ck0001137360-20230430
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PROSPECTUS |
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September 1,
2023
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BDC
Income ETF BIZD
Dynamic
High Income ETF INC
Emerging
Markets High Yield Bond ETF HYEM
Fallen
Angel High Yield Bond ETF ANGL
Green
Bond ETF GRNB
IG
Floating Rate ETF FLTR
International
High Yield Bond ETF IHY
J.P.
Morgan EM Local Currency Bond ETF EMLC
Moody's
Analytics BBB Corporate Bond ETF MBBB
Moody's
Analytics IG Corporate Bond ETF MIG
Mortgage
REIT Income ETF MORT
Preferred
Securities ex Financials ETF PFXF
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Principal
U.S. Listing Exchange for BIZD, INC, HYEM, GRNB, FLTR, IHY, EMLC, MORT,
PFXF: NYSE Arca, Inc. |
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Principal
U.S. Listing Exchange for ANGL: The NASDAQ Stock Market LLC. |
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Principal
U.S. Listing Exchange for MBBB, MIG: Cboe BZX Exchange, Inc. |
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The
U.S. Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy or adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense. |
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800.826.2333 vaneck.com
INVESTMENT
OBJECTIVE
VanEck® BDC Income ETF (the “Fund”) seeks to replicate as
closely as possible, before fees and expenses, the price and yield performance
of the MVIS®
US Business Development Companies Index (the “BDC Index” or the
“Index”).
FUND FEES AND
EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment)
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| Management
Fee |
0.40 |
% |
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Other
Expenses(a) |
0.02 |
% |
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Acquired
Fund Fees and Expenses(b) |
10.75 |
% |
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Total
Annual Fund Operating Expenses(a) |
11.17 |
% |
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(a)
Van
Eck Associates Corporation (the “Adviser”) will pay all expenses of the Fund,
except for the fee payment under the investment management agreement, acquired
fund fees and expenses, interest expense, offering costs, trading expenses,
taxes and extraordinary expenses. Notwithstanding the foregoing, the Adviser has
agreed to pay the offering costs until at least September 1,
2024.
(b)
“Acquired Fund Fees and
Expenses” include fees and expenses incurred indirectly by the Fund as a result
of investments in other investment companies, including business development
companies (“BDCs”). Because acquired fund fees and expenses are not borne
directly by the Fund, they will not be reflected in the expense information in
the Fund’s financial statements and the information presented in the table will
differ from that presented in the Fund’s financial highlights included in the
Fund’s reports to shareholders.
EXPENSE
EXAMPLE
This example is intended to help you compare
the cost of investing in the Fund with the cost of investing in other funds.
This example does not take into account brokerage commissions that you pay when
purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell or hold all of your Shares at the end of those
periods. The example also assumes that your investment has a 5% annual return
and that the Fund’s operating expenses remain the same.
Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
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| YEAR |
EXPENSES |
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| 1 |
$1,083 |
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| 3 |
$3,051 |
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| 5 |
$4,785 |
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| 10 |
$8,265 |
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PORTFOLIO
TURNOVER
The
Fund will pay transaction costs, such as commissions, when it purchases and
sells securities (or “turns over” its portfolio). A higher portfolio turnover
will cause the Fund to incur additional transaction costs and may result in
higher taxes when Fund Shares are held in a taxable account. These costs, which
are not reflected in annual fund operating expenses or in the example, may
affect the Fund’s performance. During the most recent fiscal year, the Fund’s
portfolio turnover rate was 28% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund normally invests at least 80% of its total assets in securities that
comprise the Fund’s benchmark index. The BDC Index is comprised of BDCs. To be
eligible for the BDC Index and qualify as a BDC, a company must be organized
under the laws of, and have its principal place of business in, the United
States, be registered with the Securities and Exchange Commission and have
elected to be regulated as a BDC under the Investment
Company Act of 1940.
BDCs are vehicles whose
principal
business is to invest in, lend capital to or provide services to privately-held
U.S. companies or thinly traded U.S. public companies. Small- and
medium-capitalization BDCs are eligible for inclusion in the BDC Index. As of
June 30, 2023, the BDC Index included 25 securities of companies with a market
capitalization range of between approximately $416 million to $10.2 billion and
a weighted average market capitalization of $4.3 billion. This 80% investment
policy is non-fundamental and may be changed without shareholder approval upon
60 days’ prior written notice to shareholders.
The
Investment Company Act of 1940 places limits on the percentage of the total
outstanding stock of a BDC that may be owned by the Fund; however, an Securities
and Exchange Commission rule applicable to the Fund permits it to invest in BDCs
in excess of this limitation if certain conditions are met.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the BDC Index by investing in a portfolio of
securities that generally replicates the BDC Index. Unlike many investment
companies that try to “beat” the performance of a benchmark index, the Fund does
not try to “beat” the BDC Index and does not take temporary defensive positions
that are inconsistent with its investment objective of seeking to replicate the
BDC Index.
The
Fund will concentrate its investments in a particular industry or group of
industries to the extent that the BDC Index concentrates in an industry or group
of industries. As of April 30, 2023, the financials sector represented
a significant portion of the Fund.
PRINCIPAL RISKS OF INVESTING IN
THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is
not a deposit with a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Risk
of Investing in BDCs. BDCs
generally invest in less mature U.S. private companies or thinly traded U.S.
public companies which involve greater risk than well-established
publicly-traded companies. While the BDCs that comprise the Index are expected
to generate income in the form of dividends, certain BDCs during certain periods
of time may not generate such income. The Fund will indirectly bear its
proportionate share of any management fees and other operating expenses incurred
by the BDCs and of any performance-based or incentive fees payable by the BDCs
in which it invests, in addition to the expenses paid by the Fund. A BDC’s
incentive fee may be very high, vary from year to year and be payable even if
the value of the BDC’s portfolio declines in a given time period. Incentive fees
may create an incentive for a BDC’s manager to make investments that are risky
or more speculative than would be the case in the absence of such compensation
arrangements, and may also encourage the BDC’s manager to use leverage to
increase the return on the BDC’s investments. The use of leverage by BDCs
magnifies gains and losses on amounts invested and increases the risks
associated with investing in BDCs. A BDC may make investments
with a larger amount of risk of volatility and loss of principal than other
investment options and may also be highly speculative and
aggressive.
Investment
Restrictions Risk. The
Fund is subject to the conditions set forth in certain provisions of the
Investment Company Act of 1940 and Securities and Exchange Commission
regulations thereunder that limit the amount that the Fund and its affiliates,
in the aggregate, can invest in the outstanding voting securities of an
unaffiliated investment company or business development company. The Fund and
its affiliates may not actively acquire “control” of an investment company or
business development company, which is presumed once ownership of an investment
company’s outstanding voting securities exceeds 25%. Also, to comply with
provisions of the Investment Company Act of 1940 and regulations thereunder, the
Adviser may be required to vote shares of an investment company or business
development company in the same general proportion as shares held by other
shareholders of the investment company or business development
company.
Financials
Sector Risk.
Companies in the financials sector may be subject to extensive government
regulation that affects the scope of their activities, the prices they can
charge and the amount of capital they must maintain. The profitability of
companies in the financials sector may be adversely affected by increases in
interest rates, by loan losses, which usually increase in economic downturns,
and by credit rating downgrades. In addition, the financials sector is
undergoing numerous changes, including continuing consolidations, development of
new products and structures and changes to its regulatory framework.
Furthermore, some companies in the financials sector perceived as benefiting
from government intervention in the past may be subject to future
government-imposed restrictions on their businesses or face increased government
involvement in their operations. Increased government involvement in the
financials sector, including measures such as taking ownership positions in
financial institutions, could result in a dilution of the Fund’s investments in
financial institutions.
Small-
and Medium-Capitalization Companies Risk.
The Fund may invest in small- and medium-capitalization companies and, therefore
will be subject to certain risks associated with small- and medium-
capitalization companies. These companies are often subject to less analyst
coverage and may be in early and less predictable periods of their corporate
existences, with little or no record of profitability. In addition, these
companies often have greater price volatility, lower trading volume and less
liquidity than larger more established companies. These companies tend to have
smaller revenues, narrower product lines, less
management
depth and experience, smaller shares of their product or service markets, fewer
financial resources and less competitive strength than large-capitalization
companies. Returns on investments in securities of small- and
medium-capitalization companies could trail the returns on investments in
securities of larger companies.
Equity Securities Risk. The
value of the equity securities held by the Fund may fall due to general market
and economic conditions, perceptions regarding the markets in which the issuers
of securities held by the Fund participate, or factors relating to specific
issuers in which the Fund invests. Equity securities are subordinated to
preferred securities and debt in a company’s capital structure with respect to
priority to a share of corporate income, and therefore will be subject to
greater dividend risk than preferred securities or debt instruments. In
addition, while broad market measures of equity securities have historically
generated higher average returns than fixed income securities, equity securities
have generally also experienced significantly more volatility in those returns.
Floating Rate Risk. The
Fund invests in floating-rate securities, which are instruments in which the
interest rate payable on an obligation fluctuates on a periodic basis based upon
changes in an interest rate benchmark. As a result, the yield on such a security
will generally decline in a falling interest rate environment, causing the Fund
to experience a reduction in the income it receives from the
security.
Floating
Rate LIBOR Risk.
Certain
floating-rate securities pay interest based on the London Inter-bank Offered
Rate ("LIBOR"). Due to the uncertainty regarding the future utilization of LIBOR
and the nature of any replacement rate, the potential effect of a transition
away from LIBOR on a fund or the financial instruments in which the Fund invests
cannot yet be determined.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including human error, processing and communication errors, errors of the Fund’s
service providers, counterparties or other third-parties, failed or inadequate
processes and technology or system failures.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (if applicable) raising cash to meet redemptions or deploying
cash in connection with inflows into the Fund. Transaction costs, including
brokerage costs, may decrease the Fund’s net asset value.
Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards (where applicable), a lack of liquidity in markets in which
such securities trade, potential adverse tax consequences or other regulatory
reasons (such as diversification requirements). To the extent the Fund utilizes
depositary receipts, the purchase of depositary receipts may negatively affect
the Fund’s ability to track the performance of the Index and increase tracking
error, which may be exacerbated if the issuer of the depositary receipt
discontinues issuing new depositary receipts or withdraws existing depositary
receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance
may
also deviate from the performance of the Index due to the impact of withholding
taxes, late announcements relating to changes to the Index and high turnover of
the Index. When markets are volatile, the ability to sell securities at fair
value prices may be adversely impacted and may result in additional trading
costs and/or increase the index tracking risk. The Fund may also need to rely on
borrowings to meet redemptions, which may lead to increased expenses. For tax
efficiency purposes, the Fund may sell certain securities, and such sale may
cause the Fund to realize a loss and deviate from the performance of the Index.
In light of the factors discussed above, the Fund’s return may deviate
significantly from the return of the Index. Changes to the composition of the
Index in connection with a rebalancing or reconstitution of the Index may cause
the Fund to experience increased volatility, during which time the Fund’s index
tracking risk may be heightened.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk. There
can be no assurance that an active trading market for the Shares will develop or
be maintained, as applicable. Further, secondary markets may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods in times of market stress because market makers and Authorized
Participants may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its net asset value.
Trading
Issues Risk.
Trading in shares on the exchange may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in shares inadvisable.
In addition, trading in shares on the exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the relevant exchange’s
“circuit breaker” rules. If a trading halt or unanticipated early close of the
exchange occurs, a shareholder may be unable to purchase or sell Shares of the
Fund. There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from its Index, the Fund generally would
not sell a security because the security’s issuer is in financial trouble. If a
specific security is removed from the Fund’s Index, the Fund may be forced to
sell such security at an inopportune time or for prices other than at current
market values. An investment in the Fund involves risks similar to those of
investing in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares. The
market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Issuer-Specific
Changes Risk.
The value of individual securities in the Fund’s portfolio can be more volatile
than the market as a whole and can perform differently from the value of the
market as a whole, which may have a greater impact if the Fund’s portfolio is
concentrated in a country, region, market, industry, sector or asset class. A
change in the financial condition, market perception or the credit rating of an
issuer of securities included in the Fund’s Index may cause the value of its
securities to decline.
Index-Related
Concentration Risk. The Fund’s assets may be concentrated in a particular sector or
sectors or industry or group of industries to reflect the Index’s allocation to
such sector or sectors or industry or group of industries. The securities of
many or all of the companies in the same sector or industry may decline in value
due to developments adversely affecting such sector or industry. By
concentrating its assets in a particular sector or sectors or industry or group
of industries, the Fund is subject to the risk that economic, political or other
conditions that have a negative effect on those sectors and/or industries may
negatively impact the Fund to a greater extent than if the Fund’s assets were
invested in a wider variety of securities.
PERFORMANCE
The bar chart
that follows shows how the Fund performed for the calendar years shown. The
table below the bar chart shows the Fund’s average annual returns (before and
after taxes). The bar chart and table provide an indication of the risks of
investing in the Fund by comparing the Fund’s performance from year to year and
by showing how the Fund’s average annual returns for the one year, five year,
ten year and/or since inception periods, as applicable, compared with the Fund’s
benchmark index and a broad measure of market performance. All
returns assume reinvestment of dividends and distributions. The
Fund’s past performance (before and after taxes) is not necessarily indicative
of how the Fund will perform in the future. Updated performance
information is available online at www.vaneck.com.
Annual Total Returns
(%)—Calendar Years
The
year-to-date total annual return
as of June 30,
2023 was 11.73%.
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Best
Quarter: |
34.34% |
2Q
2020 |
Worst
Quarter: |
-42.78% |
1Q
2020 |
Average Annual Total
Returns for the Periods Ended December 31, 2022
The after-tax returns presented
in the table below are calculated using the highest historical individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Your actual after-tax returns will depend on your
specific tax situation and may differ from those shown below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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| Past
One Year |
Past
Five Years |
Since
Inception
(2/11/2013) |
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| VanEck BDC
Income ETF (return before taxes) |
-8.78% |
7.64% |
5.71% |
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| VanEck BDC
Income ETF (return after taxes on
distributions) |
-12.55% |
3.19% |
1.85% |
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| VanEck BDC
Income ETF (return after taxes on distributions and sale of Fund
Shares) |
-5.14% |
3.87% |
2.55% |
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MVIS
US Business Development Companies Index
(reflects no deduction for
fees, expenses or taxes) |
-8.57% |
7.08% |
5.76% |
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S&P
500®
Index (reflects no deduction for fees, expenses or
taxes) |
-18.11% |
9.42% |
11.99% |
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See “License Agreements and Disclaimers” for important
information.
PORTFOLIO
MANAGEMENT
Investment
Adviser. Van
Eck Associates Corporation.
Portfolio
Managers.
The following individuals are primarily responsible for the day-to-day
management of the Fund’s portfolio:
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| Name |
Title
with Adviser |
Date
Began Managing the Fund |
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| Peter
H. Liao |
Portfolio
Manager |
February
2013 |
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| Griffin
Driscoll |
Deputy
Portfolio Manager |
August
2023 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information, and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT
OBJECTIVE
The
VanEck® Dynamic High Income ETF (the "Fund") seeks to
provide high current income with consideration for capital
appreciation.
FUND FEES AND
EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”).
You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees (fees
paid directly from your investment) |
None |
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your
investment)
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| Management
Fee |
0.10 |
% |
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Other
Expenses(a) |
0.00 |
% |
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Acquired
Fund Fees and Expenses(b)(c) |
0.33 |
% |
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Total
Annual Fund Operating Expenses(a) |
0.43 |
% |
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(a)
Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, except for the
fee payment under the investment management agreement, acquired fund fees and
expenses, interest expense, offering costs, trading expenses, taxes and
extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to
pay the offering costs until at least September 1,
2024.
(b)
“Acquired Fund Fees and Expenses” include fees and expenses incurred
indirectly by the Fund as a result of investments in other investment companies,
including VanEck exchange-traded funds and funds which invest exclusively in
money market instruments. Because Acquired Fund Fees and Expenses are not borne
directly by the Fund, they will not be reflected in the expense information in
the Fund’s financial statements and the information presented
in the table will differ from that presented in the Fund’s financial highlights
included in the Fund’s reports to shareholders.
(c)
“Acquired Fund Fees and
Expenses” are based on estimated amounts for the current fiscal
year.
EXPENSE
EXAMPLE
This example is intended to help you compare
the cost of investing in the Fund with the cost of investing in other funds.
This example does not take into account brokerage commissions that you pay when
purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell or hold all of your Shares at the end of those
periods. The example also assumes that your investment has a 5% annual return
and that the Fund’s operating expenses remain the same.
Although your actual costs may be higher
or lower, based on these assumptions, your costs would
be:
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| YEAR
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EXPENSES |
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$44 |
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| 3 |
$138 |
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PORTFOLIO
TURNOVER
The Fund will pay transaction costs, such as commissions, when it
purchases and sells securities (or “turns over” its portfolio). A higher
portfolio turnover will cause the Fund to incur additional transaction costs and
may result in higher taxes when Fund Shares are held in a taxable account. These
costs, which are not reflected in annual fund operating expenses or in the
example, may affect the Fund’s performance. During the period from November 1,
2022 (the Fund's commencement of operations) through April 30, 2023, the Fund’s
portfolio turnover rate was 8% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The Fund is an actively managed exchange-traded fund
(“ETF”) that seeks to achieve its investment objective by investing, under
normal circumstances, in exchange-traded products (“ETPs”) that are registered
under the applicable federal securities laws and that invest in securities that
generate income. The Fund may also invest in U.S. Treasury securities under
normal circumstances. While the Adviser currently anticipates that the ETPs that
the Fund may invest in will primarily be ETFs managed by the Adviser, Van Eck
Absolute Return Advisers Corporation or their affiliates ("VanEck ETFs"), the
Fund may also invest in affiliated and
unaffiliated
ETPs, which could include ETFs and closed-end funds that invest in income
generating asset classes. The Fund does not have any limits on its investments
in below-investment grade securities (“junk” bonds), and the Fund will have
indirect exposure to below investment grade securities through its investments
in ETPs.
The
Adviser considers various inputs to guide asset allocation decisions and select
investments that the Adviser believes will offer income and enhanced
risk-adjusted returns. The term “risk-adjusted returns” does not imply that the
Adviser employs low-risk strategies or that an investment in the Fund should be
considered a low-risk or no risk investment. The Adviser seeks to maximize
risk-adjusted returns through an optimization process that incorporates both the
yield and observed risks of each ETP. Additionally, the Adviser may utilize
relative momentum and other discretionary factors of each underlying ETP to
allocate the Fund’s portfolio to ETPs with the highest expected risk-adjusted
returns. The term “relative momentum” means the speed at which the total returns
of an ETP are changing compared to other ETPs. Based on these inputs, the
Adviser selects the income generating asset classes that the Fund will invest in
and determines the relative weights each class will represent in the Fund. The
Fund may engage in active and frequent trading of portfolio
securities.
The
Fund is classified as a non-diversified fund under the Investment Company Act of
1940 and, therefore, may invest a greater percentage of its assets in a
particular issuer.
PRINCIPAL RISKS OF INVESTING IN
THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is
not a deposit with a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Fund of Funds Risk. The
performance of the Fund is dependent on the performance of the underlying funds.
The Fund will be subject to the risks of the underlying funds’ investments. The
Fund will pay indirectly a proportional share of the fees and expenses of the
underlying funds in which it invests, including their investment advisory and
administration fees, while continuing to pay its own management fee. As a
result, the Fund’s shareholders will indirectly bear the expenses of the
underlying funds, absorbing duplicative levels of fees.
Risk
of Investing in ETPs.
The Fund may be subject to the following risks as a result of its investments in
ETPs:
Dividend
Paying Securities Risk.
There
can be no assurance that securities that pay dividends will continue to have a
high dividend yield, strong financial health or attractive valuation for any
period of time. Securities that pay dividends, as a group, may be out of favor
with the market and may underperform the overall equity market or stocks of
companies that do not pay dividends. In addition, changes in the dividend
policies of the companies held by an ETP or the capital resources available for
such companies' dividend payments may adversely affect the ETP.
Risk
of Investing in Foreign Securities.
Investments in the securities of foreign issuers involve risks beyond
those associated with investments in U.S. securities.
These additional risks include greater market volatility, the availability of
less reliable financial information, higher transactional and custody costs,
taxation by foreign governments, decreased market liquidity and political
instability. Because certain foreign securities markets may be limited in size,
the activity of large traders may have an undue influence on the prices of
securities that trade in such markets. An ETP invests in securities of issuers
located in countries whose economies are heavily dependent upon trading with key
partners. Any reduction in this trading may have an adverse impact on the ETP’s
investments.
Risk
of Investing in Emerging Market Issuers. Investments
in securities of emerging market issuers are exposed to a number of risks that
may make these investments volatile in price or difficult to trade. Emerging
markets are more likely than developed markets to experience problems with the
clearing and settling of trades, as well as the holding of securities by local
banks, agents and depositories. Political risks may include unstable
governments, nationalization, restrictions on foreign ownership, laws that
prevent investors from getting their money out of a country and legal systems
that do not protect property rights as well as the laws of the United States.
Market risks may also include economies that concentrate in only a few
industries, securities issues that are held by only a few investors, liquidity
issues and limited trading capacity in local exchanges and the possibility that
markets or issues may be manipulated by foreign nationals who have inside
information. The frequency, availability and quality of financial information
about investments in emerging markets varies. The Fund has limited rights and
few practical remedies in emerging markets and the ability of U.S. authorities
to bring enforcement actions in emerging markets may be limited. All of these
factors can make emerging market securities more volatile and potentially less
liquid than securities issued in more developed markets.
Foreign
Currency Risk.
Because
all or a portion of the income received by an ETP from its investments and/or
the revenues received by the underlying issuer will generally be denominated in
foreign currencies, the ETP's exposure to foreign currencies and changes in the
value of foreign currencies versus the U.S. dollar may result in reduced returns
for the ETP, and the value of certain foreign currencies may be subject to a
high degree of fluctuation. Moreover, an ETP may incur costs in connection with
conversions between U.S. dollars and foreign
currencies.
Risk
of Investing in Mortgage REITs.
Mortgage
real estate investment trusts (“REITs”) are exposed to the risks specific to the
real estate market as well as the risks that relate specifically to the way in
which mortgage REITs are organized and operated. Mortgage REITs receive
principal and interest payments from the owners of the mortgaged properties.
Accordingly, mortgage REITs are subject to the credit risk of the borrowers.
Credit risk refers to the possibility that the borrower will be unable and/or
unwilling to make timely interest payments and/or repay the principal on the
loan to a mortgage REIT when due. To the extent that a mortgage REIT invests in
mortgage-backed securities offered by private issuers, such as commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers, the mortgage REIT may be subject to
additional risks. Timely payment of interest and principal of non-governmental
issuers may be supported by various forms of private insurance or guarantees,
including individual loan, title, pool and hazard insurance purchased by the
issuer. However, there can be no assurance that the private insurers can or will
meet their obligations under such policies. Unexpected high rates of default on
the mortgages held by a mortgage pool may adversely affect the value of a
mortgage-backed security and could result in losses to a mortgage REIT. The risk
of such defaults is generally higher in the case of mortgage pools that include
subprime mortgages. To the extent that a mortgage REIT’s portfolio is exposed to
lower-rated, unsecured or subordinated instruments, the risk of loss may
increase, which may have a negative impact on an ETP. Mortgage REITs also are
subject to the risk that the value of mortgaged properties may be less than the
amounts owed on the properties. If a mortgage REIT is required to foreclose on a
borrower, the amount recovered in connection with the foreclosure may be less
than the amount owed to the mortgage REIT. Mortgage REITs typically use leverage
and many are highly leveraged, which exposes them to leverage risk and the risks
generally associated with debt financing. Leverage risk refers to the risk that
leverage created from borrowing may impair a mortgage REIT’s liquidity, cause it
to liquidate positions at an unfavorable time and increase the volatility of the
values of securities issued by the mortgage REIT.
Preferred
Securities Risk.
Preferred securities are essentially contractual obligations that entail rights
to distributions declared by the issuer’s board of directors but may permit the
issuer to defer or suspend distributions for a certain period of time. If an ETP
owns a preferred security whose issuer has deferred or suspended distributions,
the ETP may be required to account for the distribution that has been deferred
or suspended for tax purposes, even though it may not have received this income
in cash. Further, preferred securities may lose substantial value if
distributions are deferred, suspended or not declared. Preferred securities may
also permit the issuer to convert preferred securities into the issuer’s common
stock. Preferred securities that are convertible to common stock may decline in
value if the common stock into which preferred securities may be converted
declines in value. Preferred securities are subject to greater credit risk than
traditional fixed income securities because the rights of holders of preferred
securities are subordinated to the rights of the bond and debt holders of an
issuer.
CLO
Risk. The
risks of investing in CLO securities include both the economic risks of the
underlying loans combined with the risks associated with the CLO structure
governing the priority of payments. The degree of such risk will generally
correspond to the specific tranche in which the Fund is invested. The Fund
intends to invest primarily in investment grade-rated tranches of CLOs rated
between and inclusive of AAA/Aaa and BBB-/Baa3; however, this rating does not
constitute a guarantee of credit quality and may be downgraded, and in stressed
market environments it is possible that even senior CLO debt tranches could
experience losses due to actual defaults, increased sensitivity to defaults due
to collateral default and the disappearance of the subordinated/equity tranches,
market anticipation of defaults, as well as negative market sentiment with
respect to CLO securities as an asset class. The Fund’s portfolio managers may
not be able to accurately predict how specific CLO securities or the portfolio
of underlying loans for such CLO securities will react to changes or stresses in
the market, including changes in interest rates. The most common risks
associated with investing in CLO securities are liquidity risk, interest rate
risk, credit risk, call risk, and the risk of default of the underlying asset.
