivatives, there may
be imperfect correlation between the value of the underlying reference assets
and the derivative, which may prevent the Fund from achieving its investment
objective.
The
Fund may use swaps on the Index or swaps on an ETF that tracks the same, or a
substantially similar, index. If the Index has a dramatic intraday move in value
that causes a material decline in the Fund’s NAV, the terms of the swap
agreement between the Fund and its counterparty may allow the counterparty to
immediately close out of the transaction with the Fund. In such circumstances,
the Fund may be unable to enter into another swap agreement or invest in other
derivatives to achieve the desired exposure consistent with the Fund’s daily
leveraged investment objective. This may prevent the Fund from achieving its
daily leveraged investment objective particularly if the Index reverses all or a
portion of its intraday move by the end of the day. The value of an investment
in the Fund may change quickly and without warning. Any financing, borrowing or
other costs associated with using derivatives may also have the effect of
lowering the Fund’s return.
In
addition, the Fund’s investments in derivatives are subject to the following
risks:
Swap
Agreements.
Swap agreements are entered into primarily with major global financial
institutions for a specified period which may range from one day to more than
one year. In a standard swap transaction, two parties agree to exchange the
return (or differentials in rates of return) earned or realized on particular
predetermined reference or underlying securities or instruments. The gross
return to be exchanged or swapped between the parties is calculated based on a
notional amount or the return on or change in value of a particular dollar
amount invested in a reference asset.
Counterparty
Risk (2x Daily Travel Tech ETF only):
Counterparty risk is the risk that a counterparty is unwilling or unable to make
timely payments to meet its contractual obligations with respect to the amount
the Fund expects to receive from a counterparty to a financial instrument
entered into by the Fund. The Fund generally enters into derivatives
transactions, such as the swap agreements, with counterparties such that either
party can terminate the contract without penalty prior to the termination date.
The Fund may be negatively impacted if a counterparty becomes bankrupt or
otherwise fails to perform its obligations under such a contract, or if any
collateral posted by the counterparty for the benefit of the Fund is
insufficient or there are delays in the Fund’s ability to access such
collateral. If the counterparty becomes bankrupt or defaults on its payment
obligations to the Fund, it may experience significant delays in obtaining any
recovery, may obtain only a limited recovery or obtain no recovery and the value
of an investment held by the Fund may decline. The Fund may also not be able to
exercise remedies, such as the termination of transactions, netting of
obligations and realization on collateral, if such remedies are stayed or
eliminated under special resolutions adopted in the United States, the European
Union and various other jurisdictions. European Union rules and regulations
intervene when a financial institution is experiencing financial difficulties
and could reduce, eliminate, or convert to equity a counterparty’s obligations
to the Fund (sometimes referred to as a “bail in”).
The
Fund typically enters into transactions with counterparties that present minimal
risks based on the Adviser’s assessment of the counterparty’s creditworthiness,
or its capacity to meet its financial obligations during the term of the
derivative agreement or contract. The Adviser considers factors such as
counterparty credit rating among other factors when determining whether a
counterparty is creditworthy. The Adviser regularly monitors the
creditworthiness of each counterparty with which the Fund transacts. The Fund
generally enters into swap agreements with major, global financial institutions
and seeks to mitigate risks by generally requiring that the counterparties for
the Fund to post collateral, marked to market daily, in an amount approximately
equal to what the counterparty owes the Fund, subject to certain minimum
thresholds. To the extent any such collateral is insufficient or there are
delays in accessing the collateral, the Fund will be exposed to the risks
described above. If a counterparty’s credit ratings decline, the Fund may be
subject to a bail-in, as described above.
In
addition, the Fund may enter into swap agreements with a limited number of
counterparties, which may increase the Fund’s exposure to counterparty credit
risk. The Fund does not specifically limit its counterparty risk with respect to
any single counterparty. There is a risk that no suitable counterparties are
willing to enter into, or continue to enter into, transactions with the Fund
and, as a result, the Fund may not be able to achieve its investment objective
or may decide to change its leveraged (2x Fund) investment objective.
Additionally, although a counterparty to a centrally cleared swap agreement is
often backed by a futures commission merchant (“FCM”) or a clearing organization
that is further backed by a group of financial institutions, there may be
instances in which a FCM or a clearing organization would fail to perform its
obligations, causing significant losses to the Fund.
Intra-Day
Investment Risk (2x Daily Travel Tech ETF only):
The Fund seeks daily leveraged investment results, which should not be equated
with seeking an investment objective for shorter than a day. Thus, an investor
who purchases Fund shares after close of the markets on one trading day and
before the close of the markets on the next trading day will likely have more,
or less, than two times (2x) the leveraged investment exposure to the Index,
depending upon the movement of the Index from the end of one trading day until
the time of purchase. If the Index moves in a direction favorable to the Fund,
the investor will receive less than two times (2x) the exposure to the Index.
Conversely, if the Index moves in a direction adverse to the Fund, the investor
will receive exposure to the Index greater than two times (2x). Thus, an
investor that purchases shares intra-day may experience performance that is
greater than, or less than, the Fund’s stated multiple of the
Index.
If
there is a significant intra-day market event and/or the securities of the Index
experience a significant change that is adverse to the Fund, the Fund may not
meet its investment objective or rebalance its portfolio appropriately.
Additionally, the Fund may close to purchases and sales of Shares prior to the
close of regular trading on the NYSE Arca, Inc. and incur significant
losses.
Daily
Index Correlation/Tracking Risk (2x Daily Travel Tech ETF only):
There
is no guarantee that the Fund will achieve a high degree of correlation to its
Index and therefore achieve its daily leveraged investment objective. To achieve
a high degree of correlation with the Index, the Fund seeks to rebalance its
portfolio daily to keep leverage consistent with its daily leveraged investment
objective. In addition, the Fund’s exposure to the Index is impacted dynamically
by the Index’s movement. Because of this, it is unlikely that the Fund will be
perfectly exposed to the Index at the end of each day. The possibility of the
Fund being materially over- or under-exposed to the Index increases on days when
the Index is volatile near the close of the trading day. Market disruptions,
regulatory restrictions or high volatility will also adversely affect the Fund’s
ability to adjust exposure to the required levels.
Because
an Index may include instruments that trade on a different market than the Fund,
the Fund’s return may vary from a multiple of the performance of the Index
because different markets may close before the Exchange opens or may not be open
for business on the same calendar days as the Fund. Additionally, due to
differences in trading hours, and because the Index may be calculated using
prices obtained at times other than the Fund’s NAV calculation time or using
fair valuations of index security, the Fund’s performance may not correlate to
its Index. Additionally, there may be legal restrictions or limitation imposed
by governments of certain countries which may limit the size of the Fund’s
holding or otherwise limit the Fund’s ability to achieve its investment
objective.
The
Fund may have difficulty achieving its daily leveraged investment objective due
to fees, expenses, transactions costs, financing costs related to the use of
derivatives, investments in ETFs, directly or indirectly as a reference asset
for derivative instruments,
income
items, valuation methodology, accounting standards, required regulatory reasons
(such as, diversification requirements) and disruptions or illiquidity in the
markets for the securities or derivatives held by the Fund. The Fund may not
have investment exposure to all securities in the Index, or its weighting of
investment exposure to such stocks or industries may be different from that of
the Index. In addition, the Fund may invest in securities or financial
instruments not included in the Index. The Fund may be subject to large
movements of assets into and out of the Fund, potentially resulting in the Fund
being over- or under-exposed to the Index. The Fund may also invest directly in
or use other investment companies, such as ETFs, which may result in increased
tracking error for the Fund. Additionally, an ETF’s performance may differ from
the index it tracks, thus resulting in additional tracking error for the Fund.
Activities surrounding periodic index reconstitutions and other index
rebalancing events may also hinder the Fund’s ability to meet its daily
leveraged investment objective. For example, the Fund may take or refrain from
taking positions to improve the tax efficiency or to comply with various
regulatory restrictions, which may negatively impact the Fund’s correlation to
the Index. Any of these factors could decrease correlation between the
performance of the Fund and the Index and may hinder the Fund’s ability to meet
its daily investment objective.
The
remaining risks are presented in alphabetical order. Each risk summarized below
is considered a “principal risk” of investing in the Fund, regardless of the
order in which it appears.
Concentration
Risk: Each
Fund’s investments will be concentrated in an industry or group of industries to
the extent the Index is so concentrated. To the extent a Fund invests more
heavily in particular industries, groups of industries, or sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those industries, groups of industries, or sectors of the
economy, and the value of Shares may rise and fall more than the value of shares
that invest in securities of companies in a broader range of industries or
sectors.
