ck0001540305-20220831
Roundhill Acquirers Deep Value ETF
(DEEP)
Listed
on NYSE Arca, Inc.
PROSPECTUS
December 20,
2022
Roundhill
Acquirers Deep Value ETF
FUND
SUMMARY
Investment Objective
The Roundhill Acquirers Deep
Value ETF (the “Fund”) seeks to track the performance, before fees and expenses,
of the Acquirers Deep Value Index (the “Index”).
Fees and Expenses of the Fund
The
following table describes the fees and expenses you may pay if you buy, hold,
and sell shares of the Fund (“Shares”). You
may pay other fees, such as brokerage commissions and other fees to financial
intermediaries, which are not reflected in the table and Example
below.
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Annual
Fund Operating Expenses
(expenses
that you pay each year as a percentage of the value of your
investment) |
Management
Fees |
0.80% |
Distribution
and/or Service (12b-1) Fees |
None |
Other
Expenses* |
0.00% |
Total
Annual Fund Operating Expenses* |
0.80% |
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*
The Fund’s Other Expenses and Total Annual Fund Operating Expenses have been
restated to reflect current fees.
Example
This Example is
intended to help you compare the cost of investing in the Fund with the cost of
investing in other funds. The Example assumes that you invest $10,000 in the
Fund for the time periods indicated and then continue to hold or redeem all of
your Shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The Example does not take into account brokerage commissions
that you may pay on your purchases and sales of Shares.
Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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1
Year:
$82 |
3
Years:
$255 |
5
Years:
$444 |
10
Years:
$990 |
Portfolio Turnover
The Fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
Example, affect the Fund’s performance. For the fiscal year ended
August 31, 2022, the Fund’s portfolio turnover rate was 119% of the average value of its
portfolio.
Principal Investment Strategies
The
Fund uses a “passive management” (or indexing) approach to track the
performance, before fees and expenses, of the Index.
Acquirers
Deep Value Index
The
Index was established in 2020 by Acquirers Funds, LLC (the “Index Provider”) and
tracks the performance of a portfolio of 100 of the most undervalued,
fundamentally strong stocks drawn from the smallest 75% of stocks listed in the
United States by market capitalization meeting certain liquidity thresholds.
Business Development Corporations are excluded from the Index. The Index
identifies potentially undervalued stocks by using The Acquirer’s Multiple®,
which is a valuation metric developed and published in 2014 by Tobias Carlisle,
Managing Member of the Index Provider. The initial universe of stocks is then
valued holistically—assets, earnings, and cash flows are examined—in accordance
with the Index methodology to understand the economic reality of each stock.
Each stock is then ranked on the basis of such valuation. Potential components
are further evaluated using statistical measures of fraud, earnings
manipulation, and financial distress. Each potential component is then examined
for a margin of safety in three ways: (a) a wide discount to a conservative
valuation, (b) a strong, liquid balance sheet, and (c) a robust business capable
of generating free cash flows. Finally, a forensic-accounting due diligence
review is performed, in accordance with the Index methodology, with respect to
each remaining potential component’s financial statements, particularly with
respect to the notes and management’s discussion and analysis. The Index is
formed from the 100 highest ranked components that pass each stage. Each stock
will be weighted to approximately 1% of the Index value at the time of each
quarterly reconstitution of the Index.
The
Index is reconstituted and rebalanced quarterly after the close of business on
the third Friday of March, June, September, and December each year based on data
as of the fourth business day prior to such reconstitution. With each
reconstitution of the Index, stocks that no longer meet the Index’s fundamental
criteria are removed from the Index and replaced with stocks that meet the
criteria. The Index methodology utilizes a buffer for certain criteria to
minimize the turnover of Index components that might otherwise be frequently
added to or removed from the Index.
The
Fund’s Investment Strategy
The
Fund will generally use a “replication” strategy to achieve its investment
objective, meaning it generally will invest in all of the component securities
of the Index in the same approximate proportions as in the Index. However, the
Fund may use a “representative sampling” strategy, meaning it may invest in a
sample of the securities in the Index whose risk, return and other
characteristics closely resemble the risk, return and other characteristics of
the Index as a whole, when the Fund’s investment adviser believes it is in the
best interests of the Fund (e.g.,
when replicating the Index involves practical difficulties or substantial costs,
an Index constituent becomes temporarily illiquid, unavailable or less liquid,
or as a result of legal restrictions or limitations that apply to the Fund but
not to the Index).
To
the extent the Index concentrates (i.e., holds more than 25% of its total assets)
in the securities of a particular industry or group of related industries, the
Fund will concentrate its investments to approximately the same extent as the
Index. The Fund is considered to be non-diversified, which
means that it may invest more of its assets in the securities of a single issuer
or a smaller number of issuers than if it were a diversified
fund.
Principal Investment Risks
The
principal risks of investing in the Fund are summarized below. The principal
risks are presented in alphabetical order to facilitate finding particular risks
and comparing them with other funds. Each risk summarized below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. As with any investment, there is a risk that you could
lose all or a portion of your investment in the Fund. Some or
all of these risks may adversely affect the Fund’s net asset value per share
(“NAV”), trading price, yield, total return and/or ability to meet its
objectives. For more information about the risks of investing in the Fund, see
the section in the Fund’s Prospectus titled “Additional Information About the
Fund.”
•Concentration
Risk.
The
Fund’s investments will be concentrated in an industry or group of industries to
the extent that the Index is so concentrated. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries.
•Equity
Market Risk.