Credit
Risk.
Debt securities are subject to credit risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable and/or
unwilling to make timely interest payments and/or repay the principal on its
debt or to otherwise honor its obligations and/or default completely on
securities. Debt securities are subject to varying degrees of credit risk,
depending on the issuer’s financial condition and on the terms of the
securities, which may be reflected in credit ratings. There is a possibility
that the credit rating of a debt security may be downgraded after purchase or
the perception of an issuer’s credit worthiness may decline, which may adversely
affect the value of the security.
High
Yield Securities Risk. Securities
rated below investment grade are commonly referred to as high yield securities
or “junk bonds.” High yield securities are often issued by issuers that are
restructuring, are smaller or less creditworthy than other issuers, or are more
highly indebted than other issuers. High yield securities are subject to greater
risk of loss of income and principal than higher rated securities and are
considered speculative. The prices of high yield securities are likely to be
more sensitive to adverse economic changes or individual issuer developments
than higher rated securities. During an economic downturn or substantial period
of rising interest rates, high yield security issuers may experience financial
stress that would adversely affect their ability to service their principal and
interest payment obligations, to meet their projected business goals or to
obtain additional financing. In the event of a default, an ETP may incur
additional expenses to seek recovery. The secondary market for securities that
are high yield securities may be less liquid than the markets for higher quality
securities and high yield securities issued by non-corporate issuers may be less
liquid than high yield securities issued
by
corporate issuers, which, in either instance, may have an adverse effect on the
market prices of and an ETP’s ability to arrive at a fair value for certain
securities. The illiquidity of the market also could make it difficult for an
ETP to sell certain securities in connection with a rebalancing of its index, if
applicable. In addition, periods of economic uncertainty and change may result
in an increased volatility of market prices of high yield securities and a
corresponding volatility in an ETP’s net asset value. In addition, adverse
publicity and investor perceptions may decrease the values and liquidity of high
yield securities.
Interest
Rate Risk. Debt
securities, such as bonds, are also subject to interest rate risk. Interest rate
risk refers to fluctuations in the value of a security resulting from changes in
the general level of interest rates. When the general level of interest rates
goes up, the prices of most debt securities go down. When the general level of
interest rates goes down, the prices of most debt securities go up. Many factors
can cause interest rates to rise, including central bank monetary policy, rising
inflation rates and general economic conditions. A low interest rate environment
increases the risk associated with rising interest rates, including the
potential for periods of volatility and increased redemptions.
Measures
taken by the Federal Reserve Board may affect the money supply and as a result
of these measures, an ETF may face a heightened interest rate risk.
In
addition, debt securities with longer durations tend to be more sensitive to
interest rate changes, usually making them more volatile than debt securities
with shorter durations. To the extent an ETP invests a substantial portion of
its assets in debt securities with longer-term maturities, rising interest rates
may cause the value of an ETP’s investments to decline significantly.
In
addition, in response to the COVID-19 pandemic, as with other serious economic
disruptions, governmental authorities and regulators are enacting significant
fiscal and monetary policy changes, including providing direct capital infusions
into companies, creating new monetary programs and lowering interest rates
considerably. These actions present heightened risks to debt instruments, and
such risks could be even further heightened if these actions are unexpectedly or
suddenly reversed or are ineffective in achieving their desired
outcomes.
Call
Risk.
An ETP may invest in callable debt securities. If interest rates fall, it is
possible that issuers of callable securities will “call” (or prepay) their debt
securities before their maturity date. If a call were exercised by the issuer
during or following a period of declining interest rates, the ETP is likely to
have to replace such called security with a lower yielding security or
securities with greater risks or other less favorable features. If that were to
happen, it would decrease the ETP’s net investment income. An ETP also may fail
to recover additional amounts (i.e., premiums) paid for securities with higher
interest rates, resulting in an unexpected capital loss.
Concentration
Risk. Certain
of the ETPs may be concentrated in a particular sector or sectors or industry or
group of industries. To the extent that an ETP is concentrated in a particular
sector or sectors or industry or group of industries, the ETP will be subject to
the risk that economic, political or other conditions that have a negative
effect on those sectors and/or industry or groups of industries may negatively
impact the ETP to a greater extent than if the ETP’s assets were invested in a
wider variety of sectors or industries.
U.S.
Treasury Securities Risk.
Direct obligations of the U.S. Treasury have historically involved little risk
of loss of principal if held to maturity. However, due to fluctuations in
interest rates, the market value of such securities may vary.
Interest Rate Risk.
Debt securities and preferred securities are subject to interest rate risk.
Interest rate risk refers to fluctuations in the value of a security resulting
from changes in the general level of interest rates. When the general level of
interest rates goes up, the prices of most debt securities and certain preferred
securities go down. When the general level of interest rates goes down, the
prices of most debt securities go up. Many factors can cause interest rates to
rise, including central bank monetary policy, rising inflation rates and general
economic conditions. Debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities, such as bonds, with shorter durations. A substantial investment by
the Fund in debt securities with longer-term maturities during periods of rising
interest rates may cause the value of the Fund’s investments to decline
significantly. Changing interest rates may have unpredictable effects on
markets, may result in heightened market volatility and may detract from Fund
performance to the extent the Fund is exposed to such interest rates and/or
volatility. It is difficult to predict the magnitude, timing or direction of
interest rate changes and the impact these changes will have on the markets in
which the Fund invests.
Income
Risk. The
Fund’s income may fluctuate and may decline during periods of falling interest
rates.
High
Portfolio Turnover Risk. The
Fund may engage in active and frequent trading of its portfolio securities,
which will result in increased transaction costs to the Fund, including
brokerage commissions, dealer mark-ups and other transaction costs on the sale
of the securities and on reinvestment in other securities. High portfolio
turnover may also result in higher taxes when Fund Shares are held in a taxable
account. The effects of high portfolio turnover may adversely affect Fund
performance.
Active
Management Risk.
In managing the Fund’s portfolio, the Adviser will apply investment techniques
and risk analyses in making investment decisions for the Fund, but there can be
no guarantee that these will produce the desired results. Investment decisions
made by the Adviser in seeking to achieve the Fund’s investment objective may
cause a decline in the value of the
investments
held by the Fund and, in turn, cause the Fund’s shares to lose value or
underperform other funds with similar investment objectives.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including human error, processing and communication errors, errors of the Fund’s
service providers, counterparties or other third-parties, failed or inadequate
processes and technology or system failures.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk. There
can be no assurance that an active trading market for the Shares will develop or
be maintained, as applicable. Further, secondary markets may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods in times of market stress because market makers and Authorized
Participants may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its net asset value.
Trading
Issues Risk.
Trading in shares on the exchange may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in shares inadvisable.
In addition, trading in shares on the exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the relevant exchange’s
“circuit breaker” rules. If a trading halt or unanticipated early close of the
exchange occurs, a shareholder may be unable to purchase or sell Shares of the
Fund. There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Market
Risk. The
prices of the securities the Fund or
an
ETP may invest in are subject to the risks associated with investing in the
securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment in
the Fund or an ETP may lose money.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares. The
market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Affiliated
Fund Risk. In
managing the Fund, the Adviser has the ability to select underlying funds which
it believes will achieve the Fund’s investment objective. The Adviser may be
subject to potential conflicts of interest in selecting underlying funds because
the Adviser may, due to its own financial interest or other business
considerations, have an incentive to invest in funds managed by the Adviser or
its affiliates rather than investing in funds managed or sponsored by
others.
Non-Diversified
Risk.
The
Fund is classified as a “non-diversified” fund under the Investment Company Act
of 1940. The Fund is subject to the risk that it will be more volatile than a
diversified fund because the Fund may invest a relatively high percentage of its
assets in a smaller number of issuers or may invest a larger proportion of its
assets in a single issuer. Moreover, the gains and losses on a single investment
may have a greater impact on the Fund’s net asset value and may make the Fund
more volatile than more diversified funds. The Fund may be particularly
vulnerable to this risk if it is comprised of a limited number of
investments.
PERFORMANCE
The Fund commenced operations on November 1,
2022 and therefore does not have a performance history for the full calendar
year ended December 31, 2022. Once available, the Fund’s
performance information will be accessible on the Fund’s website at
www.vaneck.com.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Managers.
The following individuals are primarily and jointly responsible for the
day-to-day management of the Fund’s portfolio:
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| Name |
Title
with Adviser |
Date
Began Managing the Fund |
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| David
Schassler |
Portfolio
Manager |
November
2022 |
|
| John
Lau |
Deputy
Portfolio Manager |
November
2022 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT
OBJECTIVE
VanEck®
Emerging Markets High Yield Bond ETF
(the
“Fund”) seeks to replicate as closely as possible, before fees and expenses, the
price and yield performance of ICE BofA Diversified High Yield US Emerging
Markets Corporate Plus Index (the “Emerging Markets High Yield Index” or the
“Index”).
FUND FEES AND
EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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| Management
Fee |
0.40 |
% |
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Other
Expenses(a) |
0.00 |
% |
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Total
Annual Fund Operating Expenses(a) |
0.40 |
% |
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(a)Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, except for the
fee payment under the investment management agreement, acquired fund fees and
expenses, interest expense, offering costs, trading expenses, taxes and
extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to
pay the offering costs until at least September 1,
2024.
EXPENSE
EXAMPLE
This example is intended to help you compare
the cost of investing in the Fund with the cost of investing in other funds.
This example does not take into account brokerage commissions that you pay when
purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell or hold all of your Shares at the end of those
periods. The example also assumes that your investment has a 5% annual return
and that the Fund’s operating expenses remain the same.
Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
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| YEAR |
EXPENSES |
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| 1 |
$41 |
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| 3 |
$128 |
| |
| 5 |
$224 |
| |
| 10 |
$505 |
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PORTFOLIO
TURNOVER
The Fund will pay transaction costs, such as commissions, when it
purchases and sells securities (or “turns over” its portfolio). A higher
portfolio turnover will cause the Fund to incur additional transaction costs and
may result in higher taxes when Fund Shares are held in a taxable account. These
costs, which are not reflected in annual fund operating expenses or in the
example, may affect the Fund’s performance. During the most recent fiscal year,
the Fund’s portfolio turnover rate was 21% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund normally invests at least 80% of its total assets in securities that
comprise the Fund’s benchmark index. The Emerging Markets High Yield Index is
comprised of U.S. dollar denominated bonds issued by non-sovereign emerging
market issuers that have a below investment grade rating and that are issued in
the major domestic and Eurobond markets.
In
order to qualify for inclusion in the Emerging Markets High Yield Index, an
issuer must have risk exposure to countries other than members of the FX Group
of Ten, all Western European countries and territories of the United States and
Western European countries.
The
FX Group of Ten includes all Euro members, Australia, Canada, Japan, New
Zealand, Norway, Sweden, Switzerland, the United Kingdom (“UK”) and the United
States. As of June 30, 2023, the Emerging Markets High Yield Index included 560
below investment grade bonds of 337 issuers and the weighted average maturity of
the Emerging Markets High Yield Index was 5.15 years. As of the same date,
approximately 67% of the Emerging Markets High Yield Index was comprised of Rule
144A securities. Such bonds may include quasi-sovereign bonds. The Fund’s 80%
investment policy is non-fundamental and may be changed without shareholder
approval upon 60 days’ prior written notice to shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Emerging Markets High Yield Index. Unlike many
investment companies that try to “beat” the performance of a benchmark index,
the Fund does not try to “beat” the Emerging Markets High Yield Index and does
not take temporary defensive positions that are inconsistent with its investment
objective of seeking to replicate the Emerging Markets High Yield Index. Because
of the practical difficulties and expense of purchasing all of the securities in
the Emerging Markets High Yield Index, the Fund does not purchase all of the
securities in the Emerging Markets High Yield Index. Instead, the Adviser
utilizes a “sampling” methodology in seeking to achieve the Fund’s objective. As
such, the Fund may purchase a subset of the bonds in the Emerging Markets High
Yield Index in an effort to hold a portfolio of bonds with generally the same
risk and return characteristics of the Emerging Markets High Yield
Index.
The Fund may
concentrate its investments in a particular industry or group of industries to
the extent that the Emerging Markets High Yield Index concentrates in an
industry or group of industries. As of April 30, 2023, each of the financials
and energy sectors represented a significant portion of the
Fund.
PRINCIPAL RISKS OF INVESTING IN
THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is
not a deposit with a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
High
Yield Securities Risk. Securities
rated below investment grade are commonly referred to as high yield securities
or “junk bonds.” High yield securities are often issued by issuers that are
restructuring, are smaller or less creditworthy than other issuers, or are more
highly indebted than other issuers. High yield securities are subject to greater
risk of loss of income and principal than higher rated securities and are
considered speculative. The prices of high yield securities are likely to be
more sensitive to adverse economic changes or individual issuer developments
than higher rated securities, resulting in increased volatility of their market
prices and a corresponding volatility in the Fund’s net asset value. During an
economic downturn or substantial period of rising interest rates, high yield
security issuers may experience financial stress that would adversely affect
their ability to service their principal and interest payment obligations, to
meet their projected business goals or to obtain additional financing. In the
event of a default, the Fund may incur additional expenses to seek recovery. The
secondary market for high yield securities may be less liquid than the markets
for higher quality securities, and high yield securities issued by non-corporate
issuers may be less liquid than high yield securities issued by corporate
issuers. Illiquidity may have an adverse effect on the market prices of and the
Fund’s ability to arrive at a fair value for certain securities when it seeks to
do so. In addition, periods of economic uncertainty and change may result in an
increased volatility of market prices of high yield securities and a
corresponding volatility in the Fund's net asset value.
Special
Risk Considerations of Investing in European Issuers. Investments
in securities of European issuers involve risks and special considerations not
typically associated with investments in the U.S. securities markets. The
Economic and Monetary Union of the European Union requires member countries to
comply with restrictions on inflation rates, deficits, interest rates, debt
levels and fiscal and monetary controls, each of which may significantly affect
every country in Europe. Decreasing imports or exports, changes in governmental
or European Union regulations on trade, changes in the exchange rate of the
euro, the default or threat of default by a European Union member country on its
sovereign debt, and/or an economic recession in a European Union member country
may have a significant adverse effect on the economies of other European Union
countries and on major trading partners outside Europe. If any member country
exits the Economic and Monetary Union, the departing country would face the
risks of currency devaluation and its trading partners and banks and others
around the world that hold the departing country’s debt would face the risk of
significant losses. The European financial markets have previously experienced,
and may continue to experience, volatility and have been adversely affected, and
may in the future be affected, by concerns about economic downturns, credit
rating downgrades, rising government debt levels and possible default on or
restructuring of government debt in several European countries. These events
have adversely affected, and may in the future affect, the value and exchange
rate of the euro and may continue to significantly affect the economies of every
country in Europe, including European Union member countries that do not use the
euro and non-European Union member countries. The United Kingdom withdrew from
the European Union on January 31, 2020, which has resulted in ongoing market
volatility and caused additional market disruption on a global basis. On
December 30, 2020, the United Kingdom and the European Union signed the EU-UK
Trade and Cooperation Agreement, which is an agreement on the terms governing
certain aspects of the European Union's and the United Kingdom's relationship
post Brexit. Notwithstanding the EU-UK Trade and Cooperation Agreement,
following the transition period, there is likely to be considerable uncertainty
as to the United Kingdom’s post-transition
framework.
Special
Risk Considerations of Investing in Asian Issuers. Investments
in securities of Asian issuers involve risks and special considerations not
typically associated with investments in the U.S. securities markets. Many Asian
economies have experienced rapid growth and industrialization in recent years,
but there is no assurance that this growth rate will be maintained. Certain
Asian economies have experienced over-extension of credit, currency devaluations
and restrictions, high unemployment, high inflation, decreased exports and
economic recessions. Geopolitical hostility, political instability, as well as
economic or environmental events in any one Asian country can have a significant
effect on the entire Asian region as well as on major trading partners outside
Asia, and any adverse effect on some or all of the Asian countries and regions
in which the Fund invests. The securities markets in some Asian economies are
relatively underdeveloped and may subject the Fund to higher action costs or
greater uncertainty than investments in more developed securities markets. Such
risks may adversely affect the value of the Fund’s investments. Certain Asian
countries have also developed increasingly strained relationships with the U.S.,
and if these relations were to worsen, they could adversely affect Asian issuers
that rely on the U.S. for trade.
Special
Risk Considerations of Investing in Latin American Issuers.
Investments in securities of Latin American issuers involve special
considerations not typically associated with investments in securities of
issuers located in the United States. The economies of certain Latin American
countries have, at times, experienced high interest rates, economic volatility,
inflation, currency devaluations and high unemployment rates. In addition,
commodities (such as oil, gas and minerals) represent a significant percentage
of the region’s exports and many economies in this region are particularly
sensitive to fluctuations in commodity prices. Adverse economic events in one
country may have a significant adverse effect on other countries of this
region.
Most
Latin American countries have experienced severe and persistent levels of
inflation, including, in some cases, hyperinflation. This has, in turn, led to
high interest rates, extreme measures by governments to keep inflation in check,
and a generally debilitating effect on economic growth. Although inflation in
many Latin American countries has lessened, there is no guarantee it will remain
at lower levels.
The
political history of certain Latin American countries has been characterized by
political uncertainty, intervention by the military in civilian and economic
spheres, and political corruption. Such events could reverse favorable trends
toward market and economic reform, privatization, and removal of trade barriers,
and could result in significant disruption in securities markets in the
region.
The
economies of Latin American countries are generally considered emerging markets
and can be significantly affected by currency devaluations. Certain Latin
American countries may also have managed currencies which are maintained at
artificial levels relative to the U.S. dollar rather than at levels determined
by the market. This type of system can lead to sudden and large adjustments in
the currency which, in turn, can have a disruptive and negative effect on
foreign investors. Certain Latin American countries also restrict the free
conversion of their currency into foreign currencies, including the U.S. dollar.
There is no significant foreign exchange market for many Latin American
currencies and it would, as a result, be difficult for the Fund to engage in
foreign currency transactions designed to protect the value of the Fund’s
interests in securities denominated in such currencies.
Finally,
a number of Latin American countries are among the largest debtors of developing
countries. There have been moratoria on, and a rescheduling of, repayment with
respect to these debts. Such events can restrict the flexibility of these debtor
nations in the international markets and result in the imposition of onerous
conditions on their economies.
Special
Risk Considerations of Investing in Brazilian Issuers. Investments
in securities of Brazilian issuers, including issuers located outside of Brazil
that generate significant revenues from Brazil, involve risks and special
considerations not typically associated with investments in the U.S. securities
markets. The Brazilian economy has been characterized by frequent, and
occasionally drastic, interventions by the Brazilian government, including the
imposition of wage and price controls, exchange controls, limiting imports,
blocking access to bank accounts and other measures. The Brazilian government
has often changed monetary, taxation, credit, trade and other policies to
influence the core of Brazil’s economy. Actions taken by the Brazilian
government concerning the economy may have significant effects on Brazilian
companies and on market conditions and prices of Brazilian securities. Brazil’s
economy may be subject to sluggish economic growth due to, among other things,
weak consumer spending, political turmoil, high rates of inflation and low
commodity prices. Brazil suffers from chronic structural public sector deficits.
The Brazilian government has privatized certain entities, which have suffered
losses due to, among other things, the inability to adjust to a competitive
environment.
The
market for Brazilian securities is directly influenced by the flow of
international capital, and economic and market conditions of certain countries,
especially emerging market countries. As a result, adverse economic conditions
or developments in other emerging market countries have at times significantly
affected the availability of credit in the Brazilian economy and resulted in
considerable outflows of funds and declines in the amount of foreign currency
invested in Brazil.
Investments
in Brazilian securities may be subject to certain restrictions on foreign
investment. Brazilian law provides that whenever a serious imbalance in Brazil’s
balance of payments exists or is anticipated, the Brazilian government may
impose temporary restrictions on the remittance to foreign investors of the
proceeds of their investment in Brazil and on the conversion of the Brazilian
real into foreign currency.
Brazil
has historically experienced high rates of inflation, a high level of debt, and
high crime rates, each of which may constrain economic growth. Brazil suffers
from high levels of corruption, crime and income disparity. The Brazilian
economy is also heavily
dependent
upon commodity prices and international trade. Unanticipated political or social
developments may result in sudden and significant investment losses. An increase
in prices for commodities, such as petroleum, the depreciation of the Brazilian
real and future governmental measures seeking to maintain the value of the
Brazilian real in relation to the U.S. dollar, may trigger increases in
inflation in Brazil and may slow the rate of growth of the Brazilian economy.
Conversely, appreciation of the Brazilian real relative to the U.S dollar may
lead to the deterioration of Brazil’s current account of balance of payments as
well as limit the growth of exports.
Special
Risk Considerations of Investing in Middle Eastern Issuers. Investments
in securities of Middle Eastern issuers, including issuers located outside of
the Middle East that generate significant revenues from the Middle East, involve
risks and special considerations not typically associated with investments in
the U.S. securities markets. Many Middle Eastern countries have little or no
democratic tradition, and the political and legal systems in such countries may
have an adverse impact on the Fund. Many economies in the Middle East are highly
reliant on income from the sale of oil and natural gas or trade with countries
involved in the sale of oil and natural gas, and their economies are therefore
vulnerable to changes in the market for oil and natural gas and foreign currency
values. As global demand for oil and natural gas fluctuates, many Middle Eastern
economies may be significantly impacted.
In
addition, many Middle Eastern governments have exercised and continue to
exercise substantial influence over many aspects of the private sector. In
certain cases, a Middle Eastern country’s government may own or control many
companies,including some of the largest companies in the country. Accordingly,
governmental actions in the future could have a significant effect on economic
conditions in Middle Eastern countries. This could affect private sector
companies and the Fund,as well as the value of securities in the Fund’s
portfolio.
Certain
Middle Eastern markets are in the earliest stages of development. As a result,
there may be a high concentration of market capitalization and trading volume in
a small number of issuers representing a limited number of industries, as well
as a high concentration of investors and financial intermediaries. Brokers in
Middle Eastern countries typically are fewer in number and less capitalized than
brokers in the U.S.
The
legal systems in certain Middle Eastern countries also may have an adverse
impact on the Fund. For example, the potential liability of a shareholder in a
U.S. corporation with respect to acts of the corporation generally is limited to
the amount of the shareholder’s investment. However, the notion of limited
liability is less clear in certain Middle Eastern countries. The Fund therefore
may be liable in certain Middle Eastern countries for the acts of a corporation
in which it invests for an amount greater than its actual investment in that
corporation. Similarly, the rights of investors in Middle Eastern issuers may be
more limited than those of shareholders of a U.S. corporation. It may be
difficult or impossible to obtain or enforce a legal judgment in a Middle
Eastern country. Some Middle Eastern countries prohibit or impose substantial
restrictions on investments in their capital markets, particularly their equity
markets, by foreign entities such as the Fund. For example, certain countries
may require governmental approval prior to investment by foreign persons or
limit the amount of investment by foreign persons in a particular issuer.
Certain Middle Eastern countries may also limit investment by foreign persons to
only a specific class of securities of an issuer that may have less advantageous
terms (including price) than securities of the issuer available for purchase by
nationals of the relevant Middle Eastern country.
The
manner in which foreign investors may invest in companies in certain Middle
Eastern countries, as well as limitations on those investments, may have an
adverse impact on the operations of the Fund. For example, in certain of these
countries, the Fund may be required to invest initially through a local broker
or other entity and then have the shares that were purchased re-registered in
the name of the Fund. Re-registration in some instances may not be possible on a
timely basis. This may result in a delay during which the Fund may be denied
certain of its rights as an investor, including rights as to dividends or to be
made aware of certain corporate actions. There also may be instances where the
Fund places a purchase order but is subsequently informed, at the time of
re-registration, that the permissible allocation of the investment to foreign
investors has already been filled and, consequently, the Fund may not be able to
invest in the relevant company.
Substantial
limitations may exist in certain Middle Eastern countries with respect to the
Fund’s ability to repatriate investment income or capital gains. The Fund could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investment.
Certain
Middle Eastern countries may be heavily dependent upon international trade and,
consequently, have been and may continue to be negatively affected by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade. These countries also have been and may continue to be adversely
impacted by economic conditions in the countries with which they trade. In
addition,certain issuers located in Middle Eastern countries in which the Fund
invests may operate in, or have dealings with, countries subject to sanctions
and/or embargoes imposed by the U.S. government and the United Nations, and/or
countries identified by the U.S. government as state sponsors of terrorism. As a
result, an issuer may sustain damage to its reputation if it is identified as an
issuer which operates in, or has dealings with, such countries. The Fund, as an
investor in such issuers, will be indirectly subject to those
risks.
Certain
Middle Eastern countries have strained relations with other Middle Eastern
countries due to territorial disputes,historical animosities, international
alliances, defense concerns or other reasons, which may adversely affect the
economies of these Middle
Eastern
countries. Certain Middle Eastern countries experience significant unemployment,
as well as widespread underemployment. There has also been a recent increase in
recruitment efforts and an aggressive push for territorial control by terrorist
groups in the region, which has led to an outbreak of warfare and hostilities.
Warfare in Syria has spread to surrounding areas, including many portions of
Iraq and Turkey. Such hostilities may continue into the future or may escalate
at any time due to ethnic, racial, political, religious or ideological tensions
between groups in the region or foreign intervention or lack of intervention,
among other factors.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s investments.
Foreign market trading hours, clearance and settlement procedures, and holiday
schedules may limit the Fund's ability to buy and sell securities.
Emerging
Market Issuers Risk.