Early
Close/Late Close/Trading Halt Risk (2x Daily Travel Tech ETF only):
An exchange or market may close early, close late or issue trading halts on
specific securities or financial instruments. As a result, the ability to trade
certain securities or financial instruments may be restricted, which may disrupt
the Fund’s creation and redemption process, potentially affect the price at
which the Fund’s shares trade in the secondary market, and/or result in the Fund
being unable to trade certain securities or financial instruments at all. In
these circumstances, the Fund may be unable to rebalance its portfolio, may be
unable to accurately price its investments and/or may incur substantial trading
losses. If trading in the Fund’s shares are halted, investors may be temporarily
unable to trade shares of the Fund.
Equity
Market Risk:
An investment in a Fund involves risks of investing in equity securities, such
as market fluctuations caused by such factors as economic and political
developments, changes in interest rates and perceived trends in securities
prices. The values of equity securities could decline generally or could
underperform other investments. Different types of equity securities tend to go
through cycles of out-performance and under-performance in comparison to the
general securities markets. In addition, securities may decline in value due to
factors affecting a specific issuer, market or securities markets generally.
Holders of common stocks incur more risk than holders of preferred stocks and
debt obligations because common stockholders, as owners of the issuer, have
generally inferior rights to receive payments from the issuer in comparison with
the rights of creditors of, or holders of debt obligations or preferred stocks
issued by, the issuer. Additionally, natural or environmental disasters,
widespread disease or other public health issues, war, acts of terrorism or
other events could result in increased premiums or discounts to a Fund’s NAV.
ETF
Risks:
Absence
of an Active Market Risk: Although
a Fund’s shares are approved for listing on the Exchange, there can be no
assurance that an active trading market will develop and be maintained for Fund
shares. There can be no assurance that a Fund will grow to or maintain an
economically viable size, in which case a Fund may experience greater tracking
error to its Index than it otherwise would at higher asset levels or a Fund may
ultimately liquidate.
APs,
Market Makers and Liquidity Providers Concentration Risk:
A Fund has a limited number of financial institutions that may act as APs, none
of which are obligated to engage in creation and/or redemption transactions. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, there may be a significantly diminished trading market for Fund shares
and shares may trade at a material discount to NAV and possibly face delisting:
(i) APs exit the business or otherwise become unable to process creation and/or
redemption orders and no other APs step forward to perform these services, or
(ii) market makers and/or liquidity providers exit the business or significantly
reduce their business activities and no other entities step forward to perform
their functions. The risks associated with limited APs may be heightened in
scenarios where APs have limited or diminished access to the capital required to
post collateral.
Cash
Transactions Risk:
Each Fund may effect its creations and redemptions primarily for cash, rather
than in-kind securities. Paying redemption proceeds in cash rather than through
in-kind delivery of portfolio securities may require the fund to dispose of or
sell portfolio investments at an inopportune time to obtain the cash needed to
distribute redemption proceeds. This may cause the Fund to incur certain costs
such as brokerage costs, and to recognize gains or losses that it might not have
incurred if it had made a redemption in-kind. As a result, the Fund may pay out
higher or lower annual capital gains distributions than ETFs that redeem
in-kind. In addition, the costs imposed on the Fund will decrease the Fund’s NAV
unless the costs are offset by a transaction fee payable by an AP.
Costs
of Buying or Selling Shares Risk: Investors
buying or selling a Fund’s shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers as determined by the applicable
broker. Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of shares. In addition, secondary market investors will also incur the cost of
the difference between the price that an investor is willing to pay for shares
(the “bid” price) and the price at which an investor is willing to sell shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid/ask spread.” The bid/ask spread varies over time for shares
based on trading volume and market liquidity, and is generally lower if a Fund’s
shares have more trading volume and market liquidity and higher if a Fund’s
shares have little trading volume and market liquidity. Further, increased
market volatility may cause increased bid/ask spreads. Due to the costs of
buying or selling shares, including bid/ask spreads, frequent trading of shares
may significantly reduce investment results and an investment in shares may not
be advisable for investors who anticipate regularly making small investments.
Fluctuation
of NAV Risk: The
NAV of a Fund’s shares will generally fluctuate with changes in the market value
of such Fund’s securities holdings. The market prices of shares will generally
fluctuate in accordance with changes in a Fund’s NAV and supply and demand of
shares on the Exchange. It cannot be predicted whether a Fund’s shares will
trade below, at or above their NAV. Price differences may be due, in large part,
to the fact that supply and demand forces at work in the secondary trading
market for shares will be closely related to, but not identical to, the same
forces influencing the prices of the securities of the Index trading
individually or in the aggregate at any point in time. The market prices of a
Fund’s shares may deviate significantly from the NAV of the shares during
periods of market volatility. While the creation/redemption feature is designed
to make it likely that a Fund’s shares normally will trade close to such Fund’s
NAV, disruptions to creations and redemptions may result in trading prices that
differ significantly from the Fund’s NAV. As a result, investors in a Fund may
pay significantly more or receive significantly less for Fund shares than the
value of such Fund’s underlying securities or the NAV of Fund shares. If an
investor purchases a Fund’s shares at a time when the market price is at a
premium to the NAV of the shares or sells at a time when the market price is at
a discount to the NAV of the shares, then the investor may sustain losses.
Market
Trading Risk:
An investment in a Fund faces numerous market trading risks, including the
potential lack of an active market for Fund shares, losses from trading in
secondary markets, periods of high volatility and disruption in the
creation/redemption process of such Fund. Any of these factors, among others,
may lead to a Fund’s shares trading at a premium or discount to NAV.
Trading
Issues Risk:
Although
a Fund’s shares are listed for trading on the Exchange, there can be no
assurance that an active trading market for such shares will be maintained.
Trading in a Fund’s shares may be halted due to market conditions or for reasons
that, in the view of the Exchange, make trading in shares inadvisable. In
addition, trading in shares is subject to trading halts caused by extraordinary
market volatility pursuant to the Exchange “circuit breaker” rules, which
temporarily halt trading on the Exchange when a decline in the S&P 500 Index
during a single day reaches certain thresholds (e.g.,
7%., 13% and 20%). Additional rules applicable to the Exchange may halt trading
in Fund shares when extraordinary volatility causes sudden, significant swings
in the market price of Fund shares. There can be no assurance that the
requirements of the Exchange necessary to maintain the listing of a Fund will
continue to be met or will remain unchanged or that the shares will trade with
any volume, or at all. In stressed market conditions, the liquidity of a Fund’s
shares may begin to mirror the liquidity of such Fund’s underlying portfolio
holdings, which can be significantly less liquid than the Fund’s shares,
potentially causing the market price of the Fund’s shares to deviate from their
NAV.
Further,
secondary markets may be subject to erratic trading activity, wide bid/ask
spreads and extended trade settlement periods in times of market stress because
market makers and APs may step away from making a market in Fund shares and in
executing creation and redemption orders, which could cause a material deviation
in a Fund’s market price from its NAV. Decisions by market makers or APs to
reduce their role or step away from these activities in times of market stress
could inhibit the effectiveness of the arbitrage process in maintaining the
relationship between the underlying value of a Fund’s portfolio securities and
such Fund’s market price. This reduced effectiveness could result in Fund shares
trading at a price which differs materially from NAV and also in greater than
normal intraday bid/ask spreads for Fund shares. During a “flash crash,” the
market prices of a Fund’s shares may decline suddenly and significantly. Such a
decline may not reflect the performance of the portfolio securities held by a
Fund. Flash crashes may cause APs and other market makers to limit or cease
trading in a Fund’s shares for temporary or longer periods. Shareholders could
suffer significant losses to the extent that they sell shares at these
temporarily low market prices.
Foreign
Investment Risk:
Returns on investments in foreign stocks could be more volatile than, or trail
the returns on, investments in U.S. stocks. Since foreign exchanges may be open
on days when a Fund does not price its Shares, the value of the securities in a
Fund’s portfolio may change on days when shareholders will not be able to
purchase or sell the Shares. Conversely, Shares may trade on days when foreign
exchanges are closed. Because securities held by a Fund trade on foreign
exchanges that are closed when a Fund’s primary listing exchange is open, a Fund
is likely to experience premiums and discounts greater than those of domestic
ETFs. Each of these factors can make investments in a Fund more volatile and
potentially less liquid than other types of investments.