The equity securities held in the Fund’s portfolio may experience sudden,
unpredictable drops in value or long periods of decline in value. This may occur
because of factors that affect securities markets generally or factors affecting
specific issuers, industries or sectors in which the Fund invests. Common stocks
are generally exposed to greater risk than other types of securities, such as
preferred stock and debt obligations, because common stockholders generally have
inferior rights to receive payment from issuers. Common stocks are susceptible
to general stock market fluctuations and to volatile increases and decreases in
value as market confidence in and perceptions of their issuers change. These
investor perceptions are based on various and unpredictable factors including:
expectations regarding government, economic, monetary and fiscal policies;
inflation and interest rates; economic expansion or contraction; and global or
regional political, economic and banking crises.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦Authorized
Participants, Market Makers, and Liquidity Providers Concentration
Risk. The
Fund has a limited number of financial institutions that may act as Authorized
Participants (“APs”). In addition, there may be a limited number of market
makers and/or liquidity providers in the marketplace. To the extent either of
the following events occur, Shares may trade at a material discount to NAV and
possibly face delisting: (i) APs exit the business or otherwise become
unable to process creation and/or redemption orders and no other APs step
forward to perform these services, or (ii) market makers and/or liquidity
providers exit the business or significantly reduce their business activities
and no other entities step forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Due to the costs of buying or selling Shares, including brokerage commissions
imposed by brokers and bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small investments.
◦Shares
May Trade at Prices Other Than NAV. As
with all ETFs, Shares may be bought and sold in the secondary market at market
prices. Although it is expected that the market price of Shares will approximate
the Fund’s NAV, there may be times when the market price of Shares is more than
the NAV intra-day (premium) or less than the NAV intra-day (discount) due to
supply and demand of Shares or during periods of market volatility. This risk is
heightened in times of market volatility, periods of steep market declines, and
periods when there is limited trading activity for Shares in the secondary
market, in which case such premiums or discounts may be significant.
◦Trading. Although
Shares are listed for trading on NYSE Arca, Inc. (the “Exchange”) and may be
traded on U.S. exchanges other than the Exchange, there can be no assurance that
Shares will trade with any volume, or at all, on any stock exchange. In stressed
market conditions, the liquidity of Shares may begin to mirror the liquidity of
the Fund’s underlying portfolio holdings, which can be significantly less liquid
than Shares, and this could lead to differences between the market price of the
Shares and the underlying value of those Shares.
•Index
Provider Risk.
There is no assurance that the Index Provider, or any agents that act on its
behalf, will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Fund’s adviser relies upon the Index Provider and
its agents to compile, determine, maintain, construct, reconstitute, rebalance,
compose, calculate (or arrange for an agent to calculate), and disseminate the
Index accurately. Any losses or costs associated with errors made by the Index
Provider or its agents generally will be borne by the Fund and its shareholders.
•Market
Capitalization Risk.
◦Small-Capitalization
Investing. The
securities of small-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some small capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to larger capitalization companies. There
is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and earnings.
•Market
Risk.
The trading prices of equity securities and other instruments fluctuate in
response to a variety of factors. These factors include events impacting the
entire market or specific market segments, such as political, market and
economic developments, as well as events that impact specific issuers. Market
risk may affect a single issuer, industry, sector of the economy or the market
as a whole. The Fund’s NAV and market price may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time.
•Models
and Data Risk.
The Index relies heavily on proprietary quantitative models as well as
information and data supplied by third parties (“Models and Data”). Because the
Index is composed based on such Models and Data, when such Models and Data prove
to be incorrect or incomplete, the Index and the Fund may not perform as
expected.
•Non-Diversification
Risk.
Because the Fund is “non-diversified,” it may
invest a greater percentage of its assets in the securities of a single issuer
or a small number of issuers than if it was a diversified fund. As a result, a
decline in the value of an investment in a single issuer could cause the Fund’s
overall value to decline to a greater degree than if the Fund held a more
diversified portfolio. This may increase the Fund’s volatility and cause the
performance of a relatively smaller number of issuers to have a greater impact
on the Fund’s performance.
•Passive
Investment Risk.
The Fund is not actively managed and the Adviser would not sell shares of an
equity security due to current or projected underperformance of a security,
industry or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
of the Index in accordance with the Index methodology. The Fund invests in
securities included in, or representative of securities included in, the Index,
regardless of their investment merits. The Fund does not take defensive
positions under any market conditions, including conditions that are adverse to
the performance of the Fund.
•Portfolio
Turnover Risk. The
Fund may trade all or a significant portion of the securities in its portfolio
in connection with each rebalance and reconstitution of its Index. A high
portfolio turnover rate increases transaction costs, which may increase the
Fund’s expenses. Frequent trading may also cause adverse tax consequences for
investors in the Fund due to an increase in short-term capital gains.
•Sector
Risk.
To the extent the Fund invests more heavily in particular sectors of the
economy, its performance will be especially sensitive to developments that
significantly affect those sectors.
◦Consumer
Discretionary Sector Risk.
The success of consumer product manufacturers and retailers is tied closely to
the performance of domestic and international economies, interest rates,
exchange rates, competition, consumer confidence, changes in demographics and
consumer preferences. Companies in the consumer discretionary sector depend
heavily on disposable household income and consumer spending, and such companies
may be strongly affected by social trends and marketing campaigns. These
companies may be subject to severe competition, which may have an adverse impact
on their profitability.
◦Financial
Sector Risk. This
sector can be significantly affected by changes in interest rates, government
regulation, the rate of defaults on corporate, consumer and government debt, the
availability and cost of capital, and fallout from the housing and sub-prime
mortgage crisis. Insurance companies, in particular, may be significantly
affected by changes in interest rates, catastrophic events, price and market
competition, the imposition of premium rate caps, or other changes in government
regulation or tax law and/or rate regulation, which may have an adverse impact
on their profitability. This sector has experienced significant losses in the
recent past, and the impact of more stringent capital requirements and of recent
or future regulation on any individual financial company or on the sector as a
whole cannot be predicted. In recent years, cyber attacks and technology
malfunctions and failures have become increasingly frequent in this sector and
have caused significant losses.
◦Industrial
Sector Risk. The
industrial sector can be significantly affected by, among other things,
worldwide economic growth, supply and demand for specific products and services,
rapid technological developments, international political and economic
developments, environmental issues, tariffs and trade barriers, and tax and
governmental regulatory policies. As the demand for, or prices of, industrials
increase, the value of the Fund’s investments generally would be expected to
also increase. Conversely, declines in the demand for, or prices of, industrials
generally would be expected to contribute to declines in the value of such
securities. Such declines may occur quickly and without warning and may
negatively impact the value of the Fund and your investment.