Investments in securities of emerging market issuers involve risks not typically
associated with investments in securities of issuers in more developed countries
that may negatively affect the value of your investment in the Fund. Such
heightened risks may include, among others, expropriation and/or nationalization
of assets, restrictions on and government intervention in international trade,
confiscatory taxation, political instability, including authoritarian and/or
military involvement in governmental decision making, armed conflict, the impact
on the economy as a result of civil war, crime (including drug violence) and
social instability as a result of religious, ethnic and/or socioeconomic unrest.
Issuers in certain emerging market countries are subject to less stringent
requirements regarding accounting, auditing, financial reporting and record
keeping than are issuers in more developed markets, and therefore, all material
information may not be available or reliable. Emerging markets are also more
likely than developed markets to experience problems with the clearing and
settling of trades, as well as the holding of securities by local banks, agents
and depositories. Low trading volumes and volatile prices in less developed
markets may make trades harder to complete and settle, and governments or trade
groups may compel local agents to hold securities in designated depositories
that may not be subject to independent evaluation. Local agents are held only to
the standards of care of their local markets. In general, the less developed a
country’s securities markets are, the greater the likelihood of custody
problems. Additionally, each of the factors described below could have a
negative impact on the Fund’s performance and increase the volatility of the
Fund.
Securities
Market Risk.
Securities markets in emerging market countries are underdeveloped and are often
considered to be less correlated to global economic cycles than those markets
located in more developed countries. Securities markets in emerging market
countries are subject to greater risks associated with market volatility, lower
market capitalization, lower trading volume, illiquidity, inflation, greater
price fluctuations, uncertainty regarding the existence of trading markets,
governmental control and heavy regulation of labor and industry. These factors,
coupled with restrictions on foreign investment and other factors, limit the
supply of securities available for investment by the Fund. This will affect the
rate at which the Fund is able to invest in emerging market countries, the
purchase and sale prices for such securities and the timing of purchases and
sales. Emerging markets can experience high rates of inflation, deflation and
currency devaluation. The prices of certain securities listed on securities
markets in emerging market countries have been subject to sharp fluctuations and
sudden declines, and no assurance can be given as to the future performance of
listed securities in general. Volatility of prices may be greater than in more
developed securities markets. Moreover, securities markets in emerging market
countries may be closed for extended periods of time or trading on securities
markets may be suspended altogether due to political or civil unrest. Market
volatility may also be heightened by the actions of a small number of investors.
Brokerage firms in emerging market countries may be fewer in number and less
established than brokerage firms in more developed markets. Since the Fund may
need to effect securities transactions through these brokerage firms, the Fund
is subject to the risk that these brokerage firms will not be able to fulfill
their obligations to the Fund. This risk is magnified to the extent the Fund
effects securities transactions through a single brokerage firm or a small
number of brokerage firms. In addition, the infrastructure for the safe custody
of securities and for purchasing and selling securities, settling trades,
collecting dividends, initiating corporate actions, and following corporate
activity is not as well developed in emerging market countries as is the case in
certain more developed markets.
Political
and Economic Risk.
Certain emerging market countries have historically been subject to political
instability and their prospects are tied to the continuation of economic and
political liberalization in the region. Instability may result from factors such
as government or military intervention in decision making, terrorism, civil
unrest, extremism or hostilities between neighboring countries. Any of these
factors, including an outbreak of hostilities could negatively impact the Fund’s
returns. Limited political and democratic freedoms in emerging market countries
might cause significant social unrest. These factors may have a significant
adverse effect on an emerging market country’s economy.
Many
emerging market countries may be heavily dependent upon international trade and,
consequently, may continue to be negatively affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist
measures imposed or negotiated by the countries with which it trades. They also
have been, and may continue to be, adversely affected by economic conditions in
the countries with which they trade.
In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of certain emerging market countries’ exports and these economies are
particularly sensitive to fluctuations in commodity prices. Adverse economic
events in one country may have a significant adverse effect on other countries
of this region. In addition, most emerging market countries have experienced, at
one time or another, severe and persistent levels of inflation, including, in
some cases, hyperinflation. This has, in turn, led to high interest rates,
extreme measures by governments to keep inflation in check, and a generally
debilitating effect on economic growth.
Although
inflation in many countries has lessened, there is no guarantee it will remain
at lower levels. The political history of certain emerging market countries has
been characterized by political uncertainty, intervention by the military in
civilian and economic spheres, and political corruption. Such events could
reverse favorable trends toward market and economic reform, privatization, and
removal of trade barriers, and result in significant disruption in securities
markets in the region.
Also,
from time to time, certain issuers located in emerging market countries in which
the Fund invests may operate in, or have dealings with, countries subject to
sanctions and/or embargoes imposed by the U.S. Government and the United Nations
and/or countries identified by the U.S. Government as state sponsors of
terrorism. As a result, an issuer may sustain damage to its reputation if it is
identified as an issuer which operates in, or has dealings with, such countries.
The Fund, as an investor in such issuers, will be indirectly subject to those
risks.
The
economies of one or more countries in which the Fund may invest may be in
various states of transition from a planned economy to a more market oriented
economy. The economies of such countries differ from the economies of most
developed countries in many respects, including levels of government
involvement, states of development, growth rates, control of foreign exchange
and allocation of resources. Economic growth in these economies may be uneven
both geographically and among various sectors of their economies and may also be
accompanied by periods of high inflation. Political changes, social instability
and adverse diplomatic developments in these countries could result in the
imposition of additional government restrictions, including expropriation of
assets, confiscatory taxes or nationalization of some or all of the property
held by the underlying issuers of securities of emerging market issuers. There
is no guarantee that the governments of these countries will not revert back to
some form of planned or non-market oriented economy, and such governments
continue to be active participants in many economic sectors through ownership
positions and regulation. The allocation of resources in such countries is
subject to a high level of government control. Such countries’ governments may
strictly regulate the payment of foreign currency denominated obligations and
set monetary policy. Through their policies, these governments may provide
preferential treatment to particular industries or companies. The policies set
by the government of one of these countries could have a substantial effect on
that country’s economy.
Investment
and Repatriation Restrictions Risk.
The government in an emerging market country may restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers
located or operating in such emerging market countries. These restrictions
and/or controls may at times limit or prevent foreign investment in securities
of issuers located or operating in emerging market countries and may inhibit the
Fund’s ability to meet its investment objective. In addition, the Fund may not
be able to buy or sell securities or receive full value for such securities.
Moreover, certain emerging market countries may require governmental approval or
special licenses prior to investments by foreign investors and may limit the
amount of investments by foreign investors in a particular industry and/or
issuer; may limit such foreign investment to a certain class of securities of an
issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of such emerging market countries; and/or may impose
additional taxes on foreign investors. A delay in obtaining a required
government approval or a license would delay investments in those emerging
market countries, and, as a result, the Fund may not be able to invest in
certain securities while approval is pending. The government of certain emerging
market countries may also withdraw or decline to renew a license that enables
the Fund to invest in such country. These factors make investing in issuers
located or operating in emerging market countries significantly riskier than
investing in issuers located or operating in more developed countries, and any
one of them could cause a decline in the net asset value of the
Fund.
Additionally,
investments in issuers located in certain emerging market countries may be
subject to a greater degree of risk associated with governmental approval in
connection with the repatriation of investment income, capital or the proceeds
of sales of securities by foreign investors. Moreover, there is the risk that if
the balance of payments in an emerging market country declines, the government
of such country may impose temporary restrictions on foreign capital
remittances. Consequently, the Fund could be adversely affected by delays in, or
a refusal to grant, required governmental approval for repatriation of capital,
as well as by the application to the Fund of any restrictions on investments.
Furthermore, investments in emerging market countries may require the Fund to
adopt special procedures, seek local government approvals or take other actions,
each of which may involve additional costs to the Fund.
Risk
of Available Disclosure About Emerging Market Issuers.
Issuers located or operating in emerging market countries are not subject to the
same rules and regulations as issuers located or operating in more developed
countries. Therefore, there may be less financial and other information publicly
available with regard to issuers located or operating in emerging
market
countries and such issuers are not subject to the uniform accounting, auditing
and financial reporting standards applicable to issuers located or operating in
more developed countries.
Operational
and Settlement Risk.
In addition to having less developed securities markets, emerging market
countries have less developed custody and settlement practices than certain
developed countries. Rules adopted under the Investment Company Act of 1940
permit the Fund to maintain its foreign securities and cash in the custody of
certain eligible non-U.S. banks and securities depositories. Banks in emerging
market countries that are eligible foreign sub-custodians may be recently
organized or otherwise lack extensive operating experience. In addition, in
certain emerging market countries there may be legal restrictions or limitations
on the ability of the Fund to recover assets held in custody by a foreign
sub-custodian in the event of the bankruptcy of the sub-custodian. Because
settlement systems in emerging market countries may be less organized than in
other developed markets, there may be a risk that settlement may be delayed and
that cash or securities of the Fund may be in jeopardy because of failures of or
defects in the systems. Under the laws in many emerging market countries, the
Fund may be required to release local shares before receiving cash payment or
may be required to make cash payment prior to receiving local shares, creating a
risk that the Fund may surrender cash or securities without ever receiving
securities or cash from the other party. Settlement systems in emerging market
countries also have a higher risk of failed trades and back to back settlements
may not be possible.
The
Fund may not be able to convert a foreign currency to U.S. dollars in time for
the settlement of redemption requests. In the event that the Fund is not able to
convert the foreign currency to U.S. dollars in time for settlement, which may
occur as a result of the delays described above, the Fund may be required to
liquidate certain investments and/or borrow money in order to fund such
redemption. The liquidation of investments, if required, could be at
disadvantageous prices or otherwise have an adverse impact on the Fund’s
performance (e.g.,
by causing the Fund to overweight foreign currency denominated holdings and
underweight other holdings which were sold to fund redemptions). In addition,
the Fund will incur interest expense on any borrowings and the borrowings will
cause the Fund to be leveraged, which may magnify gains and losses on its
investments.
In
certain emerging market countries, the marketability of investments may be
limited due to the restricted opening hours of trading exchanges, and a
relatively high proportion of market value may be concentrated in the hands of a
relatively small number of investors. In addition, because certain emerging
market countries’ trading exchanges on which the Fund’s portfolio securities may
trade are open when the relevant exchanges are closed, the Fund may be subject
to heightened risk associated with market movements. Trading volume may be lower
on certain emerging market countries’ trading exchanges than on more developed
securities markets and securities may be generally less liquid. The
infrastructure for clearing, settlement and registration on the primary and
secondary markets of certain emerging market countries are less developed than
in certain other markets and under certain circumstances this may result in the
Fund experiencing delays in settling and/or registering transactions in the
markets in which it invests, particularly if the growth of foreign and domestic
investment in certain emerging market countries places an undue burden on such
investment infrastructure. Such delays could affect the speed with which the
Fund can transmit redemption proceeds and may inhibit the initiation and
realization of investment opportunities at optimum times.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer’s securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before and, in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent the Fund from buying
or selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the block cannot be removed. As a result of the
ramifications of voting ballots in markets that allow share blocking, the
Adviser, on behalf of the Fund, reserves the right to abstain from voting
proxies in those markets.
Corporate
and Securities Laws Risk.
Securities laws in emerging market countries are relatively new and unsettled
and, consequently, there is a risk of rapid and unpredictable change in laws
regarding foreign investment, securities regulation, title to securities and
securityholders rights. Accordingly, foreign investors may be adversely affected
by new or amended laws and regulations. In addition, the systems of corporate
governance to which emerging market issuers are subject may be less advanced
than those systems to which issuers located in more developed countries are
subject, and therefore, securityholders of issuers located in emerging market
countries may not receive many of the protections available to securityholders
of issuers located in more developed countries. In circumstances where adequate
laws and securityholders rights exist, it may not be possible to obtain swift
and equitable enforcement of the law. In addition, the enforcement of systems of
taxation at federal, regional and local levels in emerging market countries may
be inconsistent and subject to sudden change. The Fund has limited rights and
few practical remedies in emerging markets and the ability of U.S. authorities
to bring enforcement actions in emerging markets may be
limited.
Foreign Currency Risk. Because
all or a portion of the income received by the Fund from its investments and/or
the revenues received by the underlying issuer will generally be denominated in
foreign currencies, the Fund’s exposure to foreign currencies and changes in the
value of foreign currencies versus the U.S. dollar may result in reduced returns
for the Fund, and the value of certain foreign currencies may be subject to a
high degree of fluctuation. The Fund may also (directly or indirectly) incur
costs in connection with conversions between U.S. dollars and foreign
currencies.
Credit Risk. Credit risk refers
to the possibility that the issuer or guarantor of a security will be unable
and/or unwilling to honor its payment obligations and/or default completely on
securities. The Fund’s securities are subject to varying degrees
of credit risk, depending on the issuer’s financial condition and on
the terms of the securities, which may be reflected in credit ratings. There is
a possibility that the credit rating of a security may be downgraded after
purchase or the perception of an issuer’s creditworthiness may decline, which
may adversely affect the value of the security. Lower credit quality may also
affect liquidity and make it difficult for the Fund to sell the
security.
Interest Rate Risk.
Debt securities and preferred securities are subject to interest rate risk.
Interest rate risk refers to fluctuations in the value of a security resulting
from changes in the general level of interest rates. When the general level of
interest rates goes up, the prices of most debt securities and certain preferred
securities go down. When the general level of interest rates goes down, the
prices of most debt securities go up. Many factors can cause interest rates to
rise, including central bank monetary policy, rising inflation rates and general
economic conditions. Debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities, such as bonds, with shorter durations. A substantial investment by
the Fund in debt securities with longer-term maturities during periods of rising
interest rates may cause the value of the Fund’s investments to decline
significantly. Changing interest rates may have unpredictable effects on
markets, may result in heightened market volatility and may detract from Fund
performance to the extent the Fund is exposed to such interest rates and/or
volatility. It is difficult to predict the magnitude, timing or direction of
interest rate changes and the impact these changes will have on the markets in
which the Fund invests.
Restricted
Securities Risk.
Regulation S securities and Rule 144A securities are restricted securities that
are not registered under the Securities Act of 1933. They may be less liquid and
more difficult to value than other investments because such securities may not
be readily marketable. The Fund may not be able to purchase or sell a restricted
security promptly or at a reasonable time or price. Although there may be a
substantial institutional market for these securities, it is not possible to
predict exactly how the market for such securities will develop or whether it
will continue to exist. A restricted security that was liquid at the time of
purchase may subsequently become illiquid and its value may decline as a result.
Restricted securities that are deemed illiquid will count towards the Fund’s
limitation on illiquid securities. In addition, transaction costs may be higher
for restricted securities than for more liquid securities. The Fund may have to
bear the expense of registering restricted securities for resale and the risk of
substantial delays in effecting the registration.
Financials
Sector Risk.
Companies in the financials sector may be subject to extensive government
regulation that affects the scope of their activities, the prices they can
charge and the amount of capital they must maintain. The profitability of
companies in the financials sector may be adversely affected by increases in
interest rates, by loan losses, which usually increase in economic downturns,
and by credit rating downgrades. In addition, the financials sector is
undergoing numerous changes, including continuing consolidations, development of
new products and structures and changes to its regulatory framework.
Furthermore, some companies in the financials sector perceived as benefiting
from government intervention in the past may be subject to future
government-imposed restrictions on their businesses or face increased government
involvement in their operations. Increased government involvement in the
financials sector, including measures such as taking ownership positions in
financial institutions, could result in a dilution of the Fund’s investments in
financial institutions.
Energy Sector
Risk. The
Fund may be sensitive to, and its performance may depend to a greater extent on,
the overall condition of the energy sector. Companies operating in the energy
sector are subject to risks including, but not limited to, economic growth,
worldwide demand, political instability in the regions that the companies
operate, government regulation stipulating rates charged by utilities, interest
rate sensitivity, oil price volatility, energy conservation, environmental
policies, depletion of resources, and the cost of providing the specific utility
services and other factors that they cannot control.
The
energy sector is cyclical and is highly dependent on commodity prices; prices
and supplies of energy may fluctuate significantly over short and long periods
of time due to, among other things, national and international political
changes, OPEC policies, changes in relationships among OPEC members and between
OPEC and oil-importing nations, the regulatory environment, taxation policies,
and the economy of the key energy-consuming countries. Commodity prices have
recently been subject to increased volatility and declines, which may negatively
affect companies in which the Fund invests.
Companies
in the energy sector may be adversely affected by terrorism, natural disasters
or other catastrophes. Companies in the energy sector are at risk of civil
liability from accidents resulting in injury, loss of life or property,
pollution or other environmental damage claims and risk of loss from terrorism
and natural disasters. Disruptions in the oil industry or shifts in fuel
consumption may significantly impact companies in this sector. Significant oil
and gas deposits are located in emerging markets countries where corruption and
security may raise significant risks, in addition to the other risks of
investing in emerging markets.
Companies
in the energy sector may also be adversely affected by changes in exchange
rates, tax treatment, government regulation and intervention, negative
perception, efforts at energy conservation and world events in the regions in
which the companies operate (e.g.,
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investments and repatriation of capital,
military coups, social unrest, violence or labor unrest). Because a significant
portion of revenues of companies in this sector is derived from a relatively
small number of customers that are largely comprised of governmental entities
and utilities, governmental budget constraints may have a significant impact on
the stock prices of companies in this sector. Entities operating in the energy
sector are subject to significant regulation of nearly every aspect of their
operations by federal, state and local governmental agencies. Such regulation
can change rapidly or over time in both scope and intensity. Stricter laws,
regulations or enforcement policies could be enacted in the future which would
likely increase compliance costs and may materially adversely affect the
financial performance of companies in the energy sector.
A
downturn in the energy sector, adverse political, legislative or regulatory
developments or other events could have a larger impact on the Fund than on an
investment company that does not invest a substantial portion of its assets in
the energy sector. At times, the performance of securities of companies in the
energy sector may lag the performance of other sectors or the broader market as
a whole. The price of oil, natural gas and other fossil fuels may decline and/or
experience significant volatility, which could adversely impact companies
operating in the energy sector.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including human error, processing and communication errors, errors of the Fund’s
service providers, counterparties or other third-parties, failed or inadequate
processes and technology or system failures.
Call Risk. The
Fund may invest in callable debt securities. If interest rates fall, issuers may
“call” (or prepay) their debt securities before their maturity date. If the
issuer exercises a call during or following a period of declining interest
rates, the Fund is likely to have to replace the called security with a lower
yielding security or riskier security, decreasing the Fund’s net investment
income. The Fund also may fail to recover additional amounts (i.e.,
premiums) paid for securities with higher interest rates, resulting in an
unexpected capital loss.
Sampling
Risk. The
Fund’s use of a representative sampling approach will result in its holding a
smaller number of securities than are in its Index. As a result, an adverse
development respecting an issuer of securities held by the Fund could result in
a greater decline in net asset value than would be the case if the Fund held all
of the securities in its Index. Conversely, a positive development relating to
an issuer of securities in the Index that is not held by the Fund could cause
the Fund to underperform the Index. To the extent the assets in the Fund are
smaller, these risks will be greater.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (if applicable) raising cash to meet redemptions or deploying
cash in connection with inflows into the Fund. Transaction costs, including
brokerage costs, may decrease the Fund’s net asset value.
Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards (where applicable), a lack of liquidity in markets in which
such securities trade, potential adverse tax consequences or other regulatory
reasons (such as diversification requirements). To the extent the Fund utilizes
depositary
receipts,
the purchase of depositary receipts may negatively affect the Fund’s ability to
track the performance of the Index and increase tracking error, which may be
exacerbated if the issuer of the depositary receipt discontinues issuing new
depositary receipts or withdraws existing depositary receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to changes to the Index and high turnover of the Index.
When markets are volatile, the ability to sell securities at fair value prices
may be adversely impacted and may result in additional trading costs and/or
increase the index tracking risk. The Fund may also need to rely on borrowings
to meet redemptions, which may lead to increased expenses. For tax efficiency
purposes, the Fund may sell certain securities, and such sale may cause the Fund
to realize a loss and deviate from the performance of the Index. In light of the
factors discussed above, the Fund’s return may deviate significantly from the
return of the Index. Changes to the composition of the Index in connection with
a rebalancing or reconstitution of the Index may cause the Fund to experience
increased volatility, during which time the Fund’s index tracking risk may be
heightened.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk. There
can be no assurance that an active trading market for the Shares will develop or
be maintained, as applicable. Further, secondary markets may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods in times of market stress because market makers and Authorized
Participants may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its net asset value.
Trading
Issues Risk.
Trading in shares on the exchange may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in shares inadvisable.
In addition, trading in shares on the exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the relevant exchange’s
“circuit breaker” rules. If a trading halt or unanticipated early close of the
exchange occurs, a shareholder may be unable to purchase or sell Shares of the
Fund. There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from its Index, the Fund generally would
not sell a security because the security’s issuer is in financial trouble. If a
specific security is removed from the Fund’s Index, the Fund may be forced to
sell such security at an inopportune time or for prices other than at current
market values. An investment in the Fund involves risks similar to those of
investing in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares. The
market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times,
bid/ask spreads on the exchange and the
resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Index-Related
Concentration Risk. The Fund’s assets may be concentrated in a particular sector
or sectors or industry or group of industries to reflect the Index’s allocation
to such sector or sectors or industry or group of industries. The securities of
many or all of the companies in the same sector or industry may decline in value
due to developments adversely affecting such sector or industry. By
concentrating its assets in a particular sector or sectors or industry or group
of industries, the Fund is subject to the risk that economic, political or other
conditions that have a negative effect on those sectors and/or industries may
negatively impact the Fund to a greater extent than if the Fund’s assets were
invested in a wider variety of securities.
PERFORMANCE
The bar chart that follows shows how the Fund performed for the
calendar years shown. The table below the bar chart shows the Fund’s average
annual returns (before and after taxes). The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s benchmark index and a
broad measure of market performance. Prior to May 13,
2015, the Fund sought to replicate as closely as possible, before fees and
expenses, the price and yield performance of an index called the BofA Merrill
Lynch Diversified High Yield US Emerging Markets Corporate Plus Index (the
“Prior Index”). Therefore, performance information prior to May 13, 2015
reflects the performance of the Fund while seeking to track the Prior
Index. All returns assume reinvestment of dividends and
distributions. The Fund’s past performance
(before and after taxes) is not necessarily indicative of how the Fund will
perform in the future. Updated performance information is
available online at www.vaneck.com.
Annual Total Returns
(%)—Calendar Years
The
year-to-date total annual return
as of June 30,
2023 was 2.41%.
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Best
Quarter: |
15.00% |
2Q
2020 |
Worst
Quarter: |
-15.16% |
1Q
2020 |
Average Annual
Total Returns for the Periods Ended December 31,
2022
The after-tax returns presented
in the table below are calculated using the highest historical individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Your actual after-tax returns will depend on your
specific tax situation and may differ from those shown below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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| Past
One Year |
Past
Five Years* |
Past
Ten Years |
|
| VanEck
Emerging Markets High Yield Bond ETF (return before
taxes) |
-12.68% |
0.01% |
2.31% |
|
| VanEck
Emerging Markets High Yield Bond ETF (return after taxes on
distributions) |
-14.91% |
-2.38% |
-0.29% |
|
| VanEck
Emerging Markets High Yield Bond ETF (return after taxes on
distributions and sale of Fund Shares) |
-7.53% |
-0.92% |
0.64% |
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|
ICE
BofA Diversified High Yield US Emerging Markets Corporate Plus Index*
(reflects no deduction for
fees, expenses or taxes) |
-13.71% |
-0.09% |
2.57% |
|
| ICE BofA US
Broad Market Index (reflects no deduction for fees, expenses or
taxes) |
-13.16% |
0.03% |
1.07% |
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*Prior to May 13,
2015, the Fund sought to replicate as closely as possible, before fees and
expenses, the price and yield performance of the Prior Index. Therefore,
performance information prior to May 13, 2015 reflects the performance of the
Fund while seeking to track the Prior Index. Prior to May 13, 2015, index data
reflects that of the Prior Index. From May 13, 2015, the index data reflects
that of the Emerging Markets High Yield Index.
See “License Agreements and Disclaimers” for important
information.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Manager. The
following individual is primarily responsible for the day-to-day management of
the Fund’s portfolio:
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| Name |
Title
with Adviser |
Date
Began Managing the Fund |
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| Francis
G. Rodilosso |
Portfolio
Manager |
September
2012 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information, and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information about Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT
OBJECTIVE
VanEck®
Fallen Angel High Yield Bond ETF
(the
“Fund”) seeks to replicate as closely as possible, before fees and expenses, the
price and yield performance of ICE US Fallen Angel High Yield 10% Constrained
Index (the “Fallen Angel Index” or the “Index”).
FUND FEES AND
EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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Management
Fee |
0.35 |
% |
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|
Other
Expenses(a) |
0.00 |
% |
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Total
Annual Fund Operating Expenses(a) |
0.35 |
% |
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(a)Van Eck Associates
Corporation (the “Adviser”) will pay all expenses of the Fund, except for the
fee payment under the investment management agreement, acquired fund fees and
expenses, interest expense, offering costs, trading expenses, taxes and
extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to
pay the offering costs until at least September 1,
2024.
EXPENSE
EXAMPLE
This example is intended to help you compare
the cost of investing in the Fund with the cost of investing in other funds.
This example does not take into account brokerage commissions that you pay when
purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell or hold all of your Shares at the end of those
periods. The example also assumes that your investment has a 5% annual return
and that the Fund’s operating expenses remain the same.
Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
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| YEAR |
EXPENSES |
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| 1 |
$36 |
| |
| 3 |
$113 |
| |
| 5 |
$197 |
| |
| 10 |
$443 |
| |
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PORTFOLIO
TURNOVER
The Fund will pay transaction costs, such as commissions, when it
purchases and sells securities (or “turns over” its portfolio). A higher
portfolio turnover will cause the Fund to incur additional transaction costs and
may result in higher taxes when Fund Shares are held in a taxable account. These
costs, which are not reflected in annual fund operating expenses or in the
example, may affect the Fund’s performance. During the most recent fiscal year,
the Fund’s portfolio turnover rate was 31% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund normally invests at least 80% of its total assets in securities that
comprise the Fund’s benchmark index. The Fallen Angel Index is comprised of
below investment grade corporate bonds denominated in U.S. dollars that were
rated investment grade at the time of issuance. Qualifying securities must be
issued in the U.S. domestic market and have a below investment grade rating.
Defaulted securities are removed from the Fallen Angel Index at the end of the
month in which they default. The Fallen Angel Index is comprised of bonds issued
by both U.S. and non-U.S. issuers.
The
country of risk of qualifying issuers must be a member of the FX Group of Ten, a
Western European nation, or a territory of the United States or a Western
European nation. The FX Group of Ten includes all Euro members, Australia,
Canada, Japan, New Zealand, Norway, Sweden, Switzerland, the United Kingdom and
the United States. As of June 30, 2023, the Fallen Angel Index included 163
below investment grade bonds of 72 issuers and approximately 16% of the Fallen
Angel Index was comprised of
Rule
144A securities. The Fund’s 80% investment policy is non-fundamental and may be
changed without shareholder approval upon 60 days’ prior written notice to
shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Fallen Angel Index by investing in a portfolio
of securities that generally replicates the Fallen Angel Index. Unlike many
investment companies that try to “beat” the performance of a benchmark index,
the Fund does not try to “beat” the Fallen Angel Index and does not take
temporary defensive positions that are inconsistent with its investment
objective of seeking to replicate the Fallen Angel Index.
The
Fund may become "non-diversified" as defined under the Investment Company Act of
1940, solely as a result of a change in relative market capitalization or index
weighting of one or more constituents of the Fallen Angel Index. This means that
the Fund may invest a greater percentage of its assets in a limited number of
issuers than would be the case if the Fund were always managed as a diversified
management investment company. The Fund intends to be diversified in
approximately the same proportion as the Fallen Angel Index. Shareholder
approval will not be sought when the Fund crosses from diversified to
non-diversified status due solely to a change in the relative market
capitalization or index weighting of one or more constituents of the Fallen
Angel Index.
The Fund may
concentrate its investments in a particular industry or group of industries to
the extent that the Fallen Angel Index concentrates in an industry or group of
industries. As of April 30, 2023, each of the energy, consumer discretionary,
information technology and financials sectors represented a significant portion
of the Fund.
PRINCIPAL RISKS OF INVESTING IN
THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is
not a deposit with a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
High
Yield Securities Risk. Securities
rated below investment grade are commonly referred to as high yield securities
or “junk bonds.” High yield securities are often issued by issuers that are
restructuring, are smaller or less creditworthy than other issuers, or are more
highly indebted than other issuers. High yield securities are subject to greater
risk of loss of income and principal than higher rated securities and are
considered speculative. The prices of high yield securities are likely to be
more sensitive to adverse economic changes or individual issuer developments
than higher rated securities, resulting in increased volatility of their market
prices and a corresponding volatility in the Fund’s net asset value. During an
economic downturn or substantial period of rising interest rates, high yield
security issuers may experience financial stress that would adversely affect
their ability to service their principal and interest payment obligations, to
meet their projected business goals or to obtain additional financing. In the
event of a default, the Fund may incur additional expenses to seek recovery. The
secondary market for high yield securities may be less liquid than the markets
for higher quality securities, and high yield securities issued by non-corporate
issuers may be less liquid than high yield securities issued by corporate
issuers. Illiquidity may have an adverse effect on the market prices of and the
Fund’s ability to arrive at a fair value for certain securities when it seeks to
do so. In addition, periods of economic uncertainty and change may result in an
increased volatility of market prices of high yield securities and a
corresponding volatility in the Fund's net asset value.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s investments.
Foreign market trading hours, clearance and settlement procedures, and holiday
schedules may limit the Fund's ability to buy and sell securities.
Credit Risk. Credit risk refers
to the possibility that the issuer or guarantor of a security will be unable
and/or unwilling to honor its payment obligations and/or default completely on
securities. The Fund’s securities are subject to varying degrees
of credit risk, depending on the issuer’s financial condition and on
the terms of the securities, which may be reflected in credit ratings. There is
a possibility that the credit rating of a security may be downgraded after
purchase or the perception of an issuer’s creditworthiness may decline, which
may adversely affect the value of the security. Lower credit quality may also
affect liquidity and make it difficult for the Fund to sell the
security.
Interest Rate Risk.
Debt securities and preferred securities are subject to interest rate risk.
Interest rate risk refers to fluctuations in the value of a security resulting
from changes in the general level of interest rates. When the general level of
interest rates goes up, the prices of most debt securities and certain preferred
securities go down. When the general level of interest rates goes down, the
prices of most debt securities go up. Many factors can cause interest rates to
rise, including central bank monetary policy, rising inflation rates and general
economic conditions. Debt securities with longer durations tend to be more
sensitive to
interest
rate changes, usually making them more volatile than debt securities, such as
bonds, with shorter durations. A substantial investment by the Fund in debt
securities with longer-term maturities during periods of rising interest rates
may cause the value of the Fund’s investments to decline significantly. Changing
interest rates may have unpredictable effects on markets, may result in
heightened market volatility and may detract from Fund performance to the extent
the Fund is exposed to such interest rates and/or volatility. It is difficult to
predict the magnitude, timing or direction of interest rate changes and the
impact these changes will have on the markets in which the Fund invests.
Restricted
Securities Risk.
Regulation S securities and Rule 144A securities are restricted securities that
are not registered under the Securities Act of 1933. They may be less liquid and
more difficult to value than other investments because such securities may not
be readily marketable. The Fund may not be able to purchase or sell a restricted
security promptly or at a reasonable time or price. Although there may be a
substantial institutional market for these securities, it is not possible to
predict exactly how the market for such securities will develop or whether it
will continue to exist. A restricted security that was liquid at the time of
purchase may subsequently become illiquid and its value may decline as a result.
Restricted securities that are deemed illiquid will count towards the Fund’s
limitation on illiquid securities. In addition, transaction costs may be higher
for restricted securities than for more liquid securities. The Fund may have to
bear the expense of registering restricted securities for resale and the risk of
substantial delays in effecting the registration.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including human error, processing and communication errors, errors of the Fund’s
service providers, counterparties or other third-parties, failed or inadequate
processes and technology or system failures.
Call Risk. The
Fund may invest in callable debt securities. If interest rates fall, issuers may
“call” (or prepay) their debt securities before their maturity date. If the
issuer exercises a call during or following a period of declining interest
rates, the Fund is likely to have to replace the called security with a lower
yielding security or riskier security, decreasing the Fund’s net investment
income. The Fund also may fail to recover additional amounts (i.e.,
premiums) paid for securities with higher interest rates, resulting in an
unexpected capital loss.
Energy Sector
Risk. The
Fund may be sensitive to, and its performance may depend to a greater extent on,
the overall condition of the energy sector. Companies operating in the energy
sector are subject to risks including, but not limited to, economic growth,
worldwide demand, political instability in the regions that the companies
operate, government regulation stipulating rates charged by utilities, interest
rate sensitivity, oil price volatility, energy conservation, environmental
policies, depletion of resources, and the cost of providing the specific utility
services and other factors that they cannot control.
The
energy sector is cyclical and is highly dependent on commodity prices; prices
and supplies of energy may fluctuate significantly over short and long periods
of time due to, among other things, national and international political
changes, OPEC policies, changes in relationships among OPEC members and between
OPEC and oil-importing nations, the regulatory environment, taxation policies,
and the economy of the key energy-consuming countries. Commodity prices have
recently been subject to increased volatility and declines, which may negatively
affect companies in which the Fund invests.
Companies
in the energy sector may be adversely affected by terrorism, natural disasters
or other catastrophes. Companies in the energy sector are at risk of civil
liability from accidents resulting in injury, loss of life or property,
pollution or other environmental damage claims and risk of loss from terrorism
and natural disasters. Disruptions in the oil industry or shifts in fuel
consumption may significantly impact companies in this sector. Significant oil
and gas deposits are located in emerging markets countries where corruption and
security may raise significant risks, in addition to the other risks of
investing in emerging markets.
Companies
in the energy sector may also be adversely affected by changes in exchange
rates, tax treatment, government regulation and intervention, negative
perception, efforts at energy conservation and world events in the regions in
which the companies operate (e.g.,
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investments and repatriation of capital,
military coups, social unrest, violence or labor unrest). Because a significant
portion of revenues of companies in this sector is derived from a relatively
small number of customers that are largely comprised of governmental entities
and utilities, governmental budget constraints may have a significant impact on
the stock prices of companies in this sector. Entities operating in the energy
sector are subject to significant regulation of nearly every aspect of their
operations by federal, state and local governmental agencies. Such regulation
can change rapidly or over time in both scope and intensity. Stricter laws,
regulations or enforcement policies could be enacted in the future which would
likely increase compliance costs and may materially adversely affect the
financial performance of companies in the energy sector.
A
downturn in the energy sector, adverse political, legislative or regulatory
developments or other events could have a larger impact on the Fund than on an
investment company that does not invest a substantial portion of its assets in
the energy sector. At
times,
the performance of securities of companies in the energy sector may lag the
performance of other sectors or the broader market as a whole. The price of oil,
natural gas and other fossil fuels may decline and/or experience significant
volatility, which could adversely impact companies operating in the energy
sector.
Consumer Discretionary Sector
Risk. The
Fund will be sensitive to, and its performance will depend to a greater extent
on, the overall condition of the consumer discretionary sector. The
consumer discretionary sector comprises companies whose
businesses are sensitive to economic cycles, such as manufacturers of high-end
apparel and automobile and leisure companies. Companies in
the consumer discretionary sector are subject to
fluctuations in supply and demand. These companies may also be adversely
affected by changes in consumer spending as a result of world events, political
and economic conditions, commodity price volatility, changes in exchange rates,
imposition of import controls, increased competition, depletion of resources and
labor relations.
Information
Technology Sector Risk.
Information technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on profit margins. Information
technology companies may have limited product lines, markets, financial
resources or personnel. The products of information technology companies may
face product obsolescence due to rapid technological developments and frequent
new product introduction, unpredictable changes in growth rates and competition
for the services of qualified personnel. Companies in the information technology
sector are heavily dependent on patent protection and the expiration of patents
may adversely affect the profitability of these companies.
Financials
Sector Risk.
Companies in the financials sector may be subject to extensive government
regulation that affects the scope of their activities, the prices they can
charge and the amount of capital they must maintain. The profitability of
companies in the financials sector may be adversely affected by increases in
interest rates, by loan losses, which usually increase in economic downturns,
and by credit rating downgrades. In addition, the financials sector is
undergoing numerous changes, including continuing consolidations, development of
new products and structures and changes to its regulatory framework.
Furthermore, some companies in the financials sector perceived as benefiting
from government intervention in the past may be subject to future
government-imposed restrictions on their businesses or face increased government
involvement in their operations. Increased government involvement in the
financials sector, including measures such as taking ownership positions in
financial institutions, could result in a dilution of the Fund’s investments in
financial institutions.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (if applicable) raising cash to meet redemptions or deploying
cash in connection with inflows into the Fund. Transaction costs, including
brokerage costs, may decrease the Fund’s net asset value.
Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards (where applicable), a lack of liquidity in markets in which
such securities trade, potential adverse tax consequences or other regulatory
reasons (such as diversification requirements). To the extent the Fund utilizes
depositary receipts, the purchase of depositary receipts may negatively affect
the Fund’s ability to track the performance of the Index and increase tracking
error, which may be exacerbated if the issuer of the depositary receipt
discontinues issuing new depositary receipts or withdraws existing depositary
receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to changes to the Index and high turnover of the Index.
When markets are volatile, the ability to sell securities at fair value prices
may
be
adversely impacted and may result in additional trading costs and/or increase
the index tracking risk. The Fund may also need to rely on borrowings to meet
redemptions, which may lead to increased expenses. For tax efficiency purposes,
the Fund may sell certain securities, and such sale may cause the Fund to
realize a loss and deviate from the performance of the Index. In light of the
factors discussed above, the Fund’s return may deviate significantly from the
return of the Index. Changes to the composition of the Index in connection with
a rebalancing or reconstitution of the Index may cause the Fund to experience
increased volatility, during which time the Fund’s index tracking risk may be
heightened.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk. There
can be no assurance that an active trading market for the Shares will develop or
be maintained, as applicable. Further, secondary markets may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods in times of market stress because market makers and Authorized
Participants may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its net asset value.
Trading
Issues Risk.
Trading in shares on the exchange may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in shares inadvisable.
In addition, trading in shares on the exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the relevant exchange’s
“circuit breaker” rules. If a trading halt or unanticipated early close of the
exchange occurs, a shareholder may be unable to purchase or sell Shares of the
Fund. There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from its Index, the Fund generally would
not sell a security because the security’s issuer is in financial trouble. If a
specific security is removed from the Fund’s Index, the Fund may be forced to
sell such security at an inopportune time or for prices other than at current
market values. An investment in the Fund involves risks similar to those of
investing in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares. The
market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Non-Diversification
Risk.
The
Fund may become classified as “non-diversified” under the Investment Company Act
of 1940 solely as a result of a change in relative market capitalization or
index weighting of one or more constituents of the its Index. If the Fund
becomes non-diversified, it may invest a greater portion of its assets in
securities of a smaller number of individual issuers than a diversified fund. As
a result, changes in the market value of a single investment could cause greater
fluctuations in share price than would occur in a more diversified
fund.
Index-Related
Concentration Risk. The Fund’s assets may be concentrated in a particular sector or
sectors or industry or group of industries to reflect the Index’s allocation to
such sector or sectors or industry or group of industries. The securities of
many or all of the companies in the same sector or industry may decline in value
due to developments adversely affecting such sector or industry. By
concentrating its assets in a particular sector or sectors or industry or group
of industries, the Fund is subject to the risk that economic, political or other
conditions that have a negative effect on those sectors and/or industries may
negatively impact the Fund to a greater extent than if the Fund’s assets were
invested in a wider variety of securities.
PERFORMANCE
The bar chart that follows shows how the Fund performed for the
calendar years shown. The table below the bar chart shows the Fund’s average
annual returns (before and after taxes). The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s former benchmark
index and a broad measure of market performance. Prior to
February 28, 2020, the Fund sought to replicate as closely as possible, before
fees and expenses, the price and yield performance of the ICE BofA US Fallen
Angel High Yield Index (the "Prior Index"). Therefore, performance information
prior to February 28, 2020 reflects the performance of the Fund while seeking to
track the Prior Index. As a result, the Fund’s future
performance may differ substantially from the performance information shown
below. All returns assume reinvestment of dividends and distributions.
The Fund’s past performance
(before and after taxes) is not necessarily indicative of how the Fund will
perform in the future. Updated performance information is
available online at www.vaneck.com.
Annual Total Returns
(%)—Calendar Years
The
year-to-date total return as of
June 30,
2023 was 4.68%.
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Best
Quarter: |
14.02% |
2Q
2020 |
Worst
Quarter: |
-13.14% |
1Q
2020 |
Average Annual
Total Returns for the Periods Ended December 31,
2022
The after-tax returns presented
in the table below are calculated using the highest historical individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Your actual after-tax returns will depend on your
specific tax situation and may differ from those shown below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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| Past
One Year |
Past
Five Years |
Past
Ten Years |
|
| VanEck Fallen
Angel High Yield Bond ETF (return before
taxes) |
-14.24% |
3.05% |
5.72% |
|
| VanEck
Fallen Angel High Yield Bond ETF (return after taxes on
distributions) |
-15.81% |
0.96% |
3.34% |
|
| VanEck
Fallen Angel High Yield Bond ETF (return after taxes on distributions
and sale of Fund Shares) |
-8.41% |
1.46% |
3.36% |
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|
ICE
US Fallen Angel High Yield 10% Constrained Index*
(reflects no deduction for
fees, expenses or taxes) |
-14.00% |
3.38% |
6.40% |
|
| ICE BofA US
Broad Market Index (reflects no deduction for fees, expenses or
taxes) |
-13.16% |
0.03% |
1.07% |
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*
Prior
to February 28, 2020, the Fund sought to replicate as closely as possible,
before fees and expenses, the price and yield performance of the Prior Index.
Therefore, the performance information included in this table reflects the
performance of the Fund while seeking to track the Prior Index. Additionally,
the index data included in this table reflects that of the Prior Index. From
February 28, 2020, the index data will reflect that of the Fallen Angel
Index.
See “License Agreements and Disclaimers” for important
information.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Manager.
The following individual is primarily responsible for the day-to-day management
of the Fund’s portfolio:
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| Name |
Title
with Adviser |
Date
Began Managing the Fund |
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| Francis
G. Rodilosso |
Portfolio
Manager |
April
2012 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information, and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information About Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT
OBJECTIVE
VanEck® Green Bond ETF (the “Fund”) seeks to replicate as
closely as possible, before fees and expenses, the price and yield performance
of the S&P Green Bond U.S. Dollar Select Index (the “Green Bond Index” or
the “Index”).
FUND FEES AND
EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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| Management
Fee |
0.20 |
% |
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| |
|
Other
Expenses(a) |
0.00 |
% |
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Total
Annual Fund Operating Expenses(a) |
0.20 |
% |
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(a)Van Eck
Associates Corporation (the “Adviser”) will pay all expenses of the Fund, except
for the fee payment under the investment management agreement, acquired fund
fees and expenses, interest expense, offering costs, trading expenses, taxes and
extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to
pay the offering costs until at least September 1,
2024.
EXPENSE
EXAMPLE
This example is intended to help you compare
the cost of investing in the Fund with the cost of investing in other funds.
This example does not take into account brokerage commissions that you pay when
purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell or hold all of your Shares at the end of those
periods. The example also assumes that your investment has a 5% annual return
and that the Fund’s operating expenses remain the same.
Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
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| YEAR |
EXPENSES |
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| 1 |
$20 |
| |
| 3 |
$64 |
| |
| 5 |
$113 |
| |
| 10 |
$255 |
| |
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PORTFOLIO
TURNOVER
The Fund will pay transaction costs, such as commissions, when it
purchases and sells securities (or “turns over” its portfolio). A higher
portfolio turnover will cause the Fund to incur additional transaction costs and
may result in higher taxes when Fund Shares are held in a taxable account. These
costs, which are not reflected in annual fund operating expenses or in the
example, may affect the Fund’s performance. During the most recent fiscal year,
the Fund’s portfolio turnover rate was 20% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The Fund normally invests at least 80% of its total assets
in securities that comprise the Fund’s benchmark index. The Green Bond Index is
comprised of bonds issued for qualified “green” purposes and seeks to measure
the performance of U.S. dollar denominated “green”-labeled bonds issued
globally. The Green Bond Index is sponsored by S&P Dow Jones Indices LLC,
which is not affiliated with or sponsored by the Fund or the Adviser. “Green”
bonds are bonds whose proceeds are used principally for climate change
mitigation, climate adaptation or other environmentally beneficial projects,
such as, but not limited to, the development of clean, sustainable or renewable
energy sources, commercial and industrial energy efficiency, or conservation of
natural resources. For a bond to be eligible for inclusion in the Green Bond
Index, the issuer of the bond must indicate the bond’s “green” label and the
rationale behind it, such as the intended use of proceeds. As an additional
filter, the bond must be flagged as “green” by Climate Bonds Initiative (“CBI”),
an international not-for-profit working to mobilize the bond market for climate
change
solutions, to be eligible for inclusion in the Green Bond Index. The Green Bond
Index is market value-weighted and includes supranational, corporate,
government-related, sovereign and securitized “green” bonds issued throughout
the world (including emerging market countries), and may include both investment
grade and below investment grade securities (commonly referred to as high yield
securities or “junk bonds”). “Securitized green bonds” are securities typically
collateralized by a specified pool of assets, such as mortgages, automobile
loans or other consumer receivables. All bonds must be rated by at least one
credit rating agency, except that up to 10% of the Green Bond Index can be
invested in unrated bonds that are issued or guaranteed by a
government-sponsored enterprise. The maximum weight of below investment grade
bonds (excluding any unrated bonds that are issued or guaranteed by a
government-sponsored enterprise) in the Green Bond Index is capped at 20%. No
more than 10% of the Green Bond Index can be invested in a single issuer.
Qualifying securities must have a maturity of at least 12 months at the time of
issuance and at least one month remaining until maturity at each rebalancing
date.
As
of June 30, 2023, the Green Bond Index consisted of 456 bonds issued by 266
issuers and the weighted average maturity of the Green Bond Index was
approximately 7.89 years. As of the same date, approximately 19.35% of the Green
Bond Index was comprised of Regulation S securities and 28.65% of the Green Bond
Index was comprised of Rule 144A securities. The S&P Green Bond Index is
rebalanced monthly. The Fund’s 80% investment policy is non-fundamental and may
be changed without shareholder approval upon 60 days’ prior written notice to
shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Green Bond Index. Unlike many investment
companies that try to “beat” the performance of a benchmark index, the Fund does
not try to “beat” the Green Bond Index and does not take temporary defensive
positions that are inconsistent with its investment objective of seeking to
replicate the Green Bond Index. Because of the practical difficulties and
expense of purchasing all of the securities in the Green Bond Index, the Fund
does not purchase all of the securities in the Green Bond Index. Instead, the
Adviser utilizes a “sampling” methodology in seeking to achieve the Fund’s
objective. As such, the Fund may purchase a subset of the securities in the
Green Bond Index in an effort to hold a portfolio of bonds with generally the
same risk and return characteristics of the Green Bond Index.
The
Fund may concentrate its investments in a particular industry or group of
industries to the extent that the Green Bond Index concentrates in an industry
or group of industries.
As
of April 30, 2023, each of the financials and utilities sectors represented a
significant portion of the Fund.
PRINCIPAL RISKS OF INVESTING IN
THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is
not a deposit with a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
“Green”
Bonds Risk.
Investments in “green” bonds include bonds whose proceeds are used principally
for climate mitigation, climate adaptation or other environmentally beneficial
projects, such as, but not limited to, the development of clean, sustainable or
renewable energy sources, commercial and industrial energy efficiency, or
conservation of natural resources. Investing in “green” bonds carries the risk
that, under certain market conditions, the Fund may underperform as compared to
funds that invest in a broader range of investments. In addition, some “green”
investments may be dependent on government tax incentives and subsidies and on
political support for certain environmental technologies and companies.
Investing primarily in “green” investments may affect the Fund’s exposure to
certain sectors or types of investments and will impact the Fund’s relative
investment performance depending on whether such sectors or investments are in
or out of favor in the market. The “green” sector may also have challenges such
as a limited number of issuers and limited liquidity in the market.
Additionally, there may also be a limited supply of bonds that merit “green”
status, which may adversely affect the Fund.
Special
Risk Considerations of Investing in Asian Issuers. Investments
in securities of Asian issuers involve risks and special considerations not
typically associated with investments in the U.S. securities markets. Many Asian
economies have experienced rapid growth and industrialization in recent years,
but there is no assurance that this growth rate will be maintained. Certain
Asian economies have experienced over-extension of credit, currency devaluations
and restrictions, high unemployment, high inflation, decreased exports and
economic recessions. Geopolitical hostility, political instability, as well as
economic or environmental events in any one Asian country can have a significant
effect on the entire Asian region as well as on major trading partners outside
Asia, and any adverse effect on some or all of the Asian countries and regions
in which the Fund invests. The securities markets in some Asian economies are
relatively underdeveloped and may subject the Fund to higher action costs or
greater uncertainty than investments in more developed securities markets. Such
risks may adversely affect the value of the Fund’s investments. Certain Asian
countries have also developed increasingly strained relationships with the U.S.,
and if these relations were to worsen, they could adversely affect Asian issuers
that rely on the U.S. for trade.
Special
Risk Considerations of Investing in Chinese Issuers. Investments
in securities of Chinese issuers, including issuers outside of China that
generate significant revenues from China, involve certain risks and
considerations not typically associated with investments in U.S securities.
These risks include among others (i) more frequent (and potentially widespread)
trading suspensions and government interventions with respect to Chinese issuers
resulting in a lack of liquidity and in price volatility, (ii)
currency
revaluations and other currency exchange rate fluctuations or blockage, (iii)
the nature and extent of intervention by the Chinese government in the Chinese
securities markets, whether such intervention will continue and the impact of
such intervention or its discontinuation, (iv) the risk of nationalization or
expropriation of assets, (v) the risk that the Chinese government may decide not
to continue to support economic reform programs, (vi) limitations on the use of
brokers, (vii) higher rates of inflation, (viii) greater political, economic and
social uncertainty, (ix) market volatility caused by any potential regional or
territorial conflicts or natural or other disasters, and (x) the risk of
increased trade tariffs, embargoes, sanctions, investment restrictions and other
trade limitations. Certain securities are, or may in the future become
restricted, and the Fund may be forced to sell such securities and incur a loss
as a result. In addition, the economy of China differs, often unfavorably, from
the U.S. economy in such respects as structure, general development, government
involvement, wealth distribution, rate of inflation, growth rate, interest
rates, allocation of resources and capital reinvestment, among others. The
Chinese central government has historically exercised substantial control over
virtually every sector of the Chinese economy through administrative regulation
and/or state ownership and actions of the Chinese central and local government
authorities continue to have a substantial effect on economic conditions in
China. In addition, the Chinese government has from time to time taken actions
that influence the prices at which certain goods may be sold, encourage
companies to invest or concentrate in particular industries, induce mergers
between companies in certain industries and induce private companies to publicly
offer their securities to increase or continue the rate of economic growth,
control the rate of inflation or otherwise regulate economic expansion. The
Chinese government may do so in the future as well, potentially having a
significant adverse effect on economic conditions in China.