Currency
Risk:
Indirect and direct exposure to foreign currencies subjects a Fund to the risk
that currencies will decline in value relative to the U.S. dollar. Currency
rates in foreign countries may fluctuate significantly over short periods of
time for a number
of
reasons, including changes in interest rates and the imposition of currency
controls or other political developments in the U.S. or abroad. A Fund’s NAV is
determined on the basis of U.S. dollars and, therefore, a Fund may lose value if
the local currency of a foreign market depreciates against the U.S. dollar, even
if the local currency value of a Fund’s holdings goes up.
Depositary
Receipts Risk:
A Fund may invest in depositary receipts. Depositary receipts include ADRs and
GDRs. ADRs are U.S. dollar-denominated receipts representing shares of
foreign-based corporations. ADRs are issued by U.S. banks or trust companies,
and entitle the holder to all dividends and capital gains that are paid out on
the underlying foreign shares. GDRs are depositary receipts which are similar to
ADRs, but are shares of foreign-based corporations generally issued by
international banks in one or more markets around the world. Investment in ADRs
and GDRs may be less liquid than the underlying shares in their primary trading
market and GDRs, many of which are issued by companies in emerging markets, may
be more volatile and less liquid than depositary receipts issued by companies in
more developed markets.
Depositary
receipts may be sponsored or unsponsored. Sponsored depositary receipts are
established jointly by a depositary and the underlying issuer, whereas
unsponsored depositary receipts may be established by a depositary without
participation by the underlying issuer. Holders of an unsponsored depositary
receipt generally bear all the costs associated with establishing the
unsponsored depositary receipt. In addition, the issuers of the securities
underlying unsponsored depositary receipts are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the depositary receipts.
Depositary
receipts may be unregistered and unlisted. A Fund’s investments also may include
ADRs and GDRs that are not purchased in the public markets and are restricted
securities that can be offered and sold only to “qualified institutional buyers”
under Rule 144A of the Securities Act of 1933, as amended. The Adviser will
determine the liquidity of such investments pursuant to the Funds’ liquidity
risk management program. If a particular investment in such ADRs or GDRs is
deemed illiquid, that investment will be included within a Fund’s limitation on
investment in illiquid securities. Moreover, if adverse market conditions were
to develop during the period between a Fund’s decision to sell these types of
ADRs or GDRs and the point at which a Fund is permitted or able to sell such
security, a Fund might obtain a price less favorable than the price that
prevailed when it decided to sell.
Foreign
Market and Trading Risk:
The trading markets for many foreign securities are not as active as U.S.
markets and may have less governmental regulation and oversight. Foreign markets
also may have clearance and settlement procedures that make it difficult for a
Fund to buy and sell securities. These factors could result in a loss to a Fund
by causing the Fund to be unable to dispose of an investment or to miss an
attractive investment opportunity, or by causing Fund assets to be uninvested
for some period of time. Where all or a part of a Fund’s underlying securities
trade in a market that is closed when the Exchange is open, there may be changes
between the last quotation from its closed foreign market and the value of such
securities during a Fund’s domestic trading day. This could lead to differences
between the market price of a Fund’s shares and the value of a Fund’s underlying
securities.
Foreign
Securities Risk:
A Fund invests in foreign securities, including non-U.S. dollar-denominated
securities traded outside of the United States and U.S. dollar-denominated
securities of foreign issuers traded in the United States. Investment in foreign
securities may involve higher costs than investment in U.S. securities,
including higher transaction and custody costs as well as the imposition of
additional taxes by foreign governments. Foreign investments may also involve
risks associated with the level of currency exchange rates, less complete
financial information about the issuers, less market liquidity, more market
volatility and political instability, as well as varying regulatory requirements
applicable to investments in non-U.S. issuers. Future political and economic
developments, the possible imposition of withholding taxes on dividend income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls or freezes on the convertibility of currency,
or the adoption of other governmental restrictions might adversely affect an
investment in foreign securities. Additionally, foreign issuers may be subject
to less stringent regulation, and to different accounting, auditing and
recordkeeping requirements.
Political
and Economic Risk:
A Fund is subject to foreign political and economic risk not associated with
U.S. investments, meaning that political events (civil unrest, national
elections, changes in political conditions and foreign relations, imposition of
exchange controls and repatriation restrictions), social and economic events
(labor strikes, rising inflation) and natural disasters occurring in a country
where a Fund invests could cause the Fund’s investments in that country to
experience gains or losses. A Fund also could be unable to enforce its ownership
rights or pursue legal remedies in countries where it invests.
Privatization
Risk:
Some countries in which a Fund invests have begun a process of privatizing
certain entities and industries. Privatized entities may lose money or be
re-nationalized.
Gain
Limitation Risk (2x Daily Travel Tech ETF only):
The Adviser will attempt to position the Fund’s portfolio to ensure that the
Fund does not gain or lose more than 90% of its NAV on a given day. As a
consequence, the Fund’s portfolio should not be responsive to Index movements of
more than 45% in a given day. For example, for the Fund, if the Index were to
gain 50%, its gains should be limited to a daily gain of 90% (i.e.,
two times (2x) 45%) rather than 100% (i.e.,
two times (2x) 50%).
Geographic
Concentration Risk:
A Fund is subject to geographic concentration risk, which is the chance that
world events—such as political upheaval, financial troubles, or natural
disasters—will adversely affect the value of securities issued by companies in
foreign
countries
or regions. Because a Fund may invest a large portion of its assets in
securities of companies located in any one country or region, such Fund’s
performance may be hurt disproportionately by the poor performance of its
investments in that area.
Risks
Related to Investing in Western Europe:
Most developed countries in Western Europe are members of the European Union
(EU), and many are also members of the European Monetary Union (EMU), which
requires compliance with restrictions on inflation rates, deficits, and debt
levels. Unemployment in certain European nations is historically high and
several countries face significant debt problems. These conditions can
significantly affect every country in Europe. The euro is the official currency
of the EU. Funds that invest in Europe may have significant exposure to the euro
and events affecting the euro. Recent market events affecting several of the EU
member countries have adversely affected the sovereign debt issued by those
countries, and ultimately may lead to a decline in the value of the euro. A
significant decline in the value of the euro may produce unpredictable effects
on trade and commerce generally and could lead to increased volatility in
financial markets worldwide.
The
risk of investing in Europe may be heightened due to steps taken by the United
Kingdom (“UK”) to exit the EU. On January 31, 2020, the UK officially withdrew
from the EU and entered a transition period, which ended on December 31, 2020.
On December 30, 2020, the EU and the UK signed the EU-UK Trade and Cooperation
Agreement (“TCA”), an agreement on the terms governing certain aspects of the
EU’s and the UK’s relationship following the end of the transition period.
Notwithstanding the TCA, following the transition period, there is likely to be
considerable uncertainty as to the UK’s post transition framework. The impact on
the UK and European economies and the broader global economy could be
significant, resulting in increased volatility and illiquidity, currency
fluctuations, impacts on arrangements for trading and on other existing
cross-border cooperation arrangements (whether economic, tax, fiscal, legal,
regulatory or otherwise), and in potentially lower growth for companies in the
UK, Europe and globally, which could have an adverse effect on the value of the
Fund’s investments. In addition, if one or more other countries were to exit the
EU or abandon the use of the euro as a currency, the value of investments tied
to those countries or the euro could decline significantly and
unpredictably.
These
events and the resulting market volatility may have an adverse effect on the
performance of the Fund.
Liquidity
Risk (2x Daily Travel Tech ETF only):
Some
securities held by the Fund, including derivatives, may be difficult to sell or
illiquid, particularly during times of market turmoil. Markets for securities or
financial instruments could be disrupted by a number of events, including, but
not limited to, an economic crisis, natural disasters, new legislation or
regulatory changes inside or outside the United States. Illiquid securities may
be difficult to value, especially in changing or volatile markets. If the Fund
is forced to sell an illiquid security at an unfavorable time or price, the Fund
may incur a loss. Certain market conditions may prevent the Fund from limiting
losses, realizing gains or achieving a high correlation with the Index. There is
no assurance that a security that is deemed liquid when purchased will continue
to be liquid.
Market
illiquidity may cause losses for the Fund. For the Fund, to the extent that the
Index moves adversely, the Fund may be one of many market participants that are
attempting to transact in the securities of an underlying index or correlated
instruments. Under such circumstances, the market for investments of the Index
may lack sufficient liquidity for all market participants’ trades. Therefore,
the Fund may have more difficulty transacting in securities of the Index or
correlated investments such as financial instruments and the Fund’s transactions
could exacerbate the price change of the securities of the Index. Additionally,
because the Fund is leveraged, a minor adverse change in the value of the Index
should be expected to have a substantial adverse impact on the Fund.