•Tracking
Error Risk.
As
with all index funds, the performance of the Fund and the Index may differ from
each other for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index.
•Value
Investing Risk. The Index methodology is based on a
“value” style of investing, and consequently, the Fund could suffer losses or
produce poor results relative to other funds, even in a rising market, if the
methodology used by the Index to determine a company’s “value” or prospects for
exceeding earnings expectations or market conditions is wrong. In addition,
“value stocks” can continue to be undervalued by the market for long periods of
time.
Performance
The following
performance information indicates some of the risks of investing in the
Fund. The bar chart shows the Fund’s performance for calendar
years ended December 31. The table illustrates how the Fund’s average annual
returns for the 1-year, 5-year, and since inception periods compare with those
of a broad measure of market performance and the indexes tracked by the Fund
during the applicable period. The Fund’s past performance,
before and after taxes, does not necessarily indicate how it will perform in the
future. Updated performance information is available on the
Fund’s website at www.roundhillinvestments.com/etf/deep.
Effective
June 22, 2020, the Fund’s investment objective changed from tracking, before
fees and expenses, the performance of the Deep Value Index to tracking, before
fees and expenses, the performance of the Acquirers Deep Value Index. In
addition, effective October 23, 2020, the Index methodology changed from
tracking a portfolio of large-capitalization stocks to small-capitalization
stocks. Consequently, the performance shown below reflects the Fund’s previous
investment objective and principal investment strategy, as well as its past
focus on large-capitalization stocks, and does not necessarily indicate how the
Fund will perform in the future.
Calendar Year Total Returns
For the year-to-date period ended
September 30, 2022, the
Fund’s total return was -24.90%.
During the period of time shown in the bar
chart, the Fund’s highest quarterly return
was 23.41% for the quarter ended December 31, 2020, and
the lowest quarterly return was
-40.30% for the quarter ended March 31,
2020.
Average Annual Total Returns
For the Period Ended December 31,
2021
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Roundhill
Acquirers Deep Value ETF |
1
Year |
5
Years |
Since
Inception
(9/22/2014) |
Return Before
Taxes |
35.45% |
10.44% |
9.11% |
Return After Taxes on
Distributions |
34.97% |
9.65% |
8.30% |
Return After Taxes on Distributions and
Sale of Shares |
21.30% |
8.11% |
7.10% |
Deep
Value Index/Acquirers Deep Value Index1
(reflects no deduction for
fees, expenses, or taxes) |
36.65% |
11.13% |
9.85% |
S&P
500 Total Return Index
(reflects
no deduction for fees, expenses, or taxes) |
28.71% |
18.47% |
14.92% |
1 Effective June 22, 2020,
the Fund’s investment objective changed to track the performance, before fees
and expenses, of the Acquirers Deep Value Index. Prior to June 22, 2020, the
Fund’s investment objective was to track the price and total return performance,
before fees and expenses, of the Deep Value Index. Performance shown for periods
prior to June 22, 2020 is that of the Deep Value Index.
After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates during the period covered by the table above and do not reflect the impact
of state and local taxes. Actual after-tax returns
depend on an investor’s tax situation and may differ from those shown. After-tax
returns shown are not relevant to investors who hold their Shares through
tax-deferred arrangements such as an individual retirement account (“IRA”) or
other tax-advantaged accounts.
Management
Investment
Adviser
Exchange
Traded Concepts, LLC (the “Adviser”) serves as investment adviser to the Fund.
Portfolio
Managers
Andrew
Serowik, Todd Alberico, and Gabriel Tan, each a Portfolio Manager of the
Adviser, serve as the portfolio managers of the Fund. Mr. Serowik has been a
portfolio manager of the Fund since June 2019. Mr. Alberico and Mr. Tan have
been portfolio managers of the Fund since November 2020.
Purchase
and Sale of Shares
Shares
are listed on the Exchange, and individual Shares may only be bought and sold in
the secondary market through brokers at market prices, rather than NAV. Because
Shares trade at market prices rather than NAV, Shares may trade at a price
greater than NAV (premium) or less than NAV (discount).
The
Fund issues and redeems Shares at NAV only in large blocks known as “Creation
Units,” which only APs (typically, broker-dealers) may purchase or redeem. The
Fund generally issues and redeems Creation Units in exchange for a portfolio of
securities and/or a designated amount of U.S. cash.
Investors
may incur costs attributable to the difference between the highest price a buyer
is willing to pay to purchase Shares (bid) and the lowest price a seller is
willing to accept for Shares (ask) when buying or selling Shares in the
secondary market (the “bid-ask spread”). Recent information about the Fund,
including its NAV, market price, premiums and discounts, and bid-ask spreads is
available on the Fund’s website at
www.roundhillinvestments.com/etf/deep.
Tax
Information
Fund
distributions are generally taxable as ordinary income, qualified dividend
income, or capital gains (or a combination), unless your investment is in an IRA
or other tax-advantaged account. Distributions on investments made through
tax-deferred arrangements may be taxed later upon withdrawal of assets from
those accounts.
Financial
Intermediary Compensation
If
you purchase Shares through a broker-dealer or other financial intermediary
(such as a bank) (an “Intermediary”), the Adviser, Index Provider, or their
affiliates may pay Intermediaries for certain activities related to the Fund,
including participation in activities that are designed to make Intermediaries
more knowledgeable about exchange traded products, including the Fund, or for
other activities, such as marketing, educational training or other initiatives
related to the sale or promotion of Shares. These payments may create a conflict
of interest by influencing the Intermediary and your salesperson to recommend
the Fund over another investment. Any such arrangements do not result in
increased Fund expenses. Ask your salesperson or visit the Intermediary’s
website for more information.
ADDITIONAL
INFORMATION
ABOUT
THE
FUND
Investment
Objective
The
Fund’s investment objective has been adopted as a non-fundamental investment
policy and may be changed without shareholder approval upon written notice to
shareholders.