Special
Risk Considerations of Investing in European Issuers. Investments
in securities of European issuers involve risks and special considerations not
typically associated with investments in the U.S. securities markets. The
Economic and Monetary Union of the European Union requires member countries to
comply with restrictions on inflation rates, deficits, interest rates, debt
levels and fiscal and monetary controls, each of which may significantly affect
every country in Europe. Decreasing imports or exports, changes in governmental
or European Union regulations on trade, changes in the exchange rate of the
euro, the default or threat of default by a European Union member country on its
sovereign debt, and/or an economic recession in a European Union member country
may have a significant adverse effect on the economies of other European Union
countries and on major trading partners outside Europe. If any member country
exits the Economic and Monetary Union, the departing country would face the
risks of currency devaluation and its trading partners and banks and others
around the world that hold the departing country’s debt would face the risk of
significant losses. The European financial markets have previously experienced,
and may continue to experience, volatility and have been adversely affected, and
may in the future be affected, by concerns about economic downturns, credit
rating downgrades, rising government debt levels and possible default on or
restructuring of government debt in several European countries. These events
have adversely affected, and may in the future affect, the value and exchange
rate of the euro and may continue to significantly affect the economies of every
country in Europe, including European Union member countries that do not use the
euro and non-European Union member countries. The United Kingdom withdrew from
the European Union on January 31, 2020, which has resulted in ongoing market
volatility and caused additional market disruption on a global basis. On
December 30, 2020, the United Kingdom and the European Union signed the EU-UK
Trade and Cooperation Agreement, which is an agreement on the terms governing
certain aspects of the European Union's and the United Kingdom's relationship
post Brexit. Notwithstanding the EU-UK Trade and Cooperation Agreement,
following the transition period, there is likely to be considerable uncertainty
as to the United Kingdom’s post-transition framework.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s investments.
Foreign market trading hours, clearance and settlement procedures, and holiday
schedules may limit the Fund's ability to buy and sell securities.
Emerging
Market Issuers Risk.
Investments in securities of emerging market issuers involve risks not typically
associated with investments in securities of issuers in more developed countries
that may negatively affect the value of your investment in the Fund. Such
heightened risks may include, among others, expropriation and/or nationalization
of assets, restrictions on and government intervention in international trade,
confiscatory taxation, political instability, including authoritarian and/or
military involvement in governmental decision making, armed conflict, the impact
on the economy as a result of civil war, crime (including drug violence) and
social instability as a result of religious, ethnic and/or socioeconomic unrest.
Issuers in certain emerging market countries are subject to less stringent
requirements regarding accounting, auditing, financial reporting and record
keeping than are issuers in more developed markets, and therefore, all material
information may not be available or reliable. Emerging markets are also more
likely than developed markets to experience problems with the clearing and
settling of trades, as well as the holding of securities by local banks, agents
and depositories. Low trading volumes and volatile prices in less developed
markets may make trades harder to complete and settle, and governments or trade
groups may compel local agents to hold securities in designated depositories
that may not be subject to independent evaluation. Local agents are held only to
the standards of care of their local markets. In general, the less developed a
country’s securities markets are, the greater the likelihood of custody
problems.
Additionally,
each of the factors described below could have a negative impact on the Fund’s
performance and increase the volatility of the Fund.
Securities
Market Risk.
Securities markets in emerging market countries are underdeveloped and are often
considered to be less correlated to global economic cycles than those markets
located in more developed countries. Securities markets in emerging market
countries are subject to greater risks associated with market volatility, lower
market capitalization, lower trading volume, illiquidity, inflation, greater
price fluctuations, uncertainty regarding the existence of trading markets,
governmental control and heavy regulation of labor and industry. These factors,
coupled with restrictions on foreign investment and other factors, limit the
supply of securities available for investment by the Fund. This will affect the
rate at which the Fund is able to invest in emerging market countries, the
purchase and sale prices for such securities and the timing of purchases and
sales. Emerging markets can experience high rates of inflation, deflation and
currency devaluation. The prices of certain securities listed on securities
markets in emerging market countries have been subject to sharp fluctuations and
sudden declines, and no assurance can be given as to the future performance of
listed securities in general. Volatility of prices may be greater than in more
developed securities markets. Moreover, securities markets in emerging market
countries may be closed for extended periods of time or trading on securities
markets may be suspended altogether due to political or civil unrest. Market
volatility may also be heightened by the actions of a small number of investors.
Brokerage firms in emerging market countries may be fewer in number and less
established than brokerage firms in more developed markets. Since the Fund may
need to effect securities transactions through these brokerage firms, the Fund
is subject to the risk that these brokerage firms will not be able to fulfill
their obligations to the Fund. This risk is magnified to the extent the Fund
effects securities transactions through a single brokerage firm or a small
number of brokerage firms. In addition, the infrastructure for the safe custody
of securities and for purchasing and selling securities, settling trades,
collecting dividends, initiating corporate actions, and following corporate
activity is not as well developed in emerging market countries as is the case in
certain more developed markets.
Political
and Economic Risk.
Certain emerging market countries have historically been subject to political
instability and their prospects are tied to the continuation of economic and
political liberalization in the region. Instability may result from factors such
as government or military intervention in decision making, terrorism, civil
unrest, extremism or hostilities between neighboring countries. Any of these
factors, including an outbreak of hostilities could negatively impact the Fund’s
returns. Limited political and democratic freedoms in emerging market countries
might cause significant social unrest. These factors may have a significant
adverse effect on an emerging market country’s economy.
Many
emerging market countries may be heavily dependent upon international trade and,
consequently, may continue to be negatively affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which it
trades. They also have been, and may continue to be, adversely affected by
economic conditions in the countries with which they trade.
In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of certain emerging market countries’ exports and these economies are
particularly sensitive to fluctuations in commodity prices. Adverse economic
events in one country may have a significant adverse effect on other countries
of this region. In addition, most emerging market countries have experienced, at
one time or another, severe and persistent levels of inflation, including, in
some cases, hyperinflation. This has, in turn, led to high interest rates,
extreme measures by governments to keep inflation in check, and a generally
debilitating effect on economic growth.
Although
inflation in many countries has lessened, there is no guarantee it will remain
at lower levels. The political history of certain emerging market countries has
been characterized by political uncertainty, intervention by the military in
civilian and economic spheres, and political corruption. Such events could
reverse favorable trends toward market and economic reform, privatization, and
removal of trade barriers, and result in significant disruption in securities
markets in the region.
Also,
from time to time, certain issuers located in emerging market countries in which
the Fund invests may operate in, or have dealings with, countries subject to
sanctions and/or embargoes imposed by the U.S. Government and the United Nations
and/or countries identified by the U.S. Government as state sponsors of
terrorism. As a result, an issuer may sustain damage to its reputation if it is
identified as an issuer which operates in, or has dealings with, such countries.
The Fund, as an investor in such issuers, will be indirectly subject to those
risks.
The
economies of one or more countries in which the Fund may invest may be in
various states of transition from a planned economy to a more market oriented
economy. The economies of such countries differ from the economies of most
developed countries in many respects, including levels of government
involvement, states of development, growth rates, control of foreign exchange
and allocation of resources. Economic growth in these economies may be uneven
both geographically and among various sectors of their economies and may also be
accompanied by periods of high inflation. Political changes, social instability
and adverse diplomatic developments in these countries could result in the
imposition of additional government restrictions, including expropriation of
assets, confiscatory taxes or nationalization of some or all of the property
held by the underlying issuers of securities of emerging market issuers. There
is no guarantee that the governments of these countries will not revert back to
some form of planned or non-market oriented economy, and such governments
continue to be active participants in many economic sectors through ownership
positions and regulation. The allocation of
resources
in such countries is subject to a high level of government control. Such
countries’ governments may strictly regulate the payment of foreign currency
denominated obligations and set monetary policy. Through their policies, these
governments may provide preferential treatment to particular industries or
companies. The policies set by the government of one of these countries could
have a substantial effect on that country’s economy.
Investment
and Repatriation Restrictions Risk.
The government in an emerging market country may restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers
located or operating in such emerging market countries. These restrictions
and/or controls may at times limit or prevent foreign investment in securities
of issuers located or operating in emerging market countries and may inhibit the
Fund’s ability to meet its investment objective. In addition, the Fund may not
be able to buy or sell securities or receive full value for such securities.
Moreover, certain emerging market countries may require governmental approval or
special licenses prior to investments by foreign investors and may limit the
amount of investments by foreign investors in a particular industry and/or
issuer; may limit such foreign investment to a certain class of securities of an
issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of such emerging market countries; and/or may impose
additional taxes on foreign investors. A delay in obtaining a required
government approval or a license would delay investments in those emerging
market countries, and, as a result, the Fund may not be able to invest in
certain securities while approval is pending. The government of certain emerging
market countries may also withdraw or decline to renew a license that enables
the Fund to invest in such country. These factors make investing in issuers
located or operating in emerging market countries significantly riskier than
investing in issuers located or operating in more developed countries, and any
one of them could cause a decline in the net asset value of the
Fund.
Additionally,
investments in issuers located in certain emerging market countries may be
subject to a greater degree of risk associated with governmental approval in
connection with the repatriation of investment income, capital or the proceeds
of sales of securities by foreign investors. Moreover, there is the risk that if
the balance of payments in an emerging market country declines, the government
of such country may impose temporary restrictions on foreign capital
remittances. Consequently, the Fund could be adversely affected by delays in, or
a refusal to grant, required governmental approval for repatriation of capital,
as well as by the application to the Fund of any restrictions on investments.
Furthermore, investments in emerging market countries may require the Fund to
adopt special procedures, seek local government approvals or take other actions,
each of which may involve additional costs to the Fund.
Risk
of Available Disclosure About Emerging Market Issuers.
Issuers located or operating in emerging market countries are not subject to the
same rules and regulations as issuers located or operating in more developed
countries. Therefore, there may be less financial and other information publicly
available with regard to issuers located or operating in emerging market
countries and such issuers are not subject to the uniform accounting, auditing
and financial reporting standards applicable to issuers located or operating in
more developed countries.
Operational
and Settlement Risk.
In addition to having less developed securities markets, emerging market
countries have less developed custody and settlement practices than certain
developed countries. Rules adopted under the Investment Company Act of 1940
permit the Fund to maintain its foreign securities and cash in the custody of
certain eligible non-U.S. banks and securities depositories. Banks in emerging
market countries that are eligible foreign sub-custodians may be recently
organized or otherwise lack extensive operating experience. In addition, in
certain emerging market countries there may be legal restrictions or limitations
on the ability of the Fund to recover assets held in custody by a foreign
sub-custodian in the event of the bankruptcy of the sub-custodian. Because
settlement systems in emerging market countries may be less organized than in
other developed markets, there may be a risk that settlement may be delayed and
that cash or securities of the Fund may be in jeopardy because of failures of or
defects in the systems. Under the laws in many emerging market countries, the
Fund may be required to release local shares before receiving cash payment or
may be required to make cash payment prior to receiving local shares, creating a
risk that the Fund may surrender cash or securities without ever receiving
securities or cash from the other party. Settlement systems in emerging market
countries also have a higher risk of failed trades and back to back settlements
may not be possible.
The
Fund may not be able to convert a foreign currency to U.S. dollars in time for
the settlement of redemption requests. In the event that the Fund is not able to
convert the foreign currency to U.S. dollars in time for settlement, which may
occur as a result of the delays described above, the Fund may be required to
liquidate certain investments and/or borrow money in order to fund such
redemption. The liquidation of investments, if required, could be at
disadvantageous prices or otherwise have an adverse impact on the Fund’s
performance (e.g.,
by causing the Fund to overweight foreign currency denominated holdings and
underweight other holdings which were sold to fund redemptions). In addition,
the Fund will incur interest expense on any borrowings and the borrowings will
cause the Fund to be leveraged, which may magnify gains and losses on its
investments.
In
certain emerging market countries, the marketability of investments may be
limited due to the restricted opening hours of trading exchanges, and a
relatively high proportion of market value may be concentrated in the hands of a
relatively small number of investors. In addition, because certain emerging
market countries’ trading exchanges on which the Fund’s portfolio securities may
trade are open when the relevant exchanges are closed, the Fund may be subject
to heightened risk associated with market movements. Trading volume may be lower
on certain emerging market countries’ trading exchanges
than
on more developed securities markets and securities may be generally less
liquid. The infrastructure for clearing, settlement and registration on the
primary and secondary markets of certain emerging market countries are less
developed than in certain other markets and under certain circumstances this may
result in the Fund experiencing delays in settling and/or registering
transactions in the markets in which it invests, particularly if the growth of
foreign and domestic investment in certain emerging market countries places an
undue burden on such investment infrastructure. Such delays could affect the
speed with which the Fund can transmit redemption proceeds and may inhibit the
initiation and realization of investment opportunities at optimum
times.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer’s securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before and, in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent the Fund from buying
or selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the block cannot be removed. As a result of the
ramifications of voting ballots in markets that allow share blocking, the
Adviser, on behalf of the Fund, reserves the right to abstain from voting
proxies in those markets.
Corporate
and Securities Laws Risk.
Securities laws in emerging market countries are relatively new and unsettled
and, consequently, there is a risk of rapid and unpredictable change in laws
regarding foreign investment, securities regulation, title to securities and
securityholders rights. Accordingly, foreign investors may be adversely affected
by new or amended laws and regulations. In addition, the systems of corporate
governance to which emerging market issuers are subject may be less advanced
than those systems to which issuers located in more developed countries are
subject, and therefore, securityholders of issuers located in emerging market
countries may not receive many of the protections available to securityholders
of issuers located in more developed countries. In circumstances where adequate
laws and securityholders rights exist, it may not be possible to obtain swift
and equitable enforcement of the law. In addition, the enforcement of systems of
taxation at federal, regional and local levels in emerging market countries may
be inconsistent and subject to sudden change. The Fund has limited rights and
few practical remedies in emerging markets and the ability of U.S. authorities
to bring enforcement actions in emerging markets may be limited.
Foreign Currency Risk. Because
all or a portion of the income received by the Fund from its investments and/or
the revenues received by the underlying issuer will generally be denominated in
foreign currencies, the Fund’s exposure to foreign currencies and changes in the
value of foreign currencies versus the U.S. dollar may result in reduced returns
for the Fund, and the value of certain foreign currencies may be subject to a
high degree of fluctuation. The Fund may also (directly or indirectly) incur
costs in connection with conversions between U.S. dollars and foreign
currencies.
Credit Risk. Credit risk refers
to the possibility that the issuer or guarantor of a security will be unable
and/or unwilling to honor its payment obligations and/or default completely on
securities. The Fund’s securities are subject to varying degrees
of credit risk, depending on the issuer’s financial condition and on
the terms of the securities, which may be reflected in credit ratings. There is
a possibility that the credit rating of a security may be downgraded after
purchase or the perception of an issuer’s creditworthiness may decline, which
may adversely affect the value of the security. Lower credit quality may also
affect liquidity and make it difficult for the Fund to sell the
security.
Interest Rate Risk.
Debt securities and preferred securities are subject to interest rate risk.
Interest rate risk refers to fluctuations in the value of a security resulting
from changes in the general level of interest rates. When the general level of
interest rates goes up, the prices of most debt securities and certain preferred
securities go down. When the general level of interest rates goes down, the
prices of most debt securities go up. Many factors can cause interest rates to
rise, including central bank monetary policy, rising inflation rates and general
economic conditions. Debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities, such as bonds, with shorter durations. A substantial investment by
the Fund in debt securities with longer-term maturities during periods of rising
interest rates may cause the value of the Fund’s investments to decline
significantly. Changing interest rates may have unpredictable effects on
markets, may result in heightened market volatility and may detract from Fund
performance to the extent the Fund is exposed to such interest rates and/or
volatility. It is difficult to predict the magnitude, timing or direction of
interest rate changes and the impact these changes will have on the markets in
which the Fund invests.
Floating Rate Risk. The
Fund invests in floating-rate securities, which are instruments in which the
interest rate payable on an obligation fluctuates on a periodic basis based upon
changes in an interest rate benchmark. As a result, the yield on such a security
will generally decline in a falling interest rate environment, causing the Fund
to experience a reduction in the income it receives from the
security.
High
Yield Securities Risk. Securities
rated below investment grade are commonly referred to as high yield securities
or “junk bonds.” High yield securities are often issued by issuers that are
restructuring, are smaller or less creditworthy than other issuers, or are more
highly indebted than other issuers. High yield securities are subject to greater
risk of loss of income and
principal
than higher rated securities and are considered speculative. The prices of high
yield securities are likely to be more sensitive to adverse economic changes or
individual issuer developments than higher rated securities, resulting in
increased volatility of their market prices and a corresponding volatility in
the Fund’s net asset value. During an economic downturn or substantial period of
rising interest rates, high yield security issuers may experience financial
stress that would adversely affect their ability to service their principal and
interest payment obligations, to meet their projected business goals or to
obtain additional financing. In the event of a default, the Fund may incur
additional expenses to seek recovery. The secondary market for high yield
securities may be less liquid than the markets for higher quality securities,
and high yield securities issued by non-corporate issuers may be less liquid
than high yield securities issued by corporate issuers. Illiquidity may have an
adverse effect on the market prices of and the Fund’s ability to arrive at a
fair value for certain securities when it seeks to do so. In addition, periods
of economic uncertainty and change may result in an increased volatility of
market prices of high yield securities and a corresponding volatility in the
Fund's net asset value.
Supranational
Bond Risk.
To the extent that the Fund invests in supranational bonds, the Fund will be
sensitive to changes in, and its performance may depend to a greater extent on,
the overall condition of the supranational entities that issue such bonds.
Certain securities in which the Fund may invest are obligations issued or backed
by supranational entities, such as the European Investment Bank. Obligations of
supranational organizations are subject to the risk that the governments on
whose support the entity depends for its financial backing or repayment may be
unable or unwilling to provide that support. If an issuer of supranational bonds
defaults on payments of principal and/or interest, the Fund may have limited
recourse against the issuer. A supranational entity’s willingness or ability to
repay principal and pay interest in a timely manner may be affected by its cash
flow situation, the extent of its reserves, the relative size of the debt
service burden to the entity as a whole and the political constraints to which a
supranational entity may be subject. During periods of economic uncertainty, the
market prices of supranational bonds, and the Fund’s net asset value, may be
more volatile than prices of corporate bonds, which may result in losses.
Obligations of a supranational organization that are denominated in foreign
currencies will also be subject to the risks associated with investment in
foreign currencies.
Government-Related Bond Risk. The
governmental authority or government-related entity that controls the repayment
of the bond may be unable or unwilling to honor its payment obligations. If an
issuer of government-related bonds defaults on payments of principal and/or
interest, the Fund may have limited recourse against the issuer. A
government-related debtor’s willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange when a payment is due, the relative size of the debt
service burden to the economy as a whole, the government-related debtor’s policy
toward international lenders, and the political constraints to which the debtor
may be subject. During periods of economic uncertainty, the market prices of
government-related bonds, and the Fund’s net asset value, may be more volatile
than prices of corporate bonds, which may result in losses.
Restricted
Securities Risk.
Regulation S securities and Rule 144A securities are restricted securities that
are not registered under the Securities Act of 1933. They may be less liquid and
more difficult to value than other investments because such securities may not
be readily marketable. The Fund may not be able to purchase or sell a restricted
security promptly or at a reasonable time or price. Although there may be a
substantial institutional market for these securities, it is not possible to
predict exactly how the market for such securities will develop or whether it
will continue to exist. A restricted security that was liquid at the time of
purchase may subsequently become illiquid and its value may decline as a result.
Restricted securities that are deemed illiquid will count towards the Fund’s
limitation on illiquid securities. In addition, transaction costs may be higher
for restricted securities than for more liquid securities. The Fund may have to
bear the expense of registering restricted securities for resale and the risk of
substantial delays in effecting the registration.
Securitized/Asset-Backed
Securities Risk. Investments
in asset-backed securities, including collateralized mortgage obligations, are
subject to the risk of significant credit downgrades, dramatic changes in
liquidity, and defaults to a greater extent than many other types of
fixed-income investments. During periods of falling interest rates, asset-backed
securities may be called or prepaid, which may result in the Fund having to
reinvest proceeds in other investments at a lower interest rate. During periods
of rising interest rates, the average life of asset-backed securities may
extend, which may lock in a below-market interest rate, increase the security’s
duration and interest rate sensitivity, and reduce the value of the security.
The Fund may invest in asset-backed securities issued or backed by federal
agencies or government sponsored enterprises or that are part of a
government-sponsored program, which may subject the Fund to the risks noted
above. The values of assets or collateral underlying asset-backed securities may
decline and, therefore, may not be adequate to cover underlying obligations.
Enforcing rights against the underlying assets or collateral may be difficult,
and the underlying assets or collateral may be insufficient if the issuer
defaults.
Financials
Sector Risk.
Companies in the financials sector may be subject to extensive government
regulation that affects the scope of their activities, the prices they can
charge and the amount of capital they must maintain. The profitability of
companies in the financials sector may be adversely affected by increases in
interest rates, by loan losses, which usually increase in economic downturns,
and by credit rating downgrades. In addition, the financials sector is
undergoing numerous changes, including continuing consolidations, development of
new products and structures and changes to its regulatory framework.
Furthermore, some companies in the financials sector perceived as benefiting
from government intervention in the past may be subject to future
government-imposed restrictions on their businesses or face increased government
involvement in their
operations.
Increased government involvement in the financials sector, including measures
such as taking ownership positions in financial institutions, could result in a
dilution of the Fund’s investments in financial institutions.
Utilities
Sector Risk.
The Fund will be sensitive to, and its performance will depend to a greater
extent on, the overall condition of the utilities sector. Companies in the
utilities sector may be adversely affected by changes in exchange rates,
domestic and international competition, difficulty in raising adequate amounts
of capital and governmental limitation on rates charged to
customers.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including human error, processing and communication errors, errors of the Fund’s
service providers, counterparties or other third-parties, failed or inadequate
processes and technology or system failures.
Call Risk. The
Fund may invest in callable debt securities. If interest rates fall, issuers may
“call” (or prepay) their debt securities before their maturity date. If the
issuer exercises a call during or following a period of declining interest
rates, the Fund is likely to have to replace the called security with a lower
yielding security or riskier security, decreasing the Fund’s net investment
income. The Fund also may fail to recover additional amounts (i.e.,
premiums) paid for securities with higher interest rates, resulting in an
unexpected capital loss.
Sampling
Risk. The
Fund’s use of a representative sampling approach will result in its holding a
smaller number of securities than are in its Index. As a result, an adverse
development respecting an issuer of securities held by the Fund could result in
a greater decline in net asset value than would be the case if the Fund held all
of the securities in its Index. Conversely, a positive development relating to
an issuer of securities in the Index that is not held by the Fund could cause
the Fund to underperform the Index. To the extent the assets in the Fund are
smaller, these risks will be greater.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (if applicable) raising cash to meet redemptions or deploying
cash in connection with inflows into the Fund. Transaction costs, including
brokerage costs, may decrease the Fund’s net asset value.
Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards (where applicable), a lack of liquidity in markets in which
such securities trade, potential adverse tax consequences or other regulatory
reasons (such as diversification requirements). To the extent the Fund utilizes
depositary receipts, the purchase of depositary receipts may negatively affect
the Fund’s ability to track the performance of the Index and increase tracking
error, which may be exacerbated if the issuer of the depositary receipt
discontinues issuing new depositary receipts or withdraws existing depositary
receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to
changes
to the Index and high turnover of the Index. When markets are volatile, the
ability to sell securities at fair value prices may be adversely impacted and
may result in additional trading costs and/or increase the index tracking risk.
The Fund may also need to rely on borrowings to meet redemptions, which may lead
to increased expenses. For tax efficiency purposes, the Fund may sell certain
securities, and such sale may cause the Fund to realize a loss and deviate from
the performance of the Index. In light of the factors discussed above, the
Fund’s return may deviate significantly from the return of the Index. Changes to
the composition of the Index in connection with a rebalancing or reconstitution
of the Index may cause the Fund to experience increased volatility, during which
time the Fund’s index tracking risk may be heightened.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk. There
can be no assurance that an active trading market for the Shares will develop or
be maintained, as applicable. Further, secondary markets may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods in times of market stress because market makers and Authorized
Participants may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its net asset value.
Trading
Issues Risk.
Trading in shares on the exchange may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in shares inadvisable.
In addition, trading in shares on the exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the relevant exchange’s
“circuit breaker” rules. If a trading halt or unanticipated early close of the
exchange occurs, a shareholder may be unable to purchase or sell Shares of the
Fund. There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from its Index, the Fund generally would
not sell a security because the security’s issuer is in financial trouble. If a
specific security is removed from the Fund’s Index, the Fund may be forced to
sell such security at an inopportune time or for prices other than at current
market values. An investment in the Fund involves risks similar to those of
investing in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares. The
market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Index-Related
Concentration Risk. The Fund’s assets may be concentrated in a particular sector or
sectors or industry or group of industries to reflect the Index’s allocation to
such sector or sectors or industry or group of industries. The securities of
many or all of the companies in the same sector or industry may decline in value
due to developments adversely affecting such sector or industry. By
concentrating its assets in a particular sector or sectors or industry or group
of industries, the Fund is subject to the risk that economic, political or other
conditions that have a negative effect on those sectors and/or industries may
negatively impact the Fund to a greater extent than if the Fund’s assets were
invested in a wider variety of securities.