Management
Risk (Travel Tech ETF only): While
the Fund is not actively managed, the Fund is subject to the risks associated
with decisions made by the Adviser if the Fund utilizes a representative
sampling strategy or to the extent the Adviser makes decisions regarding the
investment of collateral from securities on loan.
Models
and Data Risk (Travel Tech ETF only):
When models and data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Fund to potential risks as the Fund tracks the
Index. For example, by relying on models and data, the Index, and consequently
the Fund, may add or remove certain investments at prices that are too high or
too low or to miss favorable opportunities altogether.
Models
may have aspects that are predictive in nature. The use of predictive models has
inherent risks. For example, such models may incorrectly forecast future
behavior, leading to potential losses on a cash flow and/or a mark-to-market
basis. In addition, in unforeseen or certain low-probability scenarios (often
involving a market disruption of some kind), such models may produce unexpected
results, which can result in losses for the Fund. Furthermore, because
predictive models are usually constructed based on historical data supplied by
third parties, the success of relying on such models may depend heavily on the
accuracy and reliability of the supplied historical data.
All
models rely on correct market data inputs. If incorrect market data is entered
into even a well-founded model, the resulting information will be incorrect.
However, even if market data is input correctly, “model prices” will often
differ substantially from market prices, especially for instruments with complex
characteristics, such as derivative instruments.
Money
Market Instrument Risk (2x Daily Travel Tech ETF only):
The Fund may use a variety of money market instruments for cash management
purposes, including money market funds, depositary accounts and repurchase
agreements. Money market funds may be subject to credit risk with respect to the
debt instruments in which they invest. Depository accounts may be subject to
credit risk with respect to the financial institution in which the depository
account is held. Repurchase agreements are contracts in which a seller of
securities
agrees to buy the securities back at a specified time and price. Repurchase
agreements may be subject to market and credit risk related to the collateral
securing the repurchase agreement. Money market instruments may also be subject
to credit risks associated with the instruments in which they invest. There is
no guarantee that money market instruments will maintain a stable value, and
they may lose money.
Natural
Disaster/Epidemic Risk:
Natural
or environmental disasters, such as earthquakes, fires, floods, hurricanes,
tsunamis and other severe weather-related phenomena generally, and widespread
disease, including pandemics and epidemics, have been and may be highly
disruptive to economies and markets, adversely impacting individual companies,
sectors, industries, markets, currencies, interest and inflation rates, credit
ratings, investor sentiment, and other factors affecting the value of a Fund’s
investments. Given the increasing interdependence among global economies and
markets, conditions in one country, market, or region are increasingly likely to
adversely affect markets, issuers, and/or foreign exchange rates in other
countries, including the U.S. Any such events could have a significant adverse
impact on the value of a Fund’s investments.
New
Fund Risk:
Each Fund is a recently organized investment company with no operating history.
As a result, prospective investors have no track record or history on which to
base their investment decision.
Non-Diversification
Risk (2x Daily Travel Tech ETF only):
Because
the Fund is “non-diversified,” the Fund may invest a greater percentage of its
assets in the securities of a single issuer or a small number of issuers than if
it was a diversified fund. As a result, a decline in the value of an investment
in a single issuer or a small number of issuers could cause the Fund’s overall
value to decline to a greater degree than if the Fund held a more diversified
portfolio. This may increase the Fund’s volatility and have a greater impact on
the Fund’s performance.
Other
Investment Companies (including ETFs) Risk:
A Fund may invest directly in another investment company by purchasing shares of
the investment company or indirectly by utilizing an investment company as the
reference asset of a derivative instrument. A Fund will incur higher and
duplicative expenses when it invests in other investment companies such as ETFs.
There is also the risk that a Fund may suffer losses due to the investment
practices of the underlying funds. If the other investment company fails to
achieve its investment objective, the value of such Fund’s investment will not
perform as expected, thus affecting such Fund’s performance and its correlation
with the Index. When a Fund invests in other investment companies, such Fund
will be subject to substantially the same risks as those associated with the
direct ownership of securities held by such investment companies. Investments in
ETFs are also subject to the following risks: (i) the market price of an ETF’s
shares may trade above or below their net asset value; (ii) an active trading
market for an ETF’s shares may not develop or be maintained; and (iii) trading
of an ETF’s shares may be halted for a number of reasons. Investments in such
shares may be subject to brokerage and other trading costs, which could result
in greater expenses to a Fund. Finally, depending on the demand in the market, a
Fund may not be able to liquidate its holdings in ETFs at an optimal price or
time, which may adversely affect such Fund’s performance.
Passive
Investment Risk:
Each Fund is not actively managed. Therefore, unless a specific security is
removed from a Fund’s Index, such Fund generally would not sell a security
because the security’s issuer was in financial trouble. If a specific security
is removed from a Fund’s Index, such Fund may be forced to sell such security at
an inopportune time or for a price other than the security’s current market
value. An investment in a Fund involves risks similar to those of investing in
any equity securities traded on an exchange, such as market fluctuations caused
by such factors as economic and political developments, changes in interest
rates and perceived trends in security prices. It is anticipated that the value
of a Fund’s shares will decline, more or less, in correspondence with any
decline in value of such Fund’s respective Index. An Index may not contain the
appropriate mix of securities for any particular economic cycle, and the timing
of movements from one type of security to another in seeking to replicate the
Index could have a negative effect on the applicable Fund. Unlike with an
actively managed fund, the Adviser does not use techniques or defensive
strategies designed to lessen the effects of market volatility or to reduce the
impact of periods of market decline. This means that, based on market and
economic conditions, a Fund’s performance could be lower than other types of
funds that may actively shift their portfolio assets to take advantage of market
opportunities or to lessen the impact of a market decline.
Portfolio
Turnover Risk (2x Daily Travel Tech ETF only):
Daily rebalancing of the Fund’s holdings pursuant to its daily investment
objective causes a much greater number of portfolio transactions when compared
to most ETFs. Additionally, active market trading of the Fund’s shares on such
exchanges as the NYSE Arca, Inc., could cause more frequent creation and
redemption activities which could increase the number of portfolio transactions.
Frequent and active trading may lead to higher transaction costs because of
increased broker commissions resulting from such transactions. In addition,
there is the possibility of significantly increased short-term capital gains
(which will be taxable to shareholders as ordinary income when distributed to
them). The Fund calculates portfolio turnover without including the short-term
cash instruments or derivative transactions that comprise the majority of the
Fund’s trading. As such, if the Fund’s extensive use of derivative instruments
were reflected, the calculated portfolio turnover rate would be significantly
higher.
Reliance
on Trading Partners Risk (2x Daily Travel Tech ETF only):
The Fund invests in some economies that are heavily dependent upon trading with
key partners. Any reduction in this trading may cause an adverse impact on the
economy in which the Fund invests.
Sector
Risk:
To
the extent a Fund invests more heavily in particular sectors of the economy, its
performance will be especially sensitive to developments that significantly
affect those sectors.
Securities
Lending Risk:
Each Fund may engage in securities lending. A Fund may lose money if the
borrower of the loaned securities delays returning in a timely manner or fails
to return the loaned securities. Securities lending involves the risk that a
Fund could lose money in the event of a decline in the value of collateral
provided for loaned securities. In addition, a Fund bears the risk of loss in
connection with its investment of the cash collateral it receives from a
borrower. When a Fund invests cash collateral in other investment companies,
such investments of cash collateral will be subject to substantially the same
risks as those associated with the direct ownership of securities held by such
investment companies. To the extent that the value or return of a Fund’s
investment of the cash collateral declines below the amount owed to the
borrower, such Fund may incur losses that exceed the amount it earned on lending
the security. A Fund may borrow money to repay the applicable borrower the
amount of cash collateral owed to the borrower upon return of the loaned
securities. This will result in financial leverage, which may cause a Fund to be
more volatile because financial leverage tends to exaggerate the effect of any
increase or decrease in the value of such Fund’s portfolio securities.