Additional
Information About the Index
The
Index is owned and developed by Acquirers Funds, LLC. The Index is calculated by
Solactive AG (the “Index Calculation Agent”), an independent third party that is
not affiliated with the Fund, the Adviser, the Index Provider, the Fund’s
distributor, or any of their respective affiliates.
Management
of the Fund
The
Fund and the Adviser have received an exemptive order from the SEC permitting
the Adviser (subject to certain conditions and the Board’s approval) to select
or change sub-advisers without obtaining shareholder approval. The order also
permits the Adviser to materially amend the terms of agreements with a
sub-adviser (including an increase in the fee paid by the Adviser to the
sub-adviser (and not paid by the Fund)) or to continue the employment of a
sub-adviser after an event that would otherwise cause the automatic termination
of services with Board approval, but without shareholder approval. Shareholders
will be notified of any sub-adviser changes.
Additional
Information About the Fund’s Principal Risks.
This section provides additional information regarding the principal risks
described in the Fund Summary. As in the Fund Summary, the principal risks below
are presented in alphabetical order to facilitate finding particular risks and
comparing them with other funds. Each risk described below is considered a
“principal risk” of investing in the Fund, regardless of the order in which it
appears. Each of the factors below could have a negative impact on the Fund’s
performance and trading prices.
•Concentration
Risk.
The
Fund’s investments will be concentrated in an industry or group of industries to
the extent that the Index is so concentrated. In such event, the value of the
Shares may rise and fall more than the value of shares of a fund that invests in
securities of companies in a broader range of industries.
•Equity
Market Risk .
Common stocks are susceptible to general stock market fluctuations and to
volatile increases and decreases in value as market confidence in and
perceptions of their issuers change. These investor perceptions are based on
various and unpredictable factors including: expectations regarding government,
economic, monetary and fiscal policies; inflation and interest rates; economic
expansion or contraction; local, regional or global events
such
as acts of terrorism or war, including Russia’s invasion of Ukraine; and global
or regional political, economic, public health, and banking crises. If you held
common stock, or common stock equivalents, of any given issuer, you would
generally be exposed to greater risk than if you held preferred stocks and debt
obligations of the issuer because common stockholders, or holders of equivalent
interests, generally have inferior rights to receive payments from issuers in
comparison with the rights of preferred stockholders, bondholders, and other
creditors of such issuers.
Beginning
in the first quarter of 2020, financial markets in the United States and around
the world experienced extreme and, in many cases, unprecedented volatility and
severe losses due to the global pandemic caused by COVID-19, a novel
coronavirus. The pandemic resulted in a wide range of social and economic
disruptions, including closed borders, voluntary or compelled quarantines of
large populations, stressed healthcare systems, reduced or prohibited domestic
or international travel, and supply chain disruptions affecting the United
States and many other countries. Some sectors of the economy and individual
issuers have experienced particularly large losses as a result of these
disruptions, and such disruptions may continue for an extended period of time or
reoccur in the future to a similar or greater extent. In response, the U.S.
government and the Federal Reserve have taken extraordinary actions to support
the domestic economy and financial markets. Many countries, including the U.S.,
are subject to few restrictions related to the spread of COVID-19. It is unknown
how long circumstances related to the pandemic will persist, whether they will
reoccur in the future, whether efforts to support the economy and financial
markets will be successful, and what additional implications may follow from the
pandemic. The impact of these events and other epidemics or pandemics in the
future could adversely affect Fund performance.
•ETF
Risks.
The
Fund is an ETF, and, as a result of an ETF’s structure, it is exposed to the
following risks:
◦APs,
Market Makers, and Liquidity Providers Concentration Risk.
The Fund has a limited number of financial institutions that may act as APs. In
addition, there may be a limited number of market makers and/or liquidity
providers in the marketplace. To the extent either of the following events
occur, Shares may trade at a material discount to NAV and possibly face
delisting: (i) APs exit the business or otherwise become unable to process
creation and/or redemption orders and no other APs step forward to perform these
services, or (ii) market makers and/or liquidity providers exit the business or
significantly reduce their business activities and no other entities step
forward to perform their functions.
◦Costs
of Buying or Selling Shares.
Investors buying or selling Shares in the secondary market will pay brokerage
commissions or other charges imposed by brokers, as determined by that broker.
Brokerage commissions are often a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell relatively small amounts
of Shares. In addition, secondary market investors will also incur the cost of
the difference between the price at which an investor is willing to buy Shares
(the “bid” price) and the price at which an investor is willing to sell Shares
(the “ask” price). This difference in bid and ask prices is often referred to as
the “spread” or “bid-ask spread.” The bid-ask spread varies over time for Shares
based on trading volume and market liquidity, and the spread is generally lower
if Shares have more trading volume and market liquidity and higher if Shares
have little trading volume and market liquidity. Further, a relatively small
investor base in the Fund, asset swings in the Fund, and/or increased market
volatility may cause increased bid-ask spreads. Due to the costs of buying or
selling Shares, including bid-ask spreads, frequent trading of Shares may
significantly reduce investment results and an investment in Shares may not be
advisable for investors who anticipate regularly making small
investments.
◦Shares
May Trade at Prices Other Than NAV.
As with all ETFs, Shares may be bought and sold in the secondary market at
market prices. Although it is expected that the market price of Shares will
approximate the Fund’s NAV, there may be times when the market price of Shares
is more than the NAV intra-day (premium) or less than the NAV intra-day
(discount) due to supply and demand of Shares or during periods of market
volatility. This risk is heightened in times of market volatility or periods of
steep market declines. The market price of Fund shares during the trading day,
like the price of any exchange-traded security, includes a “bid/ask” spread
charged by the exchange specialist, market makers or other participants that
trade the Fund shares. In times of severe market disruption, the bid/ask spread
can increase significantly. At those times, Fund shares are most likely to be
traded at a discount to NAV, and the discount is likely to be greatest when the
price of Fund shares is falling fastest, which may be the time that you most
want to sell your Fund shares. The Adviser believes that, under normal market
conditions, large market price discounts or premiums to NAV will not be
sustained because of arbitrage opportunities.
◦Trading.