PERFORMANCE
The bar chart that follows shows how the Fund performed for the
calendar year shown. The table below the bar chart shows the Fund’s average
annual returns (before and after taxes). The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s benchmark index and a
broad measure of market performance. Prior to
September 1, 2019, the Fund sought to replicate as closely as possible, before
fees and expenses, the price and yield performance of the S&P Green Bond
Select Index (the “Prior Index”). Therefore, performance information prior to
September 1, 2019 reflects the performance of the Fund while seeking to track
the Prior Index. All returns assume reinvestment of dividends
and distributions. The Fund’s past performance
(before and after taxes) is not necessarily indicative of how the Fund will
perform in the future. Updated performance information is
available online at www.vaneck.com.
Annual Total Returns
(%)—Calendar Years
The
year-to-date total return as of
June 30,
2023 was 2.53%.
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Best
Quarter: |
5.28% |
2Q
2020 |
Worst
Quarter: |
-6.01% |
1Q
2022 |
Average Annual
Total Returns for the Periods Ended December 31,
2022
The after-tax returns presented
in the table below are calculated using the highest historical individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Your actual after-tax returns will depend on your
specific tax situation and may differ from those shown below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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| Past
One Year |
Past
Five Years |
Since
Inception
(3/2/2017) |
| VanEck Green
Bond ETF (return before taxes) |
-11.85% |
-1.19% |
0.58% |
| VanEck Green
Bond ETF (return after taxes on
distributions) |
-12.75% |
-1.93% |
-0.15% |
| VanEck Green
Bond ETF (return after taxes on distributions and sale of Fund
Shares) |
-7.00% |
-1.18% |
0.16% |
|
S&P
Green Bond U.S. Dollar Select Index*
(reflects no deduction for
fees, expenses or taxes) |
-12.14% |
-0.86% |
1.00% |
| ICE BofA US
Broad Market Index (reflects no deduction for fees, expenses or
taxes)
|
-13.16% |
0.03% |
0.59% |
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*
Prior to September 1, 2019, the Fund sought to replicate as closely
as possible, before fees and expenses, the price and yield performance of the
Prior Index. Therefore, performance information prior to September 1, 2019
reflects the performance of the Fund while seeking to track the Prior Index.
Prior to September 1, 2019, index data reflects that of the Prior Index. From
September 1, 2019, the index data reflects that of the Green Bond
Index.
See “License Agreements and Disclaimers” for important
information.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Manager.
The following individual is primarily responsible for the day-to-day management
of the Fund’s portfolio:
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| Name |
Title
with Adviser |
Date
Began Managing the Fund |
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| Francis
G. Rodilosso |
Portfolio
Manager |
March
2017 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information, and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information about Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT
OBJECTIVE
VanEck®
IG Floating Rate ETF
(the
“Fund”) seeks to replicate as closely as possible, before fees and expenses, the
price and yield performance of the MVIS®
US Investment Grade Floating Rate Index (the “Floating Rate Index” or the
“Index”).
FUND FEES AND
EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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| Management
Fee |
0.14 |
% |
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|
Other
Expenses(a) |
0.00 |
% |
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|
Total
Annual Fund Operating Expenses(a) |
0.14 |
% |
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(a)Van Eck
Associates Corporation (the “Adviser”) will pay all expenses of the Fund, except
for the fee payment under the investment management agreement, acquired fund
fees and expenses, interest expense, offering costs, trading expenses, taxes and
extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to
pay the offering costs until at least September 1,
2024.
EXPENSE
EXAMPLE
This example is intended to help you compare
the cost of investing in the Fund with the cost of investing in other funds.
This example does not take into account brokerage commissions that you pay when
purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell or hold all of your Shares at the end of those
periods. The example also assumes that your investment has a 5% annual return
and that the Fund’s operating expenses remain the same.
Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
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| YEAR |
EXPENSES |
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| 1 |
$14 |
| |
| 3 |
$45 |
| |
| 5 |
$79 |
| |
| 10 |
$179 |
| |
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PORTFOLIO
TURNOVER
The Fund will pay transaction costs, such as commissions, when it
purchases and sells securities (or “turns over” its portfolio). A higher
portfolio turnover will cause the Fund to incur additional transaction costs and
may result in higher taxes when Fund Shares are held in a taxable account. These
costs, which are not reflected in annual fund operating expenses or in the
example, may affect the Fund’s performance. During the most recent fiscal year,
the Fund’s portfolio turnover rate was 55% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund normally invests at least 80% of its total assets in securities that
comprise the Fund’s benchmark index. The Floating Rate Index is comprised of
U.S. dollar-denominated floating rate notes issued by corporate entities or
similar commercial entities that are public reporting companies in the United
States and rated investment grade. The
Fund may invest a significant portion of its assets in Rule 144A securities. As
of June 30, 2023, the Floating Rate Index included 124 notes of 65 issuers and
approximately 27% of the Floating Rate Index was comprised of Rule 144A
securities. The Fund’s 80% investment policy is non-fundamental and may be
changed without shareholder approval upon 60 days’ prior written notice to
shareholders. The Fund, using a “passive” or indexing investment approach,
attempts to approximate the investment performance of the Floating Rate Index.
Unlike many investment companies that try to “beat” the performance of a
benchmark index, the Fund does not try to “beat” the Floating Rate Index and
does not take temporary defensive positions that are inconsistent with its
investment objective of seeking to replicate the Floating Rate Index. Because of
the practical difficulties and expense of purchasing all of the securities
in
the Floating Rate Index, the Fund does not purchase all of the securities in the
Floating Rate Index. Instead, the Adviser utilizes a “sampling” methodology in
seeking to achieve the Fund’s objective. As such, the Fund may purchase a subset
of the bonds in the Floating Rate Index in an effort to hold a portfolio of
bonds with generally the same risk and return characteristics of the Floating
Rate Index.
The
Fund is classified as a non-diversified fund and, therefore, may invest a
greater percentage of its assets in a particular issuer. The Fund may concentrate its investments in a particular
industry or group of industries to the extent that the Floating Rate Index
concentrates in an industry or group of industries. As of April 30, 2023, the
financials sector represented
a significant portion of the Fund.
PRINCIPAL RISKS OF INVESTING IN
THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is
not a deposit with a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s investments.
Foreign market trading hours, clearance and settlement procedures, and holiday
schedules may limit the Fund's ability to buy and sell securities.
Foreign Currency Risk. Because
all or a portion of the income received by the Fund from its investments and/or
the revenues received by the underlying issuer will generally be denominated in
foreign currencies, the Fund’s exposure to foreign currencies and changes in the
value of foreign currencies versus the U.S. dollar may result in reduced returns
for the Fund, and the value of certain foreign currencies may be subject to a
high degree of fluctuation. The Fund may also (directly or indirectly) incur
costs in connection with conversions between U.S. dollars and foreign
currencies.
Credit Risk.
Credit risk refers
to the possibility that the issuer or guarantor of a security will be unable
and/or unwilling to honor its payment obligations and/or default completely on
securities. The Fund’s securities are subject to varying degrees
of credit risk, depending on the issuer’s financial condition and on
the terms of the securities, which may be reflected in credit ratings. There is
a possibility that the credit rating of a security may be downgraded after
purchase or the perception of an issuer’s creditworthiness may decline, which
may adversely affect the value of the security. Lower credit quality may also
affect liquidity and make it difficult for the Fund to sell the
security.
Interest Rate Risk.
Debt securities and preferred securities are subject to interest rate risk.
Interest rate risk refers to fluctuations in the value of a security resulting
from changes in the general level of interest rates. When the general level of
interest rates goes up, the prices of most debt securities and certain preferred
securities go down. When the general level of interest rates goes down, the
prices of most debt securities go up. Many factors can cause interest rates to
rise, including central bank monetary policy, rising inflation rates and general
economic conditions. Debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities, such as bonds, with shorter durations. A substantial investment by
the Fund in debt securities with longer-term maturities during periods of rising
interest rates may cause the value of the Fund’s investments to decline
significantly. Changing interest rates may have unpredictable effects on
markets, may result in heightened market volatility and may detract from Fund
performance to the extent the Fund is exposed to such interest rates and/or
volatility. It is difficult to predict the magnitude, timing or direction of
interest rate changes and the impact these changes will have on the markets in
which the Fund invests.
Floating Rate Risk. The
Fund invests in floating-rate securities, which are instruments in which the
interest rate payable on an obligation fluctuates on a periodic basis based upon
changes in an interest rate benchmark. As a result, the yield on such a security
will generally decline in a falling interest rate environment, causing the Fund
to experience a reduction in the income it receives from the
security.
Restricted
Securities Risk.
Regulation S securities and Rule 144A securities are restricted securities that
are not registered under the Securities Act of 1933. They may be less liquid and
more difficult to value than other investments because such securities may not
be readily marketable. The Fund may not be able to purchase or sell a restricted
security promptly or at a reasonable time or price. Although there may be a
substantial institutional market for these securities, it is not possible to
predict exactly how the market for such securities will develop or whether it
will continue to exist. A restricted security that was liquid at the time of
purchase may subsequently become illiquid and its value may decline as a result.
Restricted securities that are deemed illiquid will count towards the Fund’s
limitation on illiquid securities. In addition, transaction costs may be higher
for restricted
securities
than for more liquid securities. The Fund may have to bear the expense of
registering restricted securities for resale and the risk of substantial delays
in effecting the registration.
Financials
Sector Risk.
Companies in the financials sector may be subject to extensive government
regulation that affects the scope of their activities, the prices they can
charge and the amount of capital they must maintain. The profitability of
companies in the financials sector may be adversely affected by increases in
interest rates, by loan losses, which usually increase in economic downturns,
and by credit rating downgrades. In addition, the financials sector is
undergoing numerous changes, including continuing consolidations, development of
new products and structures and changes to its regulatory framework.
Furthermore, some companies in the financials sector perceived as benefiting
from government intervention in the past may be subject to future
government-imposed restrictions on their businesses or face increased government
involvement in their operations. Increased government involvement in the
financials sector, including measures such as taking ownership positions in
financial institutions, could result in a dilution of the Fund’s investments in
financial institutions.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including human error, processing and communication errors, errors of the Fund’s
service providers, counterparties or other third-parties, failed or inadequate
processes and technology or system failures.
Sampling
Risk. The
Fund’s use of a representative sampling approach will result in its holding a
smaller number of securities than are in its Index. As a result, an adverse
development respecting an issuer of securities held by the Fund could result in
a greater decline in net asset value than would be the case if the Fund held all
of the securities in its Index. Conversely, a positive development relating to
an issuer of securities in the Index that is not held by the Fund could cause
the Fund to underperform the Index. To the extent the assets in the Fund are
smaller, these risks will be greater.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (if applicable) raising cash to meet redemptions or deploying
cash in connection with inflows into the Fund. Transaction costs, including
brokerage costs, may decrease the Fund’s net asset value.
Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards (where applicable), a lack of liquidity in markets in which
such securities trade, potential adverse tax consequences or other regulatory
reasons (such as diversification requirements). To the extent the Fund utilizes
depositary receipts, the purchase of depositary receipts may negatively affect
the Fund’s ability to track the performance of the Index and increase tracking
error, which may be exacerbated if the issuer of the depositary receipt
discontinues issuing new depositary receipts or withdraws existing depositary
receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to
changes
to the Index and high turnover of the Index. When markets are volatile, the
ability to sell securities at fair value prices may be adversely impacted and
may result in additional trading costs and/or increase the index tracking risk.
The Fund may also need to rely on borrowings to meet redemptions, which may lead
to increased expenses. For tax efficiency purposes, the Fund may sell certain
securities, and such sale may cause the Fund to realize a loss and deviate from
the performance of the Index. In light of the factors discussed above, the
Fund’s return may deviate significantly from the return of the Index. Changes to
the composition of the Index in connection with a rebalancing or reconstitution
of the Index may cause the Fund to experience increased volatility, during which
time the Fund’s index tracking risk may be heightened.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk. There
can be no assurance that an active trading market for the Shares will develop or
be maintained, as applicable. Further, secondary markets may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods in times of market stress because market makers and Authorized
Participants may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its net asset value.
Trading
Issues Risk.
Trading in shares on the exchange may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in shares inadvisable.
In addition, trading in shares on the exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the relevant exchange’s
“circuit breaker” rules. If a trading halt or unanticipated early close of the
exchange occurs, a shareholder may be unable to purchase or sell Shares of the
Fund. There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from its Index, the Fund generally would
not sell a security because the security’s issuer is in financial trouble. If a
specific security is removed from the Fund’s Index, the Fund may be forced to
sell such security at an inopportune time or for prices other than at current
market values. An investment in the Fund involves risks similar to those of
investing in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares. The
market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Non-Diversified
Risk.
The
Fund is classified as a “non-diversified” fund under the Investment Company Act
of 1940. The Fund is subject to the risk that it will be more volatile than a
diversified fund because the Fund may invest a relatively high percentage of its
assets in a smaller number of issuers or may invest a larger proportion of its
assets in a single issuer. Moreover, the gains and losses on a single investment
may have a greater impact on the Fund’s net asset value and may make the Fund
more volatile than more diversified funds. The Fund may be particularly
vulnerable to this risk if it is comprised of a limited number of
investments.
Index-Related
Concentration Risk. The Fund’s assets may be concentrated in a particular sector or
sectors or industry or group of industries to reflect the Index’s allocation to
such sector or sectors or industry or group of industries. The securities of
many or all of the companies in the same sector or industry may decline in value
due to developments adversely affecting such sector or industry. By
concentrating its assets in a particular sector or sectors or industry or group
of industries, the Fund is subject to the risk that economic, political or other
conditions that have a negative effect on those sectors and/or industries may
negatively impact the Fund to a greater extent than if the Fund’s assets were
invested in a wider variety of securities.
PERFORMANCE
The bar chart that follows shows how the Fund performed for the
calendar years shown. The table below the bar chart shows the Fund’s average
annual returns (before and after taxes). The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s benchmark index and a
broad measure of market performance. All returns assume
reinvestment of dividends and distributions. The Fund’s past
performance (before and after taxes) is not necessarily indicative of how the
Fund will perform in the future. Updated performance information
is available online at www.vaneck.com.
Annual Total Returns
(%)—Calendar Years
The
year-to-date total return as of
June 30,
2023 was 3.88%.
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Best
Quarter: |
5.58% |
2Q
2020 |
Worst
Quarter: |
-5.13% |
1Q
2020 |
Average Annual
Total Returns for the Periods Ended December 31,
2022
The after-tax returns presented
in the table below are calculated using the highest historical individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Your actual after-tax returns will depend on your
specific tax situation and may differ from those shown below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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| Past
One Year |
Past
Five Years |
Past Ten
Years |
|
| VanEck IG
Floating Rate ETF (return before taxes) |
0.68% |
1.77% |
1.58% |
|
| VanEck IG
Floating Rate ETF (return after taxes on
distributions) |
-0.25% |
0.93% |
0.94% |
|
| VanEck IG
Floating Rate ETF (return after taxes on distributions and sale of Fund
Shares) |
0.40% |
1.00% |
0.93% |
|
|
MVIS
US Investment Grade Floating Rate Index
(reflects no deduction for
fees, expenses or taxes) |
0.48% |
1.87% |
1.83% |
|
| ICE BofA US
Broad Market Index (reflects no deduction for fees, expenses or
taxes) |
-13.16% |
0.03% |
1.07% |
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See “License Agreements and Disclaimers” for important
information.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Manager.
The following individual is primarily responsible for the day-to-day management
of the Fund’s portfolio:
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| Name |
Title
with Adviser |
Date
Began Managing the Fund |
|
| Francis
G. Rodilosso |
Portfolio
Manager |
September
2012 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information, and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information about Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT
OBJECTIVE
VanEck®
International High Yield Bond ETF
(the
“Fund”) seeks to replicate as closely as possible, before fees and expenses, the
price and yield performance of ICE BofA Global ex-US Issuers High Yield
Constrained Index (the “International High Yield Index” or the
“Index”).
FUND FEES AND
EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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| Management
Fee |
0.40 |
% |
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| |
|
Other
Expenses(a) |
0.00 |
% |
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| |
|
Total
Annual Fund Operating Expenses(a) |
0.40 |
% |
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(a)Van Eck
Associates Corporation (the “Adviser”) will pay all expenses of the Fund, except
for the fee payment under the investment management agreement, acquired fund
fees and expenses, interest expense, offering costs, trading expenses, taxes and
extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to
pay the offering costs until at least September 1,
2024.
EXPENSE
EXAMPLE
This example is intended to help you compare
the cost of investing in the Fund with the cost of investing in other funds.
This example does not take into account brokerage commissions that you pay when
purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell or hold all of your Shares at the end of those
periods. The example also assumes that your investment has a 5% annual return
and that the Fund’s operating expenses remain the same.
Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
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| YEAR |
EXPENSES |
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| 1 |
$41 |
| |
| 3 |
$128 |
| |
| 5 |
$224 |
| |
| 10 |
$505 |
| |
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PORTFOLIO
TURNOVER
The Fund will pay transaction costs, such as commissions, when it
purchases and sells securities (or “turns over” its portfolio). A higher
portfolio turnover will cause the Fund to incur additional transaction costs and
may result in higher taxes when Fund Shares are held in a taxable account. These
costs, which are not reflected in annual fund operating expenses or in the
example, may affect the Fund’s performance. During the most recent fiscal year,
the Fund’s portfolio turnover rate was 22% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The Fund normally invests at least 80% of its total assets
in securities that comprise the Fund’s benchmark index. The International High
Yield Index is comprised of below investment grade bonds issued by corporations
located throughout the world (which may include emerging market countries)
excluding the United States, denominated in euros, U.S. dollars, Canadian
dollars or pound sterling and issued in the major domestic or eurobond markets.
Qualifying securities must have a below investment grade rating. As of June 30,
2023, the International High Yield Index included 1,597 below investment grade
securities of 773 issuers and approximately 37% of the International High Yield
Index was comprised of Rule 144A securities. The Fund’s 80% investment policy is
non-fundamental and may be changed without shareholder approval upon 60 days’
prior written notice to shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the International High Yield Index. Unlike many
investment companies that try to “beat” the performance of a benchmark index,
the Fund does not try to “beat” the International High Yield Index and does not
take temporary defensive positions that are inconsistent with its investment
objective of seeking to replicate the International High Yield Index. Because of
the practical difficulties and expense of purchasing all of the securities in
the International High Yield Index, the Fund does not purchase all of the
securities in the International High Yield Index. Instead, the Adviser utilizes
a “sampling” methodology in seeking to achieve the Fund’s objective. As such,
the Fund may purchase a subset of the bonds in the International High Yield
Index in an effort to hold a portfolio of bonds with generally the same risk and
return characteristics of the International High Yield Index.
The Fund may
concentrate its investments in a particular industry or group of industries to
the extent that the International High Yield Index concentrates in an industry
or group of industries. As of April 30, 2023, each of the financials,
industrials, information technology and energy sectors represented a significant
portion of the Fund.
PRINCIPAL RISKS OF INVESTING IN
THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is
not a deposit with a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
High
Yield Securities Risk. Securities
rated below investment grade are commonly referred to as high yield securities
or “junk bonds.” High yield securities are often issued by issuers that are
restructuring, are smaller or less creditworthy than other issuers, or are more
highly indebted than other issuers. High yield securities are subject to greater
risk of loss of income and principal than higher rated securities and are
considered speculative. The prices of high yield securities are likely to be
more sensitive to adverse economic changes or individual issuer developments
than higher rated securities, resulting in increased volatility of their market
prices and a corresponding volatility in the Fund’s net asset value. During an
economic downturn or substantial period of rising interest rates, high yield
security issuers may experience financial stress that would adversely affect
their ability to service their principal and interest payment obligations, to
meet their projected business goals or to obtain additional financing. In the
event of a default, the Fund may incur additional expenses to seek recovery. The
secondary market for high yield securities may be less liquid than the markets
for higher quality securities, and high yield securities issued by non-corporate
issuers may be less liquid than high yield securities issued by corporate
issuers. Illiquidity may have an adverse effect on the market prices of and the
Fund’s ability to arrive at a fair value for certain securities when it seeks to
do so. In addition, periods of economic uncertainty and change may result in an
increased volatility of market prices of high yield securities and a
corresponding volatility in the Fund's net asset value.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s investments.
Foreign market trading hours, clearance and settlement procedures, and holiday
schedules may limit the Fund's ability to buy and sell securities.
Emerging
Market Issuers Risk.
Investments in securities of emerging market issuers involve risks not typically
associated with investments in securities of issuers in more developed countries
that may negatively affect the value of your investment in the Fund. Such
heightened risks may include, among others, expropriation and/or nationalization
of assets, restrictions on and government intervention in international trade,
confiscatory taxation, political instability, including authoritarian and/or
military involvement in governmental decision making, armed conflict, the impact
on the economy as a result of civil war, crime (including drug violence) and
social instability as a result of religious, ethnic and/or socioeconomic unrest.
Issuers in certain emerging market countries are subject to less stringent
requirements regarding accounting, auditing, financial reporting and record
keeping than are issuers in more developed markets, and therefore, all material
information may not be available or reliable. Emerging markets are also more
likely than developed markets to experience problems with the clearing and
settling of trades, as well as the holding of securities by local banks, agents
and depositories. Low trading volumes and volatile prices in less developed
markets may make trades harder to complete and settle, and governments or trade
groups may compel local agents to hold securities in designated depositories
that may not be subject to independent evaluation. Local agents are held only to
the standards of care of their local markets. In general, the less developed a
country’s securities markets are, the greater the likelihood of custody
problems. Additionally, each of the factors described below could have a
negative impact on the Fund’s performance and increase the volatility of the
Fund.
Securities
Market Risk.
Securities markets in emerging market countries are underdeveloped and are often
considered to be less correlated to global economic cycles than those markets
located in more developed countries. Securities markets in emerging market
countries are subject to greater risks associated with market volatility, lower
market capitalization, lower
trading
volume, illiquidity, inflation, greater price fluctuations, uncertainty
regarding the existence of trading markets, governmental control and heavy
regulation of labor and industry. These factors, coupled with restrictions on
foreign investment and other factors, limit the supply of securities available
for investment by the Fund. This will affect the rate at which the Fund is able
to invest in emerging market countries, the purchase and sale prices for such
securities and the timing of purchases and sales. Emerging markets can
experience high rates of inflation, deflation and currency devaluation. The
prices of certain securities listed on securities markets in emerging market
countries have been subject to sharp fluctuations and sudden declines, and no
assurance can be given as to the future performance of listed securities in
general. Volatility of prices may be greater than in more developed securities
markets. Moreover, securities markets in emerging market countries may be closed
for extended periods of time or trading on securities markets may be suspended
altogether due to political or civil unrest. Market volatility may also be
heightened by the actions of a small number of investors. Brokerage firms in
emerging market countries may be fewer in number and less established than
brokerage firms in more developed markets. Since the Fund may need to effect
securities transactions through these brokerage firms, the Fund is subject to
the risk that these brokerage firms will not be able to fulfill their
obligations to the Fund. This risk is magnified to the extent the Fund effects
securities transactions through a single brokerage firm or a small number of
brokerage firms. In addition, the infrastructure for the safe custody of
securities and for purchasing and selling securities, settling trades,
collecting dividends, initiating corporate actions, and following corporate
activity is not as well developed in emerging market countries as is the case in
certain more developed markets.
Political
and Economic Risk.
Certain emerging market countries have historically been subject to political
instability and their prospects are tied to the continuation of economic and
political liberalization in the region. Instability may result from factors such
as government or military intervention in decision making, terrorism, civil
unrest, extremism or hostilities between neighboring countries. Any of these
factors, including an outbreak of hostilities could negatively impact the Fund’s
returns. Limited political and democratic freedoms in emerging market countries
might cause significant social unrest. These factors may have a significant
adverse effect on an emerging market country’s economy.
Many
emerging market countries may be heavily dependent upon international trade and,
consequently, may continue to be negatively affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which it
trades. They also have been, and may continue to be, adversely affected by
economic conditions in the countries with which they trade.
In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of certain emerging market countries’ exports and these economies are
particularly sensitive to fluctuations in commodity prices. Adverse economic
events in one country may have a significant adverse effect on other countries
of this region. In addition, most emerging market countries have experienced, at
one time or another, severe and persistent levels of inflation, including, in
some cases, hyperinflation. This has, in turn, led to high interest rates,
extreme measures by governments to keep inflation in check, and a generally
debilitating effect on economic growth.
Although
inflation in many countries has lessened, there is no guarantee it will remain
at lower levels. The political history of certain emerging market countries has
been characterized by political uncertainty, intervention by the military in
civilian and economic spheres, and political corruption. Such events could
reverse favorable trends toward market and economic reform, privatization, and
removal of trade barriers, and result in significant disruption in securities
markets in the region.
Also,
from time to time, certain issuers located in emerging market countries in which
the Fund invests may operate in, or have dealings with, countries subject to
sanctions and/or embargoes imposed by the U.S. Government and the United Nations
and/or countries identified by the U.S. Government as state sponsors of
terrorism. As a result, an issuer may sustain damage to its reputation if it is
identified as an issuer which operates in, or has dealings with, such countries.
The Fund, as an investor in such issuers, will be indirectly subject to those
risks.