Smaller
Companies Risk:
Each Fund’s Index may be composed primarily of, or have significant exposure to,
securities of smaller companies. As a result, the Funds may be subject to the
risk that securities of smaller companies represented in the Indexes may
underperform securities of larger companies or the equity market as a whole. In
addition, in comparison to securities of companies with larger capitalizations,
securities of smaller-capitalization companies may experience more price
volatility, greater spreads between their bid and ask prices, less frequent
trading, significantly lower trading volumes, and cyclical or static growth
prospects. As a result of the differences between the securities of smaller
companies and those of companies with larger capitalizations, it may be more
difficult for a Fund to buy or sell a significant amount of the securities of a
smaller company without an adverse impact on the price of the company’s
securities, or a Fund may have to sell such securities in smaller quantities
over a longer period of time, which may increase the Fund’s tracking error.
Smaller-capitalization companies often have limited product lines, markets or
financial resources, and may therefore be more vulnerable to adverse
developments than larger capitalization companies. These securities may or may
not pay dividends.
Tax
Risk:
To qualify for the favorable tax treatment generally available to regulated
investment companies, a Fund must satisfy certain diversification requirements
under the Code. In particular, a Fund generally may not acquire a security if,
as a result of the acquisition, more than 50% of the value of such Fund’s assets
would be invested in (a) issuers in which the Fund has, in each case, invested
more than 5% of the Fund’s assets and (b) issuers more than 10% of whose
outstanding voting securities are owned by the Fund. When the Index is
concentrated in a relatively small number of securities, it may not be possible
for the applicable Fund to fully implement a replication strategy or a
representative sampling strategy while satisfying these diversification
requirements. A Fund’s efforts to satisfy the diversification requirements may
cause such Fund’s return to deviate from that of the Index, and the applicable
Fund’s efforts to replicate the Index may cause it inadvertently to fail to
satisfy the diversification requirements.
If
a Fund were to fail to qualify as a regulated investment company, it would be
taxed in the same manner as an ordinary corporation, and distributions to its
shareholders would not be deductible by such Fund in computing its taxable
income. Distributions to a Fund’s shareholders would generally be taxed as
ordinary dividends. Under certain circumstances, a Fund may be able to cure a
failure to qualify as a regulated investment company, but in order to do so such
Fund may incur significant Fund-level taxes and may be forced to dispose of
certain assets. Relief is provided for certain de
minimis
failures of the diversification requirements where a Fund corrects the failure
within a specified period. If a Fund were to fail to qualify as a regulated
investment company in any taxable year, such Fund would be required to pay out
its earnings and profits accumulated in that year in order to qualify for
treatment as a regulated investment company in a subsequent year. If a Fund
failed to qualify as a regulated investment company for a period greater than
two taxable years, such Fund would generally be required to pay the Fund-level
tax on any net built-in gains with respect to certain of its assets upon a
disposition of such assets within five years of qualifying as a regulated
investment company in a subsequent year.
Tracking
Error Risk:
Tracking error refers to the risk that the Adviser may not be able to cause such
Fund’s performance to match or correlate to that of the applicable Fund’s Index,
either on a daily or aggregate basis. There are a number of factors that may
contribute to a Fund’s tracking error, such as Fund expenses, imperfect
correlation between such Fund’s investments and those of the Index, rounding of
share prices, changes to the composition of the Index, regulatory policies, and
high portfolio turnover rate. In addition, mathematical compounding may prevent
a Fund from correlating with the monthly, quarterly, annual or other period
performance of the Index. In addition, in order to minimize the market impact of
the Index rebalance, a Fund may begin trading to effect the rebalance in advance
of the effective date of the rebalance and continue trading after the effective
date of the rebalance. This may contribute to tracking error if the weights of a
Fund’s portfolio securities diverge from the weights of the securities in the
Index during the rebalancing. Tracking error in such circumstances may be
greater if a Fund is trading in securities that are less liquid or lightly
traded. Tracking error may cause a Fund’s performance to be less than
expected.
Valuation
Risk:
The sales price that a Fund could receive for a security may differ from such
Fund’s valuation of the security and may differ from the value used by the
Index, particularly for securities that trade in low volume or volatile markets
or that are valued using a fair value methodology. In addition, the value of the
securities in a Fund’s portfolio may change on days when shareholders will not
be able to purchase or sell such Fund’s shares.
Portfolio
Holdings
Information
about the Funds’ daily portfolio holdings will be available at www.etfmg.com. A
summarized description of the Funds’ policies and procedures with respect to the
disclosure of the Funds’ portfolio holdings is available in the Funds’ Statement
of Additional Information (“SAI”).
Fund
Management
Adviser.
ETF
Managers Group LLC, the investment adviser to the Funds, is a Delaware
limited liability company located at 30 Maple Street, 2nd
Floor, Summit, New Jersey 07901. The Adviser provides investment advisory
services to exchange-traded funds. The Adviser serves as investment adviser to
the Funds with overall responsibility for the day-to-day portfolio management of
each Fund, subject to the supervision of the Board. For its services, the
Adviser receives, and did receive for each Fund’s most recent fiscal year, a fee
that is equal to the percent shown in the table below per annum of the average
daily net assets of each Fund with the fee for each Fund calculated daily and
paid monthly.
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|
|
Fund |
Management
Fee |
Travel
Tech ETF |
0.75% |
2x
Daily Travel Tech ETF |
0.95% |
Under
the Investment Advisory Agreement, the Adviser has overall responsibility for
the general management and administration of the Funds and arranges for transfer
agency, custody, fund administration, securities lending, and all other
non-distribution related services necessary for each Fund to operate.
Additionally, under the Investment Advisory Agreement, the Adviser has agreed to
pay all expenses of each Fund, except for: the fee paid to the Adviser pursuant
to the Investment Advisory Agreement, interest charges on any borrowings, taxes,
brokerage commissions and other expenses incurred in placing orders for the
purchase and sale of securities and other investment instruments, acquired fund
fees and expenses, accrued deferred tax liability, extraordinary expenses (such
as, among other things and subject to Board approval, certain proxy solicitation
costs and non-standard Board-related expenses and litigation against the Board,
Trustees, Fund, Adviser, and officers of the Adviser), and distribution (12b-1)
fees and expenses (collectively, “Excluded Expenses”).
A
discussion regarding the basis for the Board’s approval of the Investment
Advisory Agreement for the Travel Tech ETF is available in the Funds’
Semi-Annual Report
for the reporting period ended March 31, 2021. A discussion regarding the basis
for the Board’s approval of the Investment Advisory Agreement for the 2x Daily
Travel Tech ETF is available in the Funds’ Annual Report
for the reporting period ended September 30, 2021
Manager
of Managers Structure.
The Adviser and the Trust have received an exemptive order (the “Order”) from
the SEC that permits the Adviser to enter into investment sub-advisory
agreements with sub-advisers without obtaining shareholder approval. The
Adviser, subject to the review and approval of the Board, may select one or more
sub-advisers for a Fund and supervise, monitor and evaluate the performance of
each sub-adviser.
The
Order also permits the Adviser, subject to the approval of the Board, to replace
sub-advisers and amend investment sub-advisory agreements, including fees,
without shareholder approval whenever the Adviser and the Board believe such
action will benefit a Fund and its respective shareholders. The Adviser thus has
the ultimate responsibility (subject to the ultimate oversight of the Board) to
recommend the hiring and replacement of sub-advisers as well as the discretion
to terminate any sub-adviser and reallocate a Fund’s assets for management among
any other sub-adviser(s) and itself. This means that the Adviser may be able to
reduce the sub-advisory fees and retain a larger portion of the management fee,
or increase the sub-advisory fees and retain a smaller portion of the management
fee. The Adviser will compensate each sub-adviser out of its management fee. A
Fund is required to provide shareholders with certain information regarding any
new sub-adviser within 90 days of the hiring of any new sub-adviser. Such
information generally includes the information that would have been provided to
shareholders in the form of a proxy statement in the absence of the Order.
The
Adviser’s reliance on such Order with respect to a Fund is contingent on the
holders of a majority of such Fund’s outstanding voting securities approving the
applicable Fund’s use of a manager of managers structure and the Adviser’s
reliance on such Order. Prior to the date of this Prospectus, shareholders of
each Fund approved the use by such Fund of a manager of managers structure and
the Adviser’s reliance on such Order.
Portfolio
Managers
The
Funds’ portfolio managers are primarily responsible for the day-to-day
management of the Funds. The portfolio managers are responsible for various
functions related to portfolio management, including, but not limited to,
investing cash inflows, implementing investment strategy, researching and
reviewing investment strategy.