Although Shares are listed for trading on the Exchange and may be listed or
traded on U.S. and non-U.S. stock exchanges other than the Exchange, there can
be no assurance that an active trading market for such Shares will develop or be
maintained. Trading in Shares may be halted due to market conditions or for
reasons that, in the view of the Exchange, make trading in Shares inadvisable.
In addition, trading in Shares on the Exchange is subject to trading halts
caused by extraordinary market volatility pursuant to Exchange “circuit breaker”
rules, which temporarily halt trading on the Exchange when a decline in the
S&P 500®
Index during a single day reaches certain thresholds (e.g.,
7%, 13%, and 20%). Additional rules applicable to the Exchange may halt trading
in Shares when extraordinary volatility causes sudden, significant swings in the
market price of Shares. There can be no assurance that Shares will trade with
any volume, or at all, on any stock exchange. In stressed market conditions, the
liquidity of Shares may begin to mirror the liquidity of the Fund’s underlying
portfolio holdings, which can be significantly less liquid than Shares, and this
could lead to differences between the market price of the Shares and the
underlying value of those Shares.
•Index
Provider Risk.
There is no assurance that the Index Provider, or any agents that act on its
behalf, will compile the Index accurately, or that the Index will be determined,
maintained, constructed, reconstituted, rebalanced, composed, calculated or
disseminated accurately. The Fund’s adviser relies upon the Index Provider and
its agents to compile, determine, maintain, construct, reconstitute, rebalance,
compose, calculate (or arrange for an agent to calculate), and disseminate the
Index accurately. Any losses or costs associated with errors made by the Index
Provider or its agents generally will be borne by the Fund and its shareholders.
•Market
Capitalization Risk.
◦Small-Capitalization
Investing. The
securities of small-capitalization companies may be more vulnerable to adverse
issuer, market, political, or economic developments than securities of
larger-capitalization companies. The securities of small-capitalization
companies generally trade in lower volumes and are subject to greater and more
unpredictable price changes than larger capitalization stocks or the stock
market as a whole. Some small capitalization companies have limited product
lines, markets, and financial and managerial resources and tend to concentrate
on fewer geographical markets relative to larger capitalization companies. There
is typically less publicly available information concerning
smaller-capitalization companies than for larger, more established companies.
Small-capitalization companies also may be particularly sensitive to changes in
interest rates, government regulation, borrowing costs and earnings.
•Market
Risk.
The trading prices of equity securities and other instruments fluctuate in
response to a variety of factors. These factors include events impacting the
entire market or specific market segments, such as political, market and
economic developments, as well as events that impact specific issuers. Market
risk may affect a single issuer, industry, sector of the economy or the market
as a whole. The Fund’s NAV and market price may fluctuate significantly in
response to these and other factors. As a result, an investor could lose money
over short or long periods of time.
•Models
and Data Risk. When
Models and Data prove to be incorrect or incomplete, any decisions made in
reliance thereon expose the Fund to potential risks. For example, by relying on
Models and Data, the Adviser may be induced to buy certain investments at prices
that are too high, to sell certain other investments at prices that are too low,
or to miss favorable opportunities altogether. Similarly, any hedging based on
faulty Models and Data may prove to be unsuccessful.
All
models rely on correct market data inputs. If incorrect market data is entered
into even a well-founded model, the resulting information will be incorrect.
However, even if market data is input correctly, “model prices” will often
differ substantially from market prices, especially for instruments with complex
characteristics, such as derivative instruments.
•Non-Diversification
Risk.
The
Fund is considered to be non-diversified, which means that it may invest more of
its assets in the securities of a single issuer or a smaller number of issuers
than if it were a diversified fund. As a result, the Fund may be more exposed to
the risks associated with and developments affecting an individual issuer or a
smaller number of issuers than a fund that invests more widely. This may
increase the Fund’s volatility and cause the performance of a relatively smaller
number of issuers to have a greater impact on the Fund’s performance. However,
the Fund intends to satisfy the diversification requirements for qualifying as a
regulated investment company (a “RIC”) under Subchapter M of the Internal
Revenue Code of 1986, as amended (the “Code”).
•Passive
Investment Risk.
The Fund is not actively managed and the Adviser would not sell shares of an
equity security due to current or projected underperformance of a security,
industry or sector, unless that security is removed from the Index or the
selling of shares of that security is otherwise required upon a reconstitution
of the Index in accordance with the Index methodology. The Fund invests in
securities included in, or representative of securities included in, the Index,
regardless
of their investment merits. The Fund does not take defensive positions under any
market conditions, including conditions that are adverse to the performance of
the Fund.
•Portfolio
Turnover Risk. The
Fund may trade all or a significant portion of the securities in its portfolio
in connection with each rebalance and reconstitution of its Index. A high
portfolio turnover rate increases transaction costs, which may increase the
Fund’s expenses. Frequent trading may also cause adverse tax consequences for
investors in the Fund due to an increase in short-term capital gains.
•Sector
Risk.
The
Fund’s investing approach may result in an emphasis on certain sectors or
sub-sectors of the market at any given time. To the extent the Fund invests more
heavily in one sector or sub-sector of the market, it thereby presents a more
concentrated risk and its performance will be especially sensitive to
developments that significantly affect those sectors or sub-sectors. In
addition, the value of Shares may change at different rates compared to the
value of shares of a fund with investments in a more diversified mix of sectors
and industries. An individual sector or sub-sector of the market may have
above-average performance during particular periods, but it may also move up and
down more than the broader market. The several industries that constitute a
sector may all react in the same way to economic, political or regulatory
events. The Fund’s performance could also be affected if the sectors or
sub-sectors do not perform as expected. Alternatively, the lack of exposure to
one or more sectors or sub-sectors may adversely affect performance.
◦Consumer
Discretionary Sector Risk.
The success of consumer product manufacturers and retailers is tied closely to
the performance of domestic and international economies, interest rates,
exchange rates, competition, consumer confidence, changes in demographics and
consumer preferences. Companies in the consumer discretionary sector depend
heavily on disposable household income and consumer spending, and such companies
may be strongly affected by social trends and marketing campaigns. These
companies may be subject to severe competition, which may have an adverse impact
on their profitability.