The
economies of one or more countries in which the Fund may invest may be in
various states of transition from a planned economy to a more market oriented
economy. The economies of such countries differ from the economies of most
developed countries in many respects, including levels of government
involvement, states of development, growth rates, control of foreign exchange
and allocation of resources. Economic growth in these economies may be uneven
both geographically and among various sectors of their economies and may also be
accompanied by periods of high inflation. Political changes, social instability
and adverse diplomatic developments in these countries could result in the
imposition of additional government restrictions, including expropriation of
assets, confiscatory taxes or nationalization of some or all of the property
held by the underlying issuers of securities of emerging market issuers. There
is no guarantee that the governments of these countries will not revert back to
some form of planned or non-market oriented economy, and such governments
continue to be active participants in many economic sectors through ownership
positions and regulation. The allocation of resources in such countries is
subject to a high level of government control. Such countries’ governments may
strictly regulate the payment of foreign currency denominated obligations and
set monetary policy. Through their policies, these governments may provide
preferential treatment to particular industries or companies. The policies set
by the government of one of these countries could have a substantial effect on
that country’s economy.
Investment
and Repatriation Restrictions Risk.
The government in an emerging market country may restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers
located or operating in such emerging market countries. These restrictions
and/or controls may at times limit or prevent foreign investment in securities
of issuers located or operating in emerging market countries and may inhibit the
Fund’s ability to meet its investment objective. In addition, the Fund may not
be able to buy or sell securities or receive full value for such securities.
Moreover, certain emerging market countries may require governmental approval or
special licenses prior to investments by foreign investors and may limit the
amount of investments by foreign investors in a particular industry and/or
issuer; may limit such foreign investment to a certain class of securities of an
issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of such emerging market countries; and/or may impose
additional taxes on foreign investors. A delay in obtaining a required
government approval or a license would delay investments in those emerging
market countries, and, as a result, the Fund may not be able to invest in
certain securities while approval is pending. The government of certain emerging
market countries may also withdraw or decline to renew a license that enables
the Fund to invest in such country. These factors make investing in issuers
located or operating in emerging market countries significantly riskier than
investing in issuers located or operating in more developed countries, and any
one of them could cause a decline in the net asset value of the
Fund.
Additionally,
investments in issuers located in certain emerging market countries may be
subject to a greater degree of risk associated with governmental approval in
connection with the repatriation of investment income, capital or the proceeds
of sales of securities by foreign investors. Moreover, there is the risk that if
the balance of payments in an emerging market country declines, the government
of such country may impose temporary restrictions on foreign capital
remittances. Consequently, the Fund could be adversely affected by delays in, or
a refusal to grant, required governmental approval for repatriation of capital,
as well as by the application to the Fund of any restrictions on investments.
Furthermore, investments in emerging market countries may require the Fund to
adopt special procedures, seek local government approvals or take other actions,
each of which may involve additional costs to the Fund.
Risk
of Available Disclosure About Emerging Market Issuers.
Issuers located or operating in emerging market countries are not subject to the
same rules and regulations as issuers located or operating in more developed
countries. Therefore, there may be less financial and other information publicly
available with regard to issuers located or operating in emerging market
countries and such issuers are not subject to the uniform accounting, auditing
and financial reporting standards applicable to issuers located or operating in
more developed countries.
Operational
and Settlement Risk.
In addition to having less developed securities markets, emerging market
countries have less developed custody and settlement practices than certain
developed countries. Rules adopted under the Investment Company Act of 1940
permit the Fund to maintain its foreign securities and cash in the custody of
certain eligible non-U.S. banks and securities depositories. Banks in emerging
market countries that are eligible foreign sub-custodians may be recently
organized or otherwise lack extensive operating experience. In addition, in
certain emerging market countries there may be legal restrictions or limitations
on the ability of the Fund to recover assets held in custody by a foreign
sub-custodian in the event of the bankruptcy of the sub-custodian. Because
settlement systems in emerging market countries may be less organized than in
other developed markets, there may be a risk that settlement may be delayed and
that cash or securities of the Fund may be in jeopardy because of failures of or
defects in the systems. Under the laws in many emerging market countries, the
Fund may be required to release local shares before receiving cash payment or
may be required to make cash payment prior to receiving local shares, creating a
risk that the Fund may surrender cash or securities without ever receiving
securities or cash from the other party. Settlement systems in emerging market
countries also have a higher risk of failed trades and back to back settlements
may not be possible.
The
Fund may not be able to convert a foreign currency to U.S. dollars in time for
the settlement of redemption requests. In the event that the Fund is not able to
convert the foreign currency to U.S. dollars in time for settlement, which may
occur as a result of the delays described above, the Fund may be required to
liquidate certain investments and/or borrow money in order to fund such
redemption. The liquidation of investments, if required, could be at
disadvantageous prices or otherwise have an adverse impact on the Fund’s
performance (e.g.,
by causing the Fund to overweight foreign currency denominated holdings and
underweight other holdings which were sold to fund redemptions). In addition,
the Fund will incur interest expense on any borrowings and the borrowings will
cause the Fund to be leveraged, which may magnify gains and losses on its
investments.
In
certain emerging market countries, the marketability of investments may be
limited due to the restricted opening hours of trading exchanges, and a
relatively high proportion of market value may be concentrated in the hands of a
relatively small number of investors. In addition, because certain emerging
market countries’ trading exchanges on which the Fund’s portfolio securities may
trade are open when the relevant exchanges are closed, the Fund may be subject
to heightened risk associated with market movements. Trading volume may be lower
on certain emerging market countries’ trading exchanges than on more developed
securities markets and securities may be generally less liquid. The
infrastructure for clearing, settlement and registration on the primary and
secondary markets of certain emerging market countries are less developed than
in certain other markets and under certain circumstances this may result in the
Fund experiencing delays in settling and/or registering transactions in the
markets in which it invests, particularly if the growth of foreign and domestic
investment in certain emerging market countries places an undue burden on such
investment infrastructure. Such delays could affect the
speed
with which the Fund can transmit redemption proceeds and may inhibit the
initiation and realization of investment opportunities at optimum
times.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer’s securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before and, in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent the Fund from buying
or selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the block cannot be removed. As a result of the
ramifications of voting ballots in markets that allow share blocking, the
Adviser, on behalf of the Fund, reserves the right to abstain from voting
proxies in those markets.
Corporate
and Securities Laws Risk.
Securities laws in emerging market countries are relatively new and unsettled
and, consequently, there is a risk of rapid and unpredictable change in laws
regarding foreign investment, securities regulation, title to securities and
securityholders rights. Accordingly, foreign investors may be adversely affected
by new or amended laws and regulations. In addition, the systems of corporate
governance to which emerging market issuers are subject may be less advanced
than those systems to which issuers located in more developed countries are
subject, and therefore, securityholders of issuers located in emerging market
countries may not receive many of the protections available to securityholders
of issuers located in more developed countries. In circumstances where adequate
laws and securityholders rights exist, it may not be possible to obtain swift
and equitable enforcement of the law. In addition, the enforcement of systems of
taxation at federal, regional and local levels in emerging market countries may
be inconsistent and subject to sudden change. The Fund has limited rights and
few practical remedies in emerging markets and the ability of U.S. authorities
to bring enforcement actions in emerging markets may be limited.
Foreign Currency Risk. Because
all or a portion of the income received by the Fund from its investments and/or
the revenues received by the underlying issuer will generally be denominated in
foreign currencies, the Fund’s exposure to foreign currencies and changes in the
value of foreign currencies versus the U.S. dollar may result in reduced returns
for the Fund, and the value of certain foreign currencies may be subject to a
high degree of fluctuation. The Fund may also (directly or indirectly) incur
costs in connection with conversions between U.S. dollars and foreign
currencies.
Special
Risk Considerations of Investing in European Issuers. Investments
in securities of European issuers involve risks and special considerations not
typically associated with investments in the U.S. securities markets. The
Economic and Monetary Union of the European Union requires member countries to
comply with restrictions on inflation rates, deficits, interest rates, debt
levels and fiscal and monetary controls, each of which may significantly affect
every country in Europe. Decreasing imports or exports, changes in governmental
or European Union regulations on trade, changes in the exchange rate of the
euro, the default or threat of default by a European Union member country on its
sovereign debt, and/or an economic recession in a European Union member country
may have a significant adverse effect on the economies of other European Union
countries and on major trading partners outside Europe. If any member country
exits the Economic and Monetary Union, the departing country would face the
risks of currency devaluation and its trading partners and banks and others
around the world that hold the departing country’s debt would face the risk of
significant losses. The European financial markets have previously experienced,
and may continue to experience, volatility and have been adversely affected, and
may in the future be affected, by concerns about economic downturns, credit
rating downgrades, rising government debt levels and possible default on or
restructuring of government debt in several European countries. These events
have adversely affected, and may in the future affect, the value and exchange
rate of the euro and may continue to significantly affect the economies of every
country in Europe, including European Union member countries that do not use the
euro and non-European Union member countries. The United Kingdom withdrew from
the European Union on January 31, 2020, which has resulted in ongoing market
volatility and caused additional market disruption on a global basis. On
December 30, 2020, the United Kingdom and the European Union signed the EU-UK
Trade and Cooperation Agreement, which is an agreement on the terms governing
certain aspects of the European Union's and the United Kingdom's relationship
post Brexit. Notwithstanding the EU-UK Trade and Cooperation Agreement,
following the transition period, there is likely to be considerable uncertainty
as to the United Kingdom’s post-transition framework.
Special
Risk Considerations of Investing in United Kingdom Issuers. Investments
in securities of United Kingdom issuers, including issuers located outside of
the United Kingdom that generate significant revenues from the United Kingdom,
involve risks and special considerations not typically associated with
investments in the U.S. securities markets. Investments in United Kingdom
issuers may subject the Fund to regulatory, political, currency, security and
economic risks specific to the United Kingdom. The British economy relies
heavily on the export of financials to the United States and other European
countries. The British economy, along with the United States and certain other
European Union economies, experienced a significant economic slowdown during the
recent financial crisis. In a referendum held on June 23, 2016, voters in the
United Kingdom voted to leave the European Union, creating economic and
political uncertainty in its wake. On January 31, 2020, the United Kingdom
officially withdrew from the European Union. On December 30, 2020, the European
Union and United Kingdom signed the EU-UK Trade and Cooperation
Agreement,
an agreement on the terms governing certain aspects of the European Union’s and
the United Kingdom’s relationship following the end of the transition period.
Notwithstanding the EU-UK Trade and Cooperation Agreement, following the
transition period, there is likely to be considerable uncertainty as to the
United Kingdom’s post-transition framework.
Special
Risk Considerations of Investing in Latin American Issuers.
Investments in securities of Latin American issuers involve special
considerations not typically associated with investments in securities of
issuers located in the United States. The economies of certain Latin American
countries have, at times, experienced high interest rates, economic volatility,
inflation, currency devaluations and high unemployment rates. In addition,
commodities (such as oil, gas and minerals) represent a significant percentage
of the region’s exports and many economies in this region are particularly
sensitive to fluctuations in commodity prices. Adverse economic events in one
country may have a significant adverse effect on other countries of this
region.
Most
Latin American countries have experienced severe and persistent levels of
inflation, including, in some cases, hyperinflation. This has, in turn, led to
high interest rates, extreme measures by governments to keep inflation in check,
and a generally debilitating effect on economic growth. Although inflation in
many Latin American countries has lessened, there is no guarantee it will remain
at lower levels.
The
political history of certain Latin American countries has been characterized by
political uncertainty, intervention by the military in civilian and economic
spheres, and political corruption. Such events could reverse favorable trends
toward market and economic reform, privatization, and removal of trade barriers,
and could result in significant disruption in securities markets in the
region.
The
economies of Latin American countries are generally considered emerging markets
and can be significantly affected by currency devaluations. Certain Latin
American countries may also have managed currencies which are maintained at
artificial levels relative to the U.S. dollar rather than at levels determined
by the market. This type of system can lead to sudden and large adjustments in
the currency which, in turn, can have a disruptive and negative effect on
foreign investors. Certain Latin American countries also restrict the free
conversion of their currency into foreign currencies, including the U.S. dollar.
There is no significant foreign exchange market for many Latin American
currencies and it would, as a result, be difficult for the Fund to engage in
foreign currency transactions designed to protect the value of the Fund’s
interests in securities denominated in such currencies.
Finally,
a number of Latin American countries are among the largest debtors of developing
countries. There have been moratoria on, and a rescheduling of, repayment with
respect to these debts. Such events can restrict the flexibility of these debtor
nations in the international markets and result in the imposition of onerous
conditions on their economies.
Special
Risk Considerations of Investing in Asian Issuers. Investments
in securities of Asian issuers involve risks and special considerations not
typically associated with investments in the U.S. securities markets. Many Asian
economies have experienced rapid growth and industrialization in recent years,
but there is no assurance that this growth rate will be maintained. Certain
Asian economies have experienced over-extension of credit, currency devaluations
and restrictions, high unemployment, high inflation, decreased exports and
economic recessions. Geopolitical hostility, political instability, as well as
economic or environmental events in any one Asian country can have a significant
effect on the entire Asian region as well as on major trading partners outside
Asia, and any adverse effect on some or all of the Asian countries and regions
in which the Fund invests. The securities markets in some Asian economies are
relatively underdeveloped and may subject the Fund to higher action costs or
greater uncertainty than investments in more developed securities markets. Such
risks may adversely affect the value of the Fund’s investments. Certain Asian
countries have also developed increasingly strained relationships with the U.S.,
and if these relations were to worsen, they could adversely affect Asian issuers
that rely on the U.S. for trade.
Credit Risk. Credit risk refers
to the possibility that the issuer or guarantor of a security will be unable
and/or unwilling to honor its payment obligations and/or default completely on
securities. The Fund’s securities are subject to varying degrees
of credit risk, depending on the issuer’s financial condition and on
the terms of the securities, which may be reflected in credit ratings. There is
a possibility that the credit rating of a security may be downgraded after
purchase or the perception of an issuer’s creditworthiness may decline, which
may adversely affect the value of the security. Lower credit quality may also
affect liquidity and make it difficult for the Fund to sell the
security.
Interest Rate Risk.
Debt securities and preferred securities are subject to interest rate risk.
Interest rate risk refers to fluctuations in the value of a security resulting
from changes in the general level of interest rates. When the general level of
interest rates goes up, the prices of most debt securities and certain preferred
securities go down. When the general level of interest rates goes down, the
prices of most debt securities go up. Many factors can cause interest rates to
rise, including central bank monetary policy, rising inflation rates and general
economic conditions. Debt securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than debt
securities, such as bonds, with shorter durations. A substantial investment by
the Fund in debt securities with longer-term maturities during periods of rising
interest rates may cause the value of the Fund’s investments to decline
significantly. Changing interest rates may have unpredictable effects on
markets, may result in heightened market volatility and may detract from Fund
performance to the extent the Fund is exposed to such interest rates and/or
volatility. It is difficult to predict the magnitude, timing or direction of
interest rate changes and the impact these changes will have on the markets in
which the Fund invests.
Restricted
Securities Risk.
Regulation S securities and Rule 144A securities are restricted securities that
are not registered under the Securities Act of 1933. They may be less liquid and
more difficult to value than other investments because such securities may not
be readily marketable. The Fund may not be able to purchase or sell a restricted
security promptly or at a reasonable time or price. Although there may be a
substantial institutional market for these securities, it is not possible to
predict exactly how the market for such securities will develop or whether it
will continue to exist. A restricted security that was liquid at the time of
purchase may subsequently become illiquid and its value may decline as a result.
Restricted securities that are deemed illiquid will count towards the Fund’s
limitation on illiquid securities. In addition, transaction costs may be higher
for restricted securities than for more liquid securities. The Fund may have to
bear the expense of registering restricted securities for resale and the risk of
substantial delays in effecting the registration.
Financials
Sector Risk.
Companies in the financials sector may be subject to extensive government
regulation that affects the scope of their activities, the prices they can
charge and the amount of capital they must maintain. The profitability of
companies in the financials sector may be adversely affected by increases in
interest rates, by loan losses, which usually increase in economic downturns,
and by credit rating downgrades. In addition, the financials sector is
undergoing numerous changes, including continuing consolidations, development of
new products and structures and changes to its regulatory framework.
Furthermore, some companies in the financials sector perceived as benefiting
from government intervention in the past may be subject to future
government-imposed restrictions on their businesses or face increased government
involvement in their operations. Increased government involvement in the
financials sector, including measures such as taking ownership positions in
financial institutions, could result in a dilution of the Fund’s investments in
financial institutions.
Industrials
Sector Risk.
The industrials sector comprises companies who produce capital goods used in
construction and manufacturing, such as companies that make and sell machinery,
equipment and supplies that are used to produce other goods. Companies in the
industrials sector may be adversely affected by changes in government
regulation, world events and economic conditions. In addition, companies in the
industrials sector may be adversely affected by environmental damages, product
liability claims and exchange rates.
Information
Technology Sector Risk.
Information technology companies face intense competition, both domestically and
internationally, which may have an adverse effect on profit margins. Information
technology companies may have limited product lines, markets, financial
resources or personnel. The products of information technology companies may
face product obsolescence due to rapid technological developments and frequent
new product introduction, unpredictable changes in growth rates and competition
for the services of qualified personnel. Companies in the information technology
sector are heavily dependent on patent protection and the expiration of patents
may adversely affect the profitability of these companies.
Energy Sector
Risk. The
Fund may be sensitive to, and its performance may depend to a greater extent on,
the overall condition of the energy sector. Companies operating in the energy
sector are subject to risks including, but not limited to, economic growth,
worldwide demand, political instability in the regions that the companies
operate, government regulation stipulating rates charged by utilities, interest
rate sensitivity, oil price volatility, energy conservation, environmental
policies, depletion of resources, and the cost of providing the specific utility
services and other factors that they cannot control.
The
energy sector is cyclical and is highly dependent on commodity prices; prices
and supplies of energy may fluctuate significantly over short and long periods
of time due to, among other things, national and international political
changes, OPEC policies, changes in relationships among OPEC members and between
OPEC and oil-importing nations, the regulatory environment, taxation policies,
and the economy of the key energy-consuming countries. Commodity prices have
recently been subject to increased volatility and declines, which may negatively
affect companies in which the Fund invests.
Companies
in the energy sector may be adversely affected by terrorism, natural disasters
or other catastrophes. Companies in the energy sector are at risk of civil
liability from accidents resulting in injury, loss of life or property,
pollution or other environmental damage claims and risk of loss from terrorism
and natural disasters. Disruptions in the oil industry or shifts in fuel
consumption may significantly impact companies in this sector. Significant oil
and gas deposits are located in emerging markets countries where corruption and
security may raise significant risks, in addition to the other risks of
investing in emerging markets.
Companies
in the energy sector may also be adversely affected by changes in exchange
rates, tax treatment, government regulation and intervention, negative
perception, efforts at energy conservation and world events in the regions in
which the companies operate (e.g.,
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investments and repatriation of capital,
military coups, social unrest, violence or labor unrest). Because a significant
portion of revenues of companies in this sector is derived from a relatively
small number of customers that are largely comprised of governmental entities
and utilities, governmental budget constraints may have a significant impact on
the stock prices of companies in this sector. Entities operating in the energy
sector are subject to significant regulation of nearly every aspect of their
operations by federal, state and local governmental agencies. Such regulation
can change rapidly or over time in both scope and intensity. Stricter laws,
regulations or enforcement policies could be enacted in the future which would
likely increase compliance costs and may materially adversely affect the
financial performance of companies in the energy
sector.
A
downturn in the energy sector, adverse political, legislative or regulatory
developments or other events could have a larger impact on the Fund than on an
investment company that does not invest a substantial portion of its assets in
the energy sector. At times, the performance of securities of companies in the
energy sector may lag the performance of other sectors or the broader market as
a whole. The price of oil, natural gas and other fossil fuels may decline and/or
experience significant volatility, which could adversely impact companies
operating in the energy sector.
Market
Risk.
The prices of securities are subject to the risks associated with investing in
the securities market, including general economic conditions, sudden and
unpredictable drops in value, exchange trading suspensions and closures and
public health risks. These risks may be magnified if certain social, political,
economic and other conditions and events (such as natural disasters, epidemics
and pandemics, terrorism, conflicts and social unrest) adversely interrupt the
global economy; in these and other circumstances, such events or developments
might affect companies world-wide. Overall securities values could decline
generally or underperform other investments. An investment may lose
money.
Operational
Risk.
The Fund is exposed to operational risk arising from a number of factors,
including human error, processing and communication errors, errors of the Fund’s
service providers, counterparties or other third-parties, failed or inadequate
processes and technology or system failures.
Call Risk. The
Fund may invest in callable debt securities. If interest rates fall, issuers may
“call” (or prepay) their debt securities before their maturity date. If the
issuer exercises a call during or following a period of declining interest
rates, the Fund is likely to have to replace the called security with a lower
yielding security or riskier security, decreasing the Fund’s net investment
income. The Fund also may fail to recover additional amounts (i.e.,
premiums) paid for securities with higher interest rates, resulting in an
unexpected capital loss.
Sampling
Risk. The
Fund’s use of a representative sampling approach will result in its holding a
smaller number of securities than are in its Index. As a result, an adverse
development respecting an issuer of securities held by the Fund could result in
a greater decline in net asset value than would be the case if the Fund held all
of the securities in its Index. Conversely, a positive development relating to
an issuer of securities in the Index that is not held by the Fund could cause
the Fund to underperform the Index. To the extent the assets in the Fund are
smaller, these risks will be greater.
Index Tracking Risk. The
Fund’s return may not match the return of the Index for a number of reasons. For
example, the Fund incurs operating expenses, including taxes, not applicable to
the Index and incurs costs associated with buying and selling securities and
entering into derivatives transactions (if applicable), especially when
rebalancing the Fund’s securities holdings to reflect changes in the composition
of the Index or (if applicable) raising cash to meet redemptions or deploying
cash in connection with inflows into the Fund. Transaction costs, including
brokerage costs, may decrease the Fund’s net asset value.
Market
disruptions and regulatory restrictions could have an adverse effect on the
Fund’s ability to adjust its exposure to the required levels in order to track
the Index. Errors in the Index data, the Index computations and/or the
construction of the Index in accordance with its methodology may occur from time
to time and may not be identified and corrected by the Index provider, which may
have an adverse impact on the Fund and its shareholders. Shareholders should
understand that any gains from the Index provider’s or others’ errors will be
kept by the Fund and its shareholders and any losses or costs resulting from the
Index provider’s or others’ errors will be borne by the Fund and its
shareholders. Additionally, when the Index is rebalanced and the Fund in turn
rebalances its portfolio to attempt to increase the correlation between the
Fund’s portfolio and the Index, any transaction costs and market exposure
arising from such portfolio rebalancing will be borne directly by the Fund and
its shareholders. Apart from scheduled rebalances, the Index provider or its
agents may carry out additional ad hoc rebalances to the Index. Therefore,
errors and additional ad hoc rebalances carried out by the Index provider or its
agents to the Index may increase the costs to and the tracking error risk of the
Fund.
The
Fund may not be fully invested at times either as a result of cash flows into
the Fund or reserves of cash held by the Fund to pay expenses or to meet
redemptions. In addition, the Fund may not invest in certain securities included
in the Index, or invest in them in the exact proportions in which they are
represented in the Index. The Fund’s performance may also deviate from the
return of the Index for various reasons, including legal restrictions or
limitations imposed by the governments of certain countries, certain exchange
listing standards (where applicable), a lack of liquidity in markets in which
such securities trade, potential adverse tax consequences or other regulatory
reasons (such as diversification requirements). To the extent the Fund utilizes
depositary receipts, the purchase of depositary receipts may negatively affect
the Fund’s ability to track the performance of the Index and increase tracking
error, which may be exacerbated if the issuer of the depositary receipt
discontinues issuing new depositary receipts or withdraws existing depositary
receipts.
The
Fund may value certain of its investments, underlying currencies and/or other
assets based on fair value prices. To the extent the Fund calculates its net
asset value based on fair value prices and the value of the Index is based on
securities’ closing prices on local foreign markets (i.e.,
the value of the Index is not based on fair value prices), the Fund’s ability to
track the Index may be adversely affected. In addition, any issues the Fund
encounters with regard to currency convertibility (including the cost of
borrowing funds, if any), repatriation or economic sanctions may also increase
the index tracking risk. The Fund’s performance may also deviate from the
performance of the Index due to the impact of withholding taxes, late
announcements relating to changes to the Index and high turnover of the Index.
When markets are volatile, the ability to sell securities at fair value prices
may
be
adversely impacted and may result in additional trading costs and/or increase
the index tracking risk. The Fund may also need to rely on borrowings to meet
redemptions, which may lead to increased expenses. For tax efficiency purposes,
the Fund may sell certain securities, and such sale may cause the Fund to
realize a loss and deviate from the performance of the Index. In light of the
factors discussed above, the Fund’s return may deviate significantly from the
return of the Index. Changes to the composition of the Index in connection with
a rebalancing or reconstitution of the Index may cause the Fund to experience
increased volatility, during which time the Fund’s index tracking risk may be
heightened.
Authorized
Participant Concentration Risk.
The Fund may have a limited number of Authorized Participants, none of which are
obligated to engage in creation and/or redemption transactions. To the extent
that those Authorized Participants exit the business, or do not process creation
and/or redemption orders, there may be a significantly diminished trading market
for Shares or Shares may trade like closed-end funds at a discount (or premium)
to net asset value and possibly face trading halts and/or de-listing. This can
be reflected as a spread between the bid-ask prices for the Fund. The Authorized
Participant concentration risk may be heightened in cases where Authorized
Participants have limited or diminished access to the capital required to post
collateral.
No
Guarantee of Active Trading Market Risk. There
can be no assurance that an active trading market for the Shares will develop or
be maintained, as applicable. Further, secondary markets may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement
periods in times of market stress because market makers and Authorized
Participants may step away from making a market in the Shares and in executing
creation and redemption orders, which could cause a material deviation in the
Fund’s market price from its net asset value.