The
Funds are managed by Samuel R. Masucci, III, Chief Executive Officer of the
Adviser, Frank Vallario, Chief Investment Officer of the Adviser, Donal Bishnoi,
Portfolio Manager of the Adviser, and Devin Ryder, Portfolio Manager of the
Adviser.
Samuel
Masucci, III has more than 25 years’ experience in investment banking,
structured product development, sales and trading. In the last 5 years, he
founded ETF Managers Group (ETFMG). Prior to ETFMG he has held senior positions
at Bear Stearns, UBS, SBC Warburg, and Merrill Lynch and has experience in
creating, building and managing businesses for the issuance, sales and trading
of: ETFs, index products, commodity products, hedge funds, ABS, and OTC
structured products in the U.S. and Europe.
Frank
Vallario serves in the role of Chief Investment Officer for the Adviser. Mr.
Vallario is responsible for the portfolio construction, trading, risk management
and portfolio analysis processes associated with ETF strategies. Prior to his
current role at the Adviser, Mr. Vallario has had a variety of senior roles over
his 25-year career in financial services. He joined Oppenheimer Funds in 2017
where he was Head of Equity Portfolio Management for Smart Beta ETFs. Prior to
that he was a Senior Portfolio Manager at Columbia Threadneedle from September
2015 to June 2017 where he was responsible for the day to day management of the
firm’s ETF business, which was acquired from his previous firm, Emerging Global
Advisors (EGA). From September 2010 to September 2015, he was relationship
manager at MSCI responsible for providing investment solutions to complex
problems using MSCI Barra’s fundamental models and portfolio construction tools.
Previously, he was a partner in a start-up asset management firm where he served
as the director of portfolio management. Mr. Vallario began his career at UBS
Global Asset Management where he spent over a decade in various quantitative
portfolio management equity roles including equity market neutral, tactical
asset allocation, structured active equities, enhanced index, passive management
and factor research. Mr. Vallario served on the Investment Committee for the
Girl Scouts of Connecticut and was a University Affiliate at the University of
Utah – David Eccles School of Business. He received a B.S. in Finance from
Lehigh University and a M.B.A. with a concentration in Finance from Rutgers
University.
Donal
A. Bishnoi, CFA, has more than 16 years of experience in portfolio management
and risk management. Prior to joining the Adviser, Mr. Bishnoi held a senior
portfolio management position with Oppenheimer Funds from 2018 to 2019 where he
was responsible for managing approximately $5 billion in assets across 20
passive strategies. Prior to joining Oppenheimer Funds in 2010, Mr. Bishnoi
managed a long/short systematic equity strategy at Moore Capital from 2007 to
2009. He holds a bachelor’s degree from Boston University’s Questrom School of
Business and is a CFA charter holder.
Devin
Ryder began her career with the Adviser during the summer of 2017 and re-joined
the Adviser on a permanent basis in 2018 to be a part of the Adviser’s portfolio
management team. Prior to joining the Adviser, Ms. Ryder was pursuing studies in
the quantitative aspects of risk management and finance, for which she received
a B.S. in Mathematics of Finance and Risk Management from the University of
Michigan in 2017.
The
SAI provides additional information about each Portfolio Manager’s compensation,
other accounts managed, and ownership of the applicable Fund’s shares.
Buying
and Selling the Funds
Each
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from a Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor (defined below), and that
has been accepted by the Fund’s transfer agent, with respect to purchases and
redemptions of Creation Units. Once created, Shares trade in the secondary
market in quantities less than a Creation Unit.
Each
Fund’s shares are listed for secondary trading on the Exchange. When you buy or
sell a Fund’s shares on the secondary market, you will pay or receive the market
price. You may incur customary brokerage commissions and charges and may pay
some or all of the spread between the bid and the offered price in the secondary
market on each leg of a round trip (purchase and sale) transaction. The shares
will trade on the Exchange at prices that may differ to varying degrees from the
daily NAV of the shares. The Exchange is generally open Monday through Friday
and is closed weekends and the following holidays: New Year’s Day, Martin Luther
King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Juneteenth Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
NAV
per share for a Fund is computed by dividing the value of the net assets of the
Fund (i.e.,
the value of its total assets less total liabilities) by its total number of
shares outstanding. Expenses and fees, including management and distribution
fees, if any, are accrued daily and taken into account for purposes of
determining NAV. NAV is determined each business day, normally as of the close
of regular trading of the New York Stock Exchange (ordinarily 4:00 p.m., Eastern
time).
When
determining NAV, the value of a Fund’s portfolio securities is based on market
prices of the securities, which generally means a valuation obtained from an
exchange or other market (or based on a price quotation or other equivalent
indication of the value supplied by an exchange or other market) or a valuation
obtained from an independent pricing service. Swap contracts are valued based on
the value of the swap contract’s reference asset and are marked-to-market each
day NAV is calculated. If such information is not readily available or does not
otherwise accurately reflect the fair value of the security, the security will
be valued by another method that the Board believes will better reflect fair
value in accordance with the Trust’s valuation policies and procedures. Fair
value pricing may be used in a variety of circumstances, including, but not
limited to, situations when the value of a security in a Fund’s portfolio has
been materially affected by events occurring after the close of the market on
which the security is principally traded but prior to the close of the Exchange
(such as in the case of a corporate action or other news that may materially
affect the
price
of a security) or trading in a security has been suspended or halted.
Accordingly, the Fund’s NAV may reflect certain portfolio securities’ fair
values rather than their market prices.
Fair
value pricing involves subjective judgments and it is possible that a fair value
determination for a security will materially differ from the value that could be
realized upon the sale of the security. In addition, fair value pricing could
result in a difference between the prices used to calculate a Fund’s NAV and the
prices used by the Fund’s Index. This may result in a difference between a
Fund’s performance and the desired performance relative to the Fund’s
Index.
The
Funds invest in non-U.S. securities. Non-U.S. securities held by a Fund may
trade on weekends or other days when the Fund does not price its shares. As a
result, the Fund’s NAV may change on days when Authorized Participants will not
be able to purchase or redeem Fund shares.
Frequent
Purchases and Redemptions of the Funds’ Shares
Unlike
frequent trading of shares of a traditional open-end mutual fund’s (i.e.,
not exchange-traded) shares, frequent trading of shares of the Funds on the
secondary market does not disrupt portfolio management, increase the Funds’
trading costs, lead to realization of capitalization gains, or otherwise harm
the Funds’ shareholders because these trades do not involve the Funds directly.
Certain institutional investors are authorized to purchase and redeem a Fund’s
shares directly with the Fund. Because these trades are effected in-kind
(i.e.,
for securities, and not for cash), they do not cause any of the harmful effects
noted above that may result from frequent cash trades. Moreover, the Funds
impose transaction fees on in-kind purchases and redemptions of Creation Units
to cover the custodial and other costs incurred by the Funds in effecting
in-kind trades. These fees increase if an investor substitutes cash in part or
in whole for Creation Units, reflecting the fact that a Fund’s trading costs
increase in those circumstances. For these reasons, the Board has determined
that it is not necessary to adopt policies and procedures to detect and deter
frequent trading and market-timing in shares of the Funds.
Dividends,
Distributions, and Taxes
Fund
Distributions
Each
Fund intends to pay out dividends, if any, quarterly and distribute any net
realized capital gains to their shareholders annually.
Dividend
Reinvestment Service
Brokers
may make available to their customers who own a Fund’s shares the DTC book-entry
dividend reinvestment service. If this service is available and used, dividend
distributions of both income and capital gains will automatically be reinvested
in additional whole shares of the applicable Fund. Without this service,
investors would receive their distributions in cash. In order to achieve the
maximum total return on their investments, investors are encouraged to use the
dividend reinvestment service. To determine whether the dividend reinvestment
service is available and whether there is a commission or other charge for using
this service, consult your broker. Brokers may require a Fund’s shareholders to
adhere to specific procedures and timetables. If this service is available and
used, dividend distributions of both income and realized gains will be
automatically reinvested in additional whole shares issued by the applicable
Fund at NAV per share.
Tax
Information
The
following is a summary of some important tax issues that affect the Funds and
their respective shareholders. The summary is based on current tax laws, which
may be changed by legislative, judicial or administrative action. You should not
consider this summary to be a detailed explanation of the tax treatment of the
Funds, or the tax consequences of an investment in the Funds. The summary is
very general, and does not address investors subject to special rules, such as
investors who hold shares through an IRA, 401(k) or other tax-deferred account.
More information about taxes is located in the SAI. You are urged to consult
your tax adviser regarding specific questions as to federal, state and local
income taxes.