◦Financial
Sector Risk.
Companies in the financial sector of an economy are often subject to extensive
governmental regulation and intervention, which may adversely affect the scope
of their activities, the prices they can charge and the amount of capital they
must maintain. Governmental regulation may change frequently and may have
significant adverse consequences for companies in the financial sector,
including effects not intended by such regulation. The impact of recent or
future regulation in various countries on any individual financial company or on
the sector as a whole cannot be predicted.
Certain
risks may impact the value of investments in the financial sector more severely
than those of investments outside this sector, including the risks associated
with companies that operate with substantial financial leverage. Companies in
the financial sector may also be adversely affected by increases in interest
rates and loan losses, decreases in the availability of money or asset
valuations, credit rating downgrades and adverse conditions in other related
markets.
Insurance
companies, in particular, may be subject to severe price competition and/or rate
regulation, which may have an adverse impact on their profitability. Insurance
companies are subject to extensive government regulation in some countries and
can be significantly affected by changes in interest rates, general economic
conditions, price and marketing competition, the imposition of premium rate
caps, or other changes in government regulation or tax law. Different segments
of the insurance industry can be significantly affected by mortality and
morbidity rates, environmental clean-up costs and catastrophic events such as
earthquakes, hurricanes and terrorist acts.
The
financial sector is also a target for cyber attacks and may experience
technology malfunctions and disruptions. In recent years, cyber attacks and
technology failures have become increasingly frequent and have caused
significant losses.
◦Industrial
Sector Risk. The
industrial sector can be significantly affected by, among other things,
worldwide economic growth, supply and demand for specific products and services,
rapid technological developments, international political and economic
developments, environmental issues, tariffs and trade barriers, and tax and
governmental regulatory policies. As the demand for, or prices of, industrials
increase, the value of the Fund’s investments generally would be expected to
also increase. Conversely, declines in the demand for, or prices of, industrials
generally would be expected to contribute to declines in the value of such
securities. Such declines may occur quickly and without warning and may
negatively impact the value of the Fund and your investment.
•Tracking
Error Risk.
As with all index funds, the performance of the Fund and the Index may vary
somewhat for a variety of reasons. For example, the Fund incurs operating
expenses and portfolio transaction costs not incurred by the Index. In addition,
the Fund may not be fully invested in the securities of the Index at all times
or may hold securities not included in the Index. The Fund may use a
representative sampling strategy to achieve its investment objective, if the
Fund’s
Adviser believes it is in the best interest of the Fund, which generally can be
expected to produce a greater non-correlation risk.
•Value
Investing Risk.
The Index methodology is based on a “value” style of investing, and
consequently, the Fund could suffer losses or produce poor results relative to
other funds, even in a rising market, if the methodology used by the Index to
determine a company’s “value” or prospects for exceeding earnings expectations
or market conditions is wrong. In addition, “value stocks” can continue to be
undervalued by the market for long periods of time.
PORTFOLIO
HOLDINGS
INFORMATION
Information
about the Fund’s daily portfolio holdings is available at
www.roundhillinvestments.com/etf/deep. A complete description of the Fund’s
policies and procedures with respect to the disclosure of the Fund’s portfolio
holdings is available in the Fund’s Statement of Additional Information (“SAI”).
MANAGEMENT
Investment
Adviser
Exchange
Traded Concepts, LLC, serves as the investment adviser and has overall
responsibility for the general management and administration of the Fund. The
Adviser also arranges for transfer agency, custody, fund administration, and all
other non-distribution related services necessary for the Fund to operate. The
Adviser has provided investment advisory services to individual and
institutional accounts since 2009. The Adviser is an Oklahoma limited liability
company and is located at 10900 Hefner Pointe Drive, Suite 400, Oklahoma City,
Oklahoma 73120.
For
the services it provides to the Fund, the Fund pays the Adviser a unified
management fee, which is calculated daily and paid monthly, at an annual rate of
0.80% of the Fund’s average daily net assets.
Under
the Investment Advisory Agreement, the Adviser has agreed to pay all expenses of
the Fund except for the fee paid to the Adviser pursuant to the Investment
Advisory Agreement, interest charges on any borrowings, taxes, brokerage
commissions and other expenses incurred in placing orders for the purchase and
sale of securities and other investment instruments, acquired fund fees and
expenses, accrued deferred tax liability, extraordinary expenses, and
distribution fees and expenses paid by the Trust under any distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act (collectively, “Excluded
Expenses”). The Adviser has entered into a sub-license agreement with the
Sponsor (defined below) pursuant to which the Adviser pays a fee to use the
Index, which is calculated daily and paid monthly, based on a percentage of the
average daily net assets of the Fund. As part of the arrangement between the
Sponsor and the Adviser, the Sponsor has agreed to assume the obligation of the
Adviser to pay all expenses of the Fund (except the Excluded Expenses) and, to
the extent applicable, pay the Adviser’s minimum fee under the arrangement.
The
basis for the Board’s approval of the Fund’s Investment Advisory agreement is
available in the Fund’s
Semi-Annual Report
to Shareholders for the period ended February 28, 2022.
Portfolio
Managers
Andrew
Serowik, Todd Alberico, and Gabriel Tan are jointly and primarily responsible
for the day-to-day management of the Fund.
Mr.
Serowik joined the Adviser from Goldman Sachs in May 2018. He began his career
at Spear, Leeds & Kellogg (“SLK”), continuing with Goldman after its
acquisition of SLK in September 2000. During his career of more than 19 years at
the combined companies, he held various roles, including managing the global
Quant ETF Strats team and One Delta ETF Strats. He designed and developed
systems for portfolio risk calculation, algorithmic ETF trading, and execution
monitoring, with experience across all asset classes. He graduated from the
University of Michigan with a Bachelor of Business Administration degree in
Finance. Mr. Serowik has served as a Portfolio Manager of the Fund since June
2019.
Mr.