Trading
Issues Risk.
Trading in shares on the exchange may be halted due to market conditions or for
reasons that, in the view of the exchange, make trading in shares inadvisable.
In addition, trading in shares on the exchange is subject to trading halts
caused by extraordinary market volatility pursuant to the relevant exchange’s
“circuit breaker” rules. If a trading halt or unanticipated early close of the
exchange occurs, a shareholder may be unable to purchase or sell Shares of the
Fund. There can be no assurance that requirements of the exchange necessary to
maintain the listing of the Fund will continue to be met or will remain
unchanged.
Passive
Management Risk.
Unlike many investment companies, the Fund is not “actively” managed. Therefore,
unless a specific security is removed from its Index, the Fund generally would
not sell a security because the security’s issuer is in financial trouble. If a
specific security is removed from the Fund’s Index, the Fund may be forced to
sell such security at an inopportune time or for prices other than at current
market values. An investment in the Fund involves risks similar to those of
investing in any fund that invests in bonds or equity securities, such as market
fluctuations caused by such factors as economic and political developments,
changes in interest rates and perceived trends in security prices. The Fund’s
Index may not contain the appropriate or a diversified mix of securities for any
particular economic cycle. The timing of changes in the securities of the Fund’s
portfolio in seeking to replicate its Index could have a negative effect on the
Fund. Unlike with an actively managed fund, the Adviser does not use techniques
or defensive strategies designed to lessen the effects of market volatility or
to reduce the impact of periods of market decline. Additionally, unusual market
conditions may cause the Fund’s Index provider to postpone a scheduled rebalance
or reconstitution, which could cause the Fund’s Index to vary from its normal or
expected composition. This means that, based on market and economic conditions,
the Fund’s performance could be lower than funds that may actively shift their
portfolio assets to take advantage of market opportunities or to lessen the
impact of a market decline or a decline in the value of one or more issuers.
Fund Shares Trading, Premium/Discount Risk and Liquidity of
Fund Shares. The
market price of the Shares may fluctuate in response to the Fund’s net asset
value, the intraday value of the Fund’s holdings and supply and demand for
Shares. Shares may trade above, below, or at their most recent net asset value.
Factors including disruptions to creations and redemptions, the existence of
market volatility or potential lack of an active trading market for Shares
(including through a trading halt), may result in Shares trading at a
significant premium or discount to net asset value or to the intraday value of
the Fund’s holdings. If a shareholder purchases Shares at a time when the market
price is at a premium to the net asset value or sells Shares at a time when the
market price is at a discount to the net asset value, the shareholder may pay
significantly more or receive significantly less than the underlying value of
the Shares. The securities held by the Fund may be traded in markets that close
at a different time than the exchange on which the Shares are traded. Liquidity
in those securities may be reduced after the applicable closing times.
Accordingly, during the time when the exchange is open but after the applicable
market closing, fixing or settlement times, bid/ask spreads on the exchange and
the resulting premium or discount to the Shares’ net asset value may widen.
Additionally, in stressed market conditions, the market for the Fund’s Shares
may become less liquid in response to deteriorating liquidity in the markets for
the Fund’s underlying portfolio holdings and a shareholder may be unable to sell
his or her Shares.
Index-Related
Concentration Risk. The Fund’s assets may be concentrated in a particular sector or
sectors or industry or group of industries to reflect the Index’s allocation to
such sector or sectors or industry or group of industries. The securities of
many or all of the companies in the same sector or industry may decline in value
due to developments adversely affecting such sector or industry. By
concentrating its assets in a particular sector or sectors or industry or group
of industries, the Fund is subject to the risk that economic, political or other
conditions that have a negative effect on those sectors and/or industries may
negatively impact the Fund to a greater extent than if the Fund’s assets were
invested in a wider variety of securities.
PERFORMANCE
The bar chart that follows shows how the Fund performed for the
calendar years shown. The table below the bar chart shows the Fund’s average
annual returns (before and after taxes). The bar chart
and table provide an indication of the risks of investing in the Fund by
comparing the Fund’s performance from year to year and by showing how the Fund’s
average annual returns for the one year, five year, ten year and/or since
inception periods, as applicable, compared with the Fund’s benchmark index and a
broad measure of market performance. All returns assume
reinvestment of dividends and distributions. The Fund’s past
performance (before and after taxes) is not necessarily indicative of how the
Fund will perform in the future. Updated performance information
is available online at www.vaneck.com.
Annual Total Returns
(%)—Calendar Years
The
year-to-date total return as of
June 30,
2023 was 4.31%.
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Best
Quarter: |
13.19% |
2Q
2020 |
Worst
Quarter: |
-14.44% |
1Q
2020 |
Average Annual
Total Returns for the Periods Ended December 31,
2022
The after-tax returns presented
in the table below are calculated using the highest historical individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Your actual after-tax returns will depend on your
specific tax situation and may differ from those shown below. After-tax returns are not
relevant to investors who hold Shares of the Fund through tax-deferred
arrangements, such as 401(k) plans or individual retirement
accounts.
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| Past
One Year |
Past
Five Years |
Past
Ten Years |
|
| VanEck
International High Yield Bond ETF (return before
taxes) |
-14.52% |
-0.60% |
1.92% |
|
| VanEck
International High Yield Bond ETF (return after taxes on
distributions) |
-16.20% |
-2.41% |
0.00% |
|
| VanEck
International High Yield Bond ETF (return after taxes on distributions
and sale of Fund Shares) |
-8.59% |
-1.14% |
0.66% |
|
|
ICE
BofA Global ex-US Issuers High Yield Constrained Index
(reflects no deduction for
fees, expenses or taxes) |
-15.34% |
-0.52% |
2.37% |
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| ICE BofA US
Broad Market Index (reflects no deduction for fees, expenses or
taxes) |
-13.16% |
0.03% |
1.07% |
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See “License Agreements and Disclaimers” for important
information.
PORTFOLIO
MANAGEMENT
Investment
Adviser.
Van Eck Associates Corporation.
Portfolio
Manager. The
following individual is primarily responsible for the day-to-day management of
the Fund’s portfolio:
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| Name |
Title
with Adviser |
Date
Began Managing the Fund |
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| Francis
G. Rodilosso |
Portfolio
Manager |
April
2012 |
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PURCHASE
AND SALE OF FUND SHARES
For
important information about the purchase and sale of Fund Shares, tax
information, and payments to broker-dealers and other financial intermediaries,
please turn to the “Summary Information about Purchases and Sales of Fund
Shares, Taxes and Payments to Broker-Dealers and Other Financial Intermediaries”
section of this Prospectus.
SUMMARY
INFORMATION
INVESTMENT
OBJECTIVE
VanEck® J.P. Morgan EM Local Currency Bond ETF (the
“Fund”) seeks to replicate as closely as possible, before fees and expenses, the
price and yield performance of the J.P. Morgan GBI-EM Global Core Index (the
“Emerging Markets Global Core Index” or the
“Index”).
FUND FEES AND
EXPENSES
The
following tables describe the fees and expenses that you may pay if you buy,
hold and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the tables and examples
below.
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Shareholder
Fees
(fees
paid directly from your investment) |
None |
Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment)
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| Management
Fee |
0.27 |
% |
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| |
|
Other
Expenses |
0.04 |
% |
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| |
|
Total
Annual Fund Operating Expenses(a) |
0.31 |
% |
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|
Fee
Waivers and Expense Reimbursement(a) |
-0.01 |
% |
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|
Total
Annual Fund Operating Expenses After Fee Waivers and Expense
Reimbursement(a) |
0.30 |
% |
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| |
(a)Van Eck
Associates Corporation (the “Adviser”) has agreed to waive fees and/or pay Fund
expenses to the extent necessary to prevent the operating expenses of the Fund
(excluding acquired fund fees and expenses, interest expense, trading expenses,
taxes and extraordinary expenses) from exceeding 0.30% of the Fund’s average
daily net assets per year until at least September 1,
2024. During such time, the expense limitation is expected to
continue until the Fund’s Board of Trustees acts to discontinue all or a portion
of such expense limitation.
EXPENSE
EXAMPLE
This example is intended to help you compare
the cost of investing in the Fund with the cost of investing in other funds.
This example does not take into account brokerage commissions that you pay when
purchasing or selling Shares of the Fund.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then sell or hold all of your Shares at the end of those
periods. The example also assumes that your investment has a 5% annual return
and that the Fund’s operating expenses remain the same (except that the example
incorporates the fee waivers and/or expense reimbursement arrangement for only
the first year). Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
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| YEAR |
EXPENSES |
|
| 1 |
$31 |
| |
| 3 |
$99 |
| |
| 5 |
$173 |
| |
| 10 |
$392 |
| |
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PORTFOLIO
TURNOVER
The Fund will pay transaction costs, such as commissions, when it
purchases and sells securities (or “turns over” its portfolio). A higher
portfolio turnover will cause the Fund to incur additional transaction costs and
may result in higher taxes when Fund Shares are held in a taxable account. These
costs, which are not reflected in annual fund operating expenses or in the
example, may affect the Fund’s performance. During the most recent fiscal year,
the Fund’s portfolio turnover rate was 29% of the average value of its
portfolio.
PRINCIPAL INVESTMENT
STRATEGIES
The
Fund normally invests at least 80% of its total assets in securities that
comprise the Fund’s benchmark index. The Emerging Markets Global Core Index is
comprised of bonds issued by emerging market governments and denominated in the
local currency of the issuer. As of June 30, 2023, the Emerging Markets Global
Core Index included 344 bonds of 20 sovereign issuers.
This
80%
investment policy is non-fundamental and may be changed without shareholder
approval upon 60 days’ prior written notice to shareholders.
The
Fund, using a “passive” or indexing investment approach, attempts to approximate
the investment performance of the Emerging Markets Global Core Index. Unlike
many investment companies that try to “beat” the performance of a benchmark
index, the Fund does not try to “beat” the Emerging Markets Global Core Index
and does not take temporary defensive positions that are inconsistent with its
investment objective of seeking to replicate the Emerging Markets Global Core
Index. Because of the practical difficulties and expense of purchasing all of
the securities in the Emerging Markets Global Core Index, the Fund does not
purchase all of the securities in the Emerging Markets Global Core Index.
Instead, the Adviser utilizes a “sampling” methodology in seeking to achieve the
Fund’s objective. As such, the Fund may purchase a subset of the bonds in the
Emerging Markets Global Core Index in an effort to hold a portfolio of bonds
with generally the same risk and return characteristics of the Emerging Markets
Global Core Index.
The
Fund is classified as a non-diversified fund and, therefore, may invest a
greater percentage of its assets in a particular issuer. The Fund may concentrate its investments in a particular
industry or group of industries to the extent that the Emerging Markets Global
Core Index concentrates in an industry or group of industries. As of April 30,
2023, the government sector represented a significant portion of the
Fund.
PRINCIPAL RISKS OF INVESTING IN
THE FUND
Investors
in the Fund should be willing to accept a high degree of volatility in the price
of the Fund’s Shares and the possibility of significant losses. An investment in
the Fund involves a substantial degree of risk.
An investment in the Fund is
not a deposit with a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
Therefore,
you should consider carefully the following risks before investing in the Fund,
each of which could significantly and adversely affect the value of an
investment in the Fund.
Foreign
Securities Risk.
Investments in the securities of foreign issuers involve risks beyond those
associated with investments in U.S. securities. These additional risks include
greater market volatility, the availability of less reliable financial
information, higher transactional and custody costs, taxation by foreign
governments, decreased market liquidity and political instability. Because
certain foreign securities markets may be limited in size, the activity of large
traders may have an undue influence on the prices of securities that trade in
such markets. The Fund invests in securities of issuers located in countries
whose economies are heavily dependent upon trading with key partners. Any
reduction in this trading may have an adverse impact on the Fund’s investments.
Foreign market trading hours, clearance and settlement procedures, and holiday
schedules may limit the Fund's ability to buy and sell securities.
Emerging
Market Issuers Risk.
Investments in securities of emerging market issuers involve risks not typically
associated with investments in securities of issuers in more developed countries
that may negatively affect the value of your investment in the Fund. Such
heightened risks may include, among others, expropriation and/or nationalization
of assets, restrictions on and government intervention in international trade,
confiscatory taxation, political instability, including authoritarian and/or
military involvement in governmental decision making, armed conflict, the impact
on the economy as a result of civil war, crime (including drug violence) and
social instability as a result of religious, ethnic and/or socioeconomic unrest.
Issuers in certain emerging market countries are subject to less stringent
requirements regarding accounting, auditing, financial reporting and record
keeping than are issuers in more developed markets, and therefore, all material
information may not be available or reliable. Emerging markets are also more
likely than developed markets to experience problems with the clearing and
settling of trades, as well as the holding of securities by local banks, agents
and depositories. Low trading volumes and volatile prices in less developed
markets may make trades harder to complete and settle, and governments or trade
groups may compel local agents to hold securities in designated depositories
that may not be subject to independent evaluation. Local agents are held only to
the standards of care of their local markets. In general, the less developed a
country’s securities markets are, the greater the likelihood of custody
problems. Additionally, each of the factors described below could have a
negative impact on the Fund’s performance and increase the volatility of the
Fund.
Securities
Market Risk.
Securities markets in emerging market countries are underdeveloped and are often
considered to be less correlated to global economic cycles than those markets
located in more developed countries. Securities markets in emerging market
countries are subject to greater risks associated with market volatility, lower
market capitalization, lower trading volume, illiquidity, inflation, greater
price fluctuations, uncertainty regarding the existence of trading markets,
governmental control and heavy regulation of labor and industry. These factors,
coupled with restrictions on foreign investment and other factors, limit the
supply of securities available for investment by the Fund. This will affect the
rate at which the Fund is able to invest in emerging market countries, the
purchase and sale prices for such securities and the timing of purchases and
sales. Emerging markets can experience high rates of inflation, deflation and
currency devaluation. The prices of certain securities listed on securities
markets in emerging market countries have been subject to sharp fluctuations and
sudden declines, and no assurance can be given as to the future performance of
listed securities in general. Volatility of prices may be greater than in more
developed securities markets. Moreover, securities markets in emerging market
countries may be closed for extended periods of time or trading on securities
markets may be suspended altogether due to political or civil unrest. Market
volatility may also be heightened by the actions of a small number of investors.
Brokerage firms in
emerging
market countries may be fewer in number and less established than brokerage
firms in more developed markets. Since the Fund may need to effect securities
transactions through these brokerage firms, the Fund is subject to the risk that
these brokerage firms will not be able to fulfill their obligations to the Fund.
This risk is magnified to the extent the Fund effects securities transactions
through a single brokerage firm or a small number of brokerage firms. In
addition, the infrastructure for the safe custody of securities and for
purchasing and selling securities, settling trades, collecting dividends,
initiating corporate actions, and following corporate activity is not as well
developed in emerging market countries as is the case in certain more developed
markets.
Political
and Economic Risk.
Certain emerging market countries have historically been subject to political
instability and their prospects are tied to the continuation of economic and
political liberalization in the region. Instability may result from factors such
as government or military intervention in decision making, terrorism, civil
unrest, extremism or hostilities between neighboring countries. Any of these
factors, including an outbreak of hostilities could negatively impact the Fund’s
returns. Limited political and democratic freedoms in emerging market countries
might cause significant social unrest. These factors may have a significant
adverse effect on an emerging market country’s economy.
Many
emerging market countries may be heavily dependent upon international trade and,
consequently, may continue to be negatively affected by trade barriers, exchange
controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which it
trades. They also have been, and may continue to be, adversely affected by
economic conditions in the countries with which they trade.
In
addition, commodities (such as oil, gas and minerals) represent a significant
percentage of certain emerging market countries’ exports and these economies are
particularly sensitive to fluctuations in commodity prices. Adverse economic
events in one country may have a significant adverse effect on other countries
of this region. In addition, most emerging market countries have experienced, at
one time or another, severe and persistent levels of inflation, including, in
some cases, hyperinflation. This has, in turn, led to high interest rates,
extreme measures by governments to keep inflation in check, and a generally
debilitating effect on economic growth.
Although
inflation in many countries has lessened, there is no guarantee it will remain
at lower levels. The political history of certain emerging market countries has
been characterized by political uncertainty, intervention by the military in
civilian and economic spheres, and political corruption. Such events could
reverse favorable trends toward market and economic reform, privatization, and
removal of trade barriers, and result in significant disruption in securities
markets in the region.
Also,
from time to time, certain issuers located in emerging market countries in which
the Fund invests may operate in, or have dealings with, countries subject to
sanctions and/or embargoes imposed by the U.S. Government and the United Nations
and/or countries identified by the U.S. Government as state sponsors of
terrorism. As a result, an issuer may sustain damage to its reputation if it is
identified as an issuer which operates in, or has dealings with, such countries.
The Fund, as an investor in such issuers, will be indirectly subject to those
risks.
The
economies of one or more countries in which the Fund may invest may be in
various states of transition from a planned economy to a more market oriented
economy. The economies of such countries differ from the economies of most
developed countries in many respects, including levels of government
involvement, states of development, growth rates, control of foreign exchange
and allocation of resources. Economic growth in these economies may be uneven
both geographically and among various sectors of their economies and may also be
accompanied by periods of high inflation. Political changes, social instability
and adverse diplomatic developments in these countries could result in the
imposition of additional government restrictions, including expropriation of
assets, confiscatory taxes or nationalization of some or all of the property
held by the underlying issuers of securities of emerging market issuers. There
is no guarantee that the governments of these countries will not revert back to
some form of planned or non-market oriented economy, and such governments
continue to be active participants in many economic sectors through ownership
positions and regulation. The allocation of resources in such countries is
subject to a high level of government control. Such countries’ governments may
strictly regulate the payment of foreign currency denominated obligations and
set monetary policy. Through their policies, these governments may provide
preferential treatment to particular industries or companies. The policies set
by the government of one of these countries could have a substantial effect on
that country’s economy.
Investment
and Repatriation Restrictions Risk.
The government in an emerging market country may restrict or control to varying
degrees the ability of foreign investors to invest in securities of issuers
located or operating in such emerging market countries. These restrictions
and/or controls may at times limit or prevent foreign investment in securities
of issuers located or operating in emerging market countries and may inhibit the
Fund’s ability to meet its investment objective. In addition, the Fund may not
be able to buy or sell securities or receive full value for such securities.
Moreover, certain emerging market countries may require governmental approval or
special licenses prior to investments by foreign investors and may limit the
amount of investments by foreign investors in a particular industry and/or
issuer; may limit such foreign investment to a certain class of securities of an
issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of such emerging market countries; and/or may impose
additional taxes on foreign investors. A delay in obtaining a required
government approval or a license would delay investments in those emerging
market countries, and, as a result, the Fund may not be able to invest in
certain securities while approval is pending. The government of certain emerging
market
countries
may also withdraw or decline to renew a license that enables the Fund to invest
in such country. These factors make investing in issuers located or operating in
emerging market countries significantly riskier than investing in issuers
located or operating in more developed countries, and any one of them could
cause a decline in the net asset value of the Fund.
Additionally,
investments in issuers located in certain emerging market countries may be
subject to a greater degree of risk associated with governmental approval in
connection with the repatriation of investment income, capital or the proceeds
of sales of securities by foreign investors. Moreover, there is the risk that if
the balance of payments in an emerging market country declines, the government
of such country may impose temporary restrictions on foreign capital
remittances. Consequently, the Fund could be adversely affected by delays in, or
a refusal to grant, required governmental approval for repatriation of capital,
as well as by the application to the Fund of any restrictions on investments.
Furthermore, investments in emerging market countries may require the Fund to
adopt special procedures, seek local government approvals or take other actions,
each of which may involve additional costs to the Fund.
Risk
of Available Disclosure About Emerging Market Issuers.
Issuers located or operating in emerging market countries are not subject to the
same rules and regulations as issuers located or operating in more developed
countries. Therefore, there may be less financial and other information publicly
available with regard to issuers located or operating in emerging market
countries and such issuers are not subject to the uniform accounting, auditing
and financial reporting standards applicable to issuers located or operating in
more developed countries.
Foreign
Currency Risk Considerations.
The Fund’s assets that are invested in securities of issuers in emerging market
countries will generally be denominated in foreign currencies, and the proceeds
received by the Fund from these investments will be principally in foreign
currencies. The value of an emerging market country’s currency may be subject to
a high degree of fluctuation. This fluctuation may be due to changes in interest
rates, the effects of monetary policies issued by the United States, foreign
governments, central banks or supranational entities, the imposition of currency
controls or other national or global political or economic developments. The
economies of certain emerging market countries can be significantly affected by
currency devaluations. Certain emerging market countries may also have managed
currencies which are maintained at artificial levels relative to the U.S. dollar
rather than at levels determined by the market. This type of system can lead to
sudden and large adjustments in the currency which, in turn, can have a
disruptive and negative effect on foreign investors.
The
Fund’s exposure to an emerging market country’s currency and changes in value of
such foreign currencies versus the U.S. dollar may reduce the Fund’s investment
performance and the value of your investment in the Fund. Meanwhile, the Fund
will compute and expects to distribute its income in U.S. dollars, and the
computation of income will be made on the date that the income is earned by the
Fund at the foreign exchange rate in effect on that date. Therefore, if the
value of the respective emerging market country’s currency falls relative to the
U.S. dollar between the earning of the income and the time at which the Fund
converts the relevant emerging market country’s currency to U.S. dollars, the
Fund may be required to liquidate certain positions in order to make
distributions if the Fund has insufficient cash in U.S. dollars to meet
distribution requirements under the Internal Revenue Code of 1986. The
liquidation of investments, if required, could be at disadvantageous prices or
otherwise have an adverse impact on the Fund’s performance.
Certain
emerging market countries also restrict the free conversion of their currency
into foreign currencies, including the U.S. dollar. There is no significant
foreign exchange market for many such currencies and it would, as a result, be
difficult for the Fund to engage in foreign currency transactions designed to
protect the value of the Fund’s interests in securities denominated in such
currencies. Furthermore, if permitted, the Fund may incur costs in connection
with conversions between U.S. dollars and an emerging market country’s currency.
Foreign exchange dealers realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a dealer
normally will offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell
that currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into forward, futures or options contracts to purchase or
sell foreign currencies.
Operational
and Settlement Risk.
In addition to having less developed securities markets, emerging market
countries have less developed custody and settlement practices than certain
developed countries. Rules adopted under the Investment Company Act of 1940
permit the Fund to maintain its foreign securities and cash in the custody of
certain eligible non-U.S. banks and securities depositories. Banks in emerging
market countries that are eligible foreign sub-custodians may be recently
organized or otherwise lack extensive operating experience. In addition, in
certain emerging market countries there may be legal restrictions or limitations
on the ability of the Fund to recover assets held in custody by a foreign
sub-custodian in the event of the bankruptcy of the sub-custodian. Because
settlement systems in emerging market countries may be less organized than in
other developed markets, there may be a risk that settlement may be delayed and
that cash or securities of the Fund may be in jeopardy because of failures of or
defects in the systems. Under the laws in many emerging market countries, the
Fund may be required to release local shares before receiving cash payment or
may be required to make cash payment prior to receiving local shares, creating a
risk that the Fund may surrender cash or securities without ever receiving
securities
or cash from the other party. Settlement systems in emerging market countries
also have a higher risk of failed trades and back to back settlements may not be
possible.
The
Fund may not be able to convert a foreign currency to U.S. dollars in time for
the settlement of redemption requests. In the event that the Fund is not able to
convert the foreign currency to U.S. dollars in time for settlement, which may
occur as a result of the delays described above, the Fund may be required to
liquidate certain investments and/or borrow money in order to fund such
redemption. The liquidation of investments, if required, could be at
disadvantageous prices or otherwise have an adverse impact on the Fund’s
performance (e.g.,
by causing the Fund to overweight foreign currency denominated holdings and
underweight other holdings which were sold to fund redemptions). In addition,
the Fund will incur interest expense on any borrowings and the borrowings will
cause the Fund to be leveraged, which may magnify gains and losses on its
investments.
In
certain emerging market countries, the marketability of investments may be
limited due to the restricted opening hours of trading exchanges, and a
relatively high proportion of market value may be concentrated in the hands of a
relatively small number of investors. In addition, because certain emerging
market countries’ trading exchanges on which the Fund’s portfolio securities may
trade are open when the relevant exchanges are closed, the Fund may be subject
to heightened risk associated with market movements. Trading volume may be lower
on certain emerging market countries’ trading exchanges than on more developed
securities markets and securities may be generally less liquid. The
infrastructure for clearing, settlement and registration on the primary and
secondary markets of certain emerging market countries are less developed than
in certain other markets and under certain circumstances this may result in the
Fund experiencing delays in settling and/or registering transactions in the
markets in which it invests, particularly if the growth of foreign and domestic
investment in certain emerging market countries places an undue burden on such
investment infrastructure. Such delays could affect the speed with which the
Fund can transmit redemption proceeds and may inhibit the initiation and
realization of investment opportunities at optimum times.
Certain
issuers in emerging market countries may utilize share blocking schemes. Share
blocking refers to a practice, in certain foreign markets, where voting rights
related to an issuer’s securities are predicated on these securities being
blocked from trading at the custodian or sub-custodian level for a period of
time around a shareholder meeting. These restrictions have the effect of barring
the purchase and sale of certain voting securities within a specified number of
days before and, in certain instances, after a shareholder meeting where a vote
of shareholders will be taken. Share blocking may prevent the Fund from buying
or selling securities for a period of time. During the time that shares are
blocked, trades in such securities will not settle. The blocking period can last
up to several weeks. The process for having a blocking restriction lifted can be
quite onerous with the particular requirements varying widely by country. In
addition, in certain countries, the blo