Tax
Status of the Funds
Each
Fund is treated as a separate entity for federal tax purposes, and intends to
qualify for the special tax treatment afforded to regulated investment companies
under the Code. As long as each Fund qualifies as a regulated investment
company, it pays no federal income tax on the earnings it distributes to
shareholders.
Tax
Status of Distributions
•Each
Fund will, for each year, distribute substantially all of its net investment
income and net capital gains.
•Each
Fund’s distributions from income will generally be taxed to you as ordinary
income or qualified dividend income. For non-corporate shareholders, dividends
reported by a Fund as qualified dividend income are generally eligible for
reduced tax rates.
•Corporate
shareholders may be entitled to a dividends-received deduction for the portion
of dividends they receive that are attributable to dividends received by the
Fund from U.S. corporations, subject to certain limitations. A Fund’s strategies
may limit its ability to distribute dividends eligible for the
dividends-received deduction for corporate shareholders.
•Any
distributions of net capital gain (the excess of a Fund’s net long-term capital
gains over its net short-term capital losses) that you receive from the Fund are
taxable as long-term capital gains regardless of how long you have owned your
shares. Long-term capital gains are currently taxed to non-corporate
shareholders at reduced maximum rates.
•Dividends
and distributions are generally taxable to you whether you receive them in cash
or in additional shares through a broker’s dividend reinvestment service. If you
receive dividends or distributions in the form of additional shares through a
broker’s dividend reinvestment service, you will be required to pay applicable
federal, state or local taxes on the reinvested dividends but you will not
receive a corresponding cash distribution with which to pay any applicable
tax.
•A
Fund may be able to pass through to you foreign tax credits for certain taxes
paid by the Fund, provided the Fund meets certain requirements.
•Distributions
paid in January but declared by the Fund in October, November or December of the
previous year may be taxable to you in the previous year.
•Each
Fund will inform you of the amount of your ordinary income dividends, qualified
dividend income, foreign tax credits and net capital gain distributions received
from the Fund shortly after the close of each calendar year.
Taxes
on Exchange-Listed Share Sales. Any
capital gain or loss realized upon a sale of shares will generally be treated as
long-term capital gain or loss if the shares have been held for more than one
year and as short-term capital gain or loss if the shares have been held for one
year or less, except that any capital loss on the sale of shares held for six
months or less will be treated as long-term capital loss to the extent of
amounts treated as distributions of long-term capital gains to the shareholder
with respect to such shares.
Investment
in Foreign Securities.
The Funds may be subject to foreign withholding taxes on income they may earn
from investing in foreign securities, which may reduce the return on such
investments. In addition, the Funds’ investments in foreign securities or
foreign currencies may increase or accelerate the Funds’ recognition of ordinary
income and may affect the timing or amount of their distributions. The Funds may
be eligible to file an election that would permit shareholders who are U.S.
citizens, resident aliens or U.S. corporations to claim a foreign tax credit or
deduction (but not both) on their U.S. income tax returns for their pro rata
portions of qualified taxes paid by the Funds to foreign countries in respect of
foreign securities held for at least the minimum period specified in the Code.
For the purposes of the foreign tax credit, each such shareholder would include
in gross income from foreign sources its pro rata share of such taxes. Certain
limitations imposed by the Code may prevent shareholders from receiving a full
foreign tax credit or deduction for their allocable amount of such taxes.
Medicare
Tax. U.S.
individuals with income exceeding $200,000 ($250,000 if married and filing
jointly) are subject to a 3.8% Medicare contribution tax on their “net
investment income,” including interest, dividends, and capital gains (including
capital gains realized on the sale or exchange of shares). This 3.8% tax also
applies to all or a portion of the net investment income of certain shareholders
that are estates and trusts which the estate or trust has not distributed to its
beneficiaries.
Non-U.S.
Investors. If
you are not a citizen or permanent resident of the United States, a Fund’s
ordinary income dividends will generally be subject to a 30% U.S. withholding
tax, unless a lower treaty rate applies or unless such income is effectively
connected with a U.S. trade or business. This 30% withholding tax generally will
not apply to distributions of net capital gain.
Distributions
paid to a shareholder that is a “foreign financial institution” as defined in
Section 1471 of the Code and that does not meet the requirements imposed on
foreign financial institutions by Section 1471 will generally be subject to
withholding tax at a 30% rate. Distributions to a non-U.S. shareholder that is
not a foreign financial institution will generally be subject to such
withholding tax if the shareholder fails to make certain required
certifications. A non-U.S. shareholder may be exempt from the withholding
described in this paragraph under an applicable intergovernmental agreement
between the U.S. and a foreign government, provided that the shareholder and the
applicable foreign government comply with the terms of such agreement.
Backup
Withholding. The
Funds or your broker will be required in certain cases to withhold (as “backup
withholding”) on amounts payable to any shareholder who (1) has provided
either an incorrect tax identification number or no number at all, (2) is
subject to backup withholding by the Internal Revenue Service for failure to
properly report payments of interest or dividends, (3) has failed to
certify that such shareholder is not subject to backup withholding, or
(4) has not certified that such shareholder is a U.S. person (including a
U.S. resident alien). The backup withholding rate is currently 24%. Backup
withholding will not, however, be applied to payments that have been subject to
the 30% withholding tax applicable to shareholders who are neither citizens nor
residents of the United States.
Distribution
The
Distributor, ETFMG Financial LLC, an affiliate of the Adviser, is a
broker-dealer registered with the U.S. Securities and Exchange Commission. The
Distributor distributes Creation Units for the Funds on an agency basis and does
not maintain a secondary market in the Funds’ shares. The Distributor has no
role in determining the policies of the Funds or the securities that are
purchased or sold by the Funds. The Distributor’s principal business address is
30 Maple Street, 2nd
Floor, Summit, New Jersey 07901.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act with respect to each Fund. In accordance with the
Plan, each Fund is authorized to pay an amount up to 0.25% of its average daily
net assets each year for certain distribution-related activities and shareholder
services.
No
Rule 12b-1 fees are currently paid by the Funds, and there are no plans to
impose these fees. However, in the event Rule 12b-1 fees are charged
in the future, because the fees are paid out of each applicable Fund’s assets,
over time these fees will increase the cost of your investment and may cost you
more than certain other types of sales charges.
Fund
Service Providers
Sullivan
& Worcester LLP, 1666 K Street NW, Washington, DC 20006, serves as legal
counsel to the Funds.
WithumSmith
+ Brown, PC, with offices located at 1411 Broadway, 9th Floor, New York, New
York, 10018, serves as the Funds’ independent registered public accounting firm.
The independent registered public accounting firm is responsible for auditing
the annual financial statements of the Funds.
Index/Trademark
Licenses/Disclaimers
Prime
Indexes are trademarks of Level ETF Ventures LLC (“Level”) and have been
licensed for use by the Adviser. The Funds are not sponsored, endorsed, sold or
promoted by Level or its Calculation Agent. Level and the Calculation Agent make
no representation regarding the advisability of trading in such
products.
LEVEL
AND THE CALCULATION AGENT DO NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS
OF THE INDEX OR ANY DATA INCLUDED THEREIN AND THEY SHALL HAVE NO LIABILITY FOR
ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. LEVEL AND THE CALCULATION AGENT
MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
ADVISER, OWNERS OR USERS OF A FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE INDEX OR ANY DATA INCLUDED THEREIN. LEVEL AND THE CALCULATION AGENT MAKE
NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT SHALL LEVEL OR THE CALCULATION AGENT HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. Each Fund is not sponsored,
endorsed, sold or promoted by Level or the Calculation Agent. Level and the
Calculation Agent make no representation or warranty, express or implied, to the
owners of a Fund or any member of the public regarding the advisability of
investing in securities generally or in a Fund in particular or the ability of
the Index to track general stock market performance. The Index is determined,
composed and calculated by Level or its Calculation Agent without regard to the
Adviser or a Fund. Level and the Calculation Agent have no obligation to take
the needs of the Adviser or the owners of a Fund into consideration in
determining, composing or calculating the Index. Level and the Calculation Agent
are not responsible for and have not participated in the determination of the
prices and amount of a Fund or the timing of the issuance or sale of a Fund or
in the determination or calculation of the equation by which a Fund is converted
into cash. Level and the Calculation Agent have no obligation or liability in
connection with the administration, marketing or trading of a Fund.