Alberico joined the Adviser in November 2020. From 2013 to 2020, Mr. Alberico
worked in ETF trading at Virtu Financial. Prior to Virtu Financial, Mr. Alberico
spent time in ETF trading at Goldman Sachs and Cantor Fitzgerald. He spent most
of that time focused on the Trading and Portfolio Risk Management of ETFs
exposed to international and domestic equity. He has worked on several different
strategies including lead market-making and electronic trading, to customer
facing institutional business developing models for block trading as well as
transitional trades. Mr. Alberico graduated from St. John’s University in NY
with a Bachelor of Science degree in Finance. Mr. Alberico has served as a
Portfolio Manager of the Fund since November 2020.
Mr.
Tan joined the Adviser in May 2019 as an Associate Portfolio Manager and was
promoted to Portfolio Manager in December 2020. From 2013 to 2017, Mr. Tan
worked at UBS and BBR Partners where he served as a financial planning analyst
and a portfolio strategist. During his time there, he developed comprehensive
wealth management solutions focused
on
portfolio optimization, trust and estate planning, and tax planning. Mr. Tan
graduated from the University of North Carolina at Chapel Hill with a Bachelor
of Science in Business Administration with a concentration in Investments, a
Bachelor of Arts in Economics, and a Minor in Chinese. Mr. Tan has served as a
Portfolio Manager of the Fund since November 2020.
The
Fund’s SAI provides additional information about the Portfolio Managers’
compensation structure, other accounts managed by the Portfolio Managers, and
the Portfolio Managers’ ownership of Shares.
Index
Provider
Acquirers
Funds, LLC serves as the Index Provider for the Fund and is not affiliated with
ETF Series Solutions (the “Trust”), the Adviser, the Fund’s administrator,
custodian, transfer agent or the Distributor (defined below), or any of their
respective affiliates. The Index Provider provides information to the Fund about
the Index constituents and does not provide investment advice with respect to
the desirability of investing in, purchasing or selling securities. The Adviser
has entered into a sub-licensing agreement with the Fund’s sponsor (described
below) pursuant to which the Adviser pays a fee to use the Index. The Adviser is
sub-licensing rights to the Index to the Fund at no charge.
Fund
Sponsor
The
Adviser has entered into an agreement with Roundhill Financial Inc. (the
“Sponsor”), under which the Sponsor agrees to (i) sub-license the Index to the
Adviser for use by the Fund, (ii) assist with the development of and provide
other support to the Fund, and (iii) assume the obligation of the Adviser to pay
all expenses of the Fund, except Excluded Expenses, and, to the extent
applicable, pay the Adviser’s minimum fee for its services under the
arrangement. The Sponsor also provides marketing support for the Fund, including
distributing marketing materials related to the Fund. For its services, the
Sponsor is entitled to a fee from the Adviser, which is calculated daily and
paid monthly, based on a percentage of the average daily net assets of the
Fund.
The
Sponsor is a registered investment adviser that provides advisory services to
ETFs, but it does not act as an investment adviser or otherwise provide
investment advice to the Fund. Additionally, the Sponsor is not involved in the
maintenance of the Index and does not otherwise act in the capacity of an index
provider.
HOW
TO
BUY
AND
SELL
SHARES
The
Fund issues and redeems Shares at NAV only in Creation Units. Only APs may
acquire Shares directly from the Fund, and only APs may tender their Shares for
redemption directly to the Fund, at NAV. APs must be a member or participant of
a clearing agency registered with the SEC and must execute a Participant
Agreement that has been agreed to by the Distributor (defined below), and that
has been accepted by the Fund’s transfer agent, with respect to purchases and
redemptions of Creation Units. Once created, Shares trade in the secondary
market in quantities less than a Creation Unit.
Most
investors buy and sell Shares in secondary market transactions through brokers.
Shares are listed for trading on the secondary market on the Exchange and can be
bought and sold throughout the trading day like other publicly traded
securities.
When
buying or selling Shares through a broker, you will incur customary brokerage
commissions and charges, and you may pay some or all of the bid-ask spread on
your transactions. In addition, because secondary market transactions occur at
market prices, you may pay more than NAV when you buy Shares and receive less
than NAV when you sell those Shares.
Book
Entry
Shares
are held in book-entry form, which means that no stock certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding Shares.
Investors
owning Shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all Shares. DTC’s
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and other institutions that directly or indirectly
maintain a custodial relationship with DTC. As a beneficial owner of Shares, you
are not entitled to receive physical delivery of stock certificates or to have
Shares registered in your name, and you are not considered a registered owner of
Shares. Therefore, to exercise any right as an owner of Shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same
as those that apply to any other securities that you hold in book entry or
“street name” through your brokerage account.
Frequent
Purchases and Redemptions of Shares
The
Fund imposes no restrictions on the frequency of purchases and redemptions of
Shares. In determining not to approve a written, established policy, the Board
evaluated the risks of market timing activities by Fund shareholders. Purchases
and
redemptions
by APs, who are the only parties that may purchase or redeem Shares directly
with the Fund, are an essential part of the ETF process and help keep Share
trading prices in line with NAV. As such, the Fund accommodates frequent
purchases and redemptions by APs. However, the Board has also determined that
frequent purchases and redemptions for cash may increase tracking error and
portfolio transaction costs and may lead to the realization of capital gains. To
minimize these potential consequences of frequent purchases and redemptions, the
Fund employs fair value pricing and may impose transaction fees on purchases and
redemptions of Creation Units to cover the custodial and other costs incurred by
the Fund in effecting trades. In addition, the Fund and the Adviser reserve the
right to reject any purchase order at any time.
Determination
of NAV
The
Fund’s NAV is calculated as of the scheduled close of regular trading on the New
York Stock Exchange (“NYSE”), generally 4:00 p.m. Eastern time, each day
the NYSE is open for business. The NAV is calculated by dividing the Fund’s net
assets by its Shares outstanding.
In
calculating its NAV, the Fund generally values its assets on the basis of market
quotations, last sale prices, or estimates of value furnished by a pricing
service or brokers who make markets in such instruments. If such information is
not available for a security held by the Fund or is determined to be unreliable,
the security will be valued by the Adviser at fair value pursuant to procedures
established by the Adviser and approved by the Board (as described
below).
Fair
Value Pricing
The
Adviser has been designated by the Board as the valuation designee for the Fund
pursuant to Rule 2a-5 under the 1940 Act. In its capacity as valuation designee,
the Adviser has adopted procedures and methodologies to fair value Fund
securities whose market prices are not “readily available” or are deemed to be
unreliable. For example, such circumstances may arise when: (i) a security has
been de-listed or has had its trading halted or suspended; (ii) a security’s
primary pricing source is unable or unwilling to provide a price; (iii) a
security’s primary trading market is closed during regular market hours; or (iv)
a security’s value is materially affected by events occurring after the close of
the security’s primary trading market. The Board has appointed the Adviser as
the Fund’s valuation designee to perform all fair valuations of the Fund’s
portfolio investments, subject to the Board’s oversight. Accordingly, the
Adviser has established procedures for its fair valuation of the Fund’s
portfolio investments. Generally, when fair valuing a security held by the Fund,
the Adviser will take into account all reasonably available information that may
be relevant to a particular valuation including, but not limited to, fundamental
analytical data regarding the issuer, information relating to the issuer’s
business, recent trades or offers of the security, general and/or specific
market conditions and the specific facts giving rise to the need to fair value
the security. Fair value determinations are made in good faith and in accordance
with the fair value methodologies established by the Adviser. Due to the
subjective and variable nature of determining the fair value of a security or
other investment, there can be no assurance that the Adviser’s fair value will
match or closely correlate to any market quotation that subsequently becomes
available or the price quoted or published by other sources. In addition, the
Fund may not be able to obtain the fair value assigned to the security upon the
sale of such security.
Investments
by Registered Investment Companies
Section 12(d)(1)
of the 1940 Act restricts investments by registered investment companies in the
securities of other investment companies, including Shares. Registered
investment companies are permitted to invest in the Fund beyond the limits set
forth in section 12(d)(1) subject to certain terms and conditions set forth in
Rule 12d1-4 under the 1940 Act, including that such investment companies enter
into an agreement with the Fund.
Delivery
of Shareholder Documents – Householding
Householding
is an option available to certain investors of the Fund. Householding is a
method of delivery, based on the preference of the individual investor, in which
a single copy of certain shareholder documents can be delivered to investors who
share the same address, even if their accounts are registered under different
names. Householding for the Fund is available through certain broker-dealers. If
you are interested in enrolling in householding and receiving a single copy of
prospectuses and other shareholder documents, please contact your broker-dealer.
If you are currently enrolled in householding and wish to change your
householding status, please contact your broker-dealer.
DIVIDENDS,
DISTRIBUTIONS,
AND
TAXES
Dividends
and Distributions
The
Fund intends to pay out dividends, if any, quarterly and distribute any net
realized capital gains to its shareholders at least annually. The Fund will
declare and pay capital gain distributions, if any, in cash. Distributions in
cash may be reinvested automatically in additional whole Shares only if the
broker through whom you purchased Shares makes such option available. Your
broker is responsible for distributing the income and capital gain distributions
to you.
Taxes
The
following discussion is a summary of some important U.S. federal income tax
considerations generally applicable to investments in the Fund. Your investment
in the Fund may have other tax implications. Please consult your tax advisor
about the tax consequences of an investment in Shares, including the possible
application of foreign, state, and local tax laws. This summary does not apply
to Shares held in an IRA or other tax-qualified plans, which are generally not
subject to current tax. Transactions relating to Shares held in such accounts
may, however, be taxable at some time in the future. This summary is based on
current tax laws, which may change.
The
Fund intends to elect and qualify each year for treatment as a RIC under the
Code. If it meets certain minimum distribution requirements, a RIC is not
subject to tax at the fund level on income and gains from investments that are
timely distributed to shareholders. However, the Fund’s failure to qualify as a
RIC or to meet minimum distribution requirements would result (if certain relief
provisions were not available) in fund-level taxation and, consequently, a
reduction in income available for distribution to shareholders.
Unless
your investment in Shares is made through a tax-exempt entity or tax-advantaged
account, such as an IRA, you need to be aware of the possible tax consequences
when the Fund makes distributions, when you sell your Shares listed on the
Exchange, and when you purchase or redeem Creation Units (APs only).
Taxes
on Distributions
The
Fund intends to distribute, at least annually, substantially all of its net
investment income and net capital gains. For federal income tax purposes,
distributions of investment income are generally taxable as ordinary income or
qualified dividend income. Taxes on distributions of capital gains (if any) are
determined by how long the Fund owned the investments that generated them,
rather than how long a shareholder has owned his or her Shares. Sales of assets
held by the Fund for more than one year generally result in long-term capital
gains and losses, and sales of assets held by the Fund for one year or less
generally result in short-term capital gains and losses. Distributions of the
Fund’s net capital gain (the excess of net long-term capital gains over net
short-term capital losses) that are reported by the Fund as capital gain
dividends (“Capital Gain Dividends”) will be taxable as long-term capital gains,
which for non-corporate shareholders are subject to tax at reduced rates of up
to 20% (lower rates apply to individuals in lower tax brackets). Distributions
of short-term capital gain will generally be taxable as ordinary income.
Dividends and distributions are generally taxable to you whether you receive
them in cash or reinvest them in additional Shares.
Distributions
reported by the Fund as “qualified dividend income” are generally taxed to
non-corporate shareholders at rates applicable to long-term capital gains,
provided holding period and other requirements are met. “Qualified dividend
income” generally is income derived from dividends paid by U.S. corporations or
certain foreign corporations that are either incorporated in a U.S. possession
or eligible for tax benefits under certain U.S. income tax treaties. In
addition, dividends that the Fund received in respect of stock of certain
foreign corporations may be qualified dividend income if that stock is readily
tradable on an established U.S. securities market.
Shortly
after the close of each calendar year, you will be informed of the amount and
character of any distributions received from the Fund.
U.S.
individuals with income exceeding specified thresholds are subject to a 3.8% tax