Shares
of the Trust are not sponsored, endorsed, or promoted by the Exchange. The
Exchange makes no representation or warranty, express or implied, to the owners
of the shares of a Fund. The Exchange is not responsible for, nor has it
participated in, the determination of the timing of, prices of, or quantities of
the shares of a Fund to be issued, or in the determination or calculation of the
equation by which the shares are redeemable.
The
Exchange has no obligation or liability to owners of the shares of a Fund in
connection with the administration, marketing, or trading of the shares of a
Fund. Without limiting any of the foregoing, in no event shall the Exchange have
any liability for any lost profits or indirect, punitive, special, or
consequential damages even if notified of the possibility thereof.
The
Adviser and each Fund make no representation or warranty, express or implied, to
the owners of shares of a Fund or any members of the public regarding the
advisability of investing in securities generally or in a Fund
particularly.
Premium/Discount
Information
Information
regarding the number of days each Fund’s market price was a price above
(i.e.,
at a premium) or below (i.e.,
at a discount) its NAV for the most recently completed calendar year and the
most recently completed calendar quarters since that year, are provided, free of
charge, on the Funds’ website at www.etfmg.com.
Litigation
The
Adviser and its parent, ETFMG, were defendants in a case filed on October 26,
2017 in the United States District Court for the Southern District of New York
by NASDAQ, Inc. (“Nasdaq”) captioned Nasdaq,
Inc. v. Exchange Traded Managers Group, LLC et al.,
Case 1:17-cv-08252 (the “New York Action”). This action asserted claims for
breach of contract, conversion and certain other claims based on disputes
arising out of contractual relationships with the Adviser relating to certain
series of the Trust. The matter was the subject of a bench trial in May 2019,
and on December 20, 2019, the Court issued an Opinion and Order awarding
compensatory
damages
to Plaintiff in the amount of $78,403,172.36, plus prejudgment interest (the
“Judgment”). In its decision, the Court in the New York Action stated that its
damages award, which gave rise to the Judgment, “includes the share of profits
to which Nasdaq’s venture partner PureShares was entitled[.]”
ETFMG
filed a Notice of Appeal from the Judgment in the United States Court of Appeals
for the Second Circuit on January 19, 2020, Docket No. 20-300. On October 28,
2021, Nasdaq and ETFMG entered into a Judgment Payment Agreement, which settled
the matter and satisfied the Judgment. On November 1, 2021, Nasdaq recorded a
Satisfaction of Judgment with the United States District Court for the Southern
District of New York reflecting that the Judgment was paid in full, and ETFMG
withdrew its appeal of the Judgment with prejudice before the United States
Court of Appeals for the Second Circuit.
The
Trust, the Adviser, and certain officers and affiliated persons of the Adviser
have been named as defendants in an action filed December 21, 2021, in the
Superior Court of New Jersey, Union County, captioned PureShares,
LLC, d/b/a PureFunds et al. v. ETF Managers Group, LLC et al.,
Docket No. UNN-C-152-21. This action asserts breach of contract and tort claims
arising from the same facts and circumstances, and relates to the same series of
the Trust, that gave rise to the New York Action. The new action seeks damages
in unspecified amounts and injunctive relief. The defendants intend to
vigorously defend themselves in this new action and believe that Plaintiffs’
claims overlap with, and are barred by, those claims previously asserted by
Nasdaq (and resolved on PureShares’ behalf) in the New York Action that resulted
in the Judgment, which has been satisfied.
Financial
Highlights
The
financial highlights tables are intended to help you understand the Funds’
financial performance for the period of each Fund’s operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have gained (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been derived from the financial statements
audited by WithumSmith+Brown, PC, an independent registered public accounting
firm, whose report, along with the Funds’ financial statements, is included in
the Funds’ Annual Report,
which is available upon request.
ETFMG
Travel Tech ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended September 30, 2021 |
|
Period
Ended
September
30,
20201 |
Net
Asset Value, Beginning Year/Period |
|
|
|
|
|
|
|
|
$ |
18.88 |
|
|
$ |
25.00 |
|
|
Income
(Loss) from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income (loss)2 |
|
|
|
|
|
|
|
|
(0.13) |
|
|
(0.02) |
|
|
Net
realized and unrealized gain (loss) on investments |
|
|
|
|
|
|
|
|
9.60 |
|
|
(6.12) |
|
|
Total
from investment operations |
|
|
|
|
|
|
|
|
9.47 |
|
|
(6.14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
from net investment income |
|
|
|
|
|
|
|
|
(0.01) |
|
|
— |
|
|
Net
realized gains |
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
Total
distributions |
|
|
|
|
|
|
|
|
(0.01) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Share Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
fees added to paid-in capital |
|
|
|
|
|
|
|
|
0.03 |
|
|
0.02 |
|
|
Net
asset value, end year/period |
|
|
|
|
|
|
|
|
$ |
28.37 |
|
|
$ |
18.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Return |
|
|
|
|
|
|
|
|
50.35 |
% |
|
-24.50 |
% |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets at end of year/period (000’s) |
|
|
|
|
|
|
|
|
$ |
321,957 |
|
|
$ |
15,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
to Average Net Assets |
|
|
|
|
|
|
|
|
0.75 |
% |
|
0.75 |
% |
4 |
Net
Investment Income (Loss) to Average Net Assets |
|
|
|
|
|
|
|
|
-0.43 |
% |
|
0.30 |
% |
4 |
Portfolio
Turnover Rate |
|
|
|
|
|
|
|
|
57 |
% |
|
49 |
% |
3 |
1 Commence
of operations on February 12, 2020.
2 Calculated
based on average shares outstanding during the year/period.
3 Not
annualized.
4 Annualized.
ETFMG
2x Daily Travel Tech ETF
FINANCIAL
HIGHLIGHTS
For
a capital share outstanding throughout the year/period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
Ended
September
30,
20211 |
|
Net
Asset Value, Beginning Period |
|
|
|
|
|
|
$ |
10.00 |
|
|
Income
(Loss) from Investment Operations: |
|
|
|
|
|
|
|
|
Net
investment income (loss) 2 |
|
|
|
|
|
|
(0.02) |
|
|
Net
realized and unrealized gain (loss) on investments |
|
|
|
|
|
|
(1.87) |
|
|
Total
from investment operations |
|
|
|
|
|
|
(1.89) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, end period |
|
|
|
|
|
|
$ |
8.11 |
|
|
Total
Return |
|
|
|
|
|
|
-18.95 |
% |
3 |
|
|
|
|
|
|
|
|
|
Ratios/Supplemental
Data: |
|
|
|
|
|
|
|
|
Net
assets at end of period (000’s) |
|
|
|
|
|
|
$ |
811 |
|
|
|
|
|
|
|
|
|
|
|
Gross
Expenses to Average Net Assets |
|
|
|
|
|
|
0.95 |
% |
4 |
Net
Investment Income (Loss) to Average Net Assets |
|
|
|
|
|
|
-0.80 |
% |
4 |
Portfolio
Turnover Rate |
|
|
|
|
|
|
0 |
% |
3 |
1 Commencement
of operations on June 15, 2021.
2 Calculated
based on average shares outstanding during the period.
3 Not
annualized.
4 Annualized.
ETF
Managers Trust
30
Maple Street, 2nd
Floor
Summit,
New Jersey 07901
ANNUAL/SEMI-ANNUAL
REPORTS TO SHAREHOLDERS
Additional
information about the Funds’ investments is available in the Funds’ annual and
semi-annual reports to shareholders (when available). In the Funds’ annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds’ performance during its last
fiscal year.
STATEMENT
OF ADDITIONAL INFORMATION (SAI)
The
SAI provides more detailed information about the Funds. The SAI is incorporated
by reference into, and is thus legally a part of, this Prospectus.
FOR
MORE INFORMATION
To
request a free copy of the latest annual
or semi-annual report, when available, the SAI or to request additional
information about the Funds or to make other inquiries, please contact us as
follows:
Call: 1-844-383-6477
Monday
through Friday
8:30
a.m. to 6:30 p.m. (Eastern Time)
Write: ETF
Managers Trust
30
Maple Street, 2nd
Floor
Summit,
New Jersey 07901
Visit: www.etfmg.com
INFORMATION
PROVIDED BY THE SECURITIES AND EXCHANGE COMMISSION
Reports
and other information about the Funds are available in the EDGAR Database on the
SEC’s Internet site at http://www.sec.gov, or you can receive copies of this
information, after paying a duplicating fee, by electronic request at the
following e-mail address: [email protected].
The
Trust’s Investment Company Act file number: 811-22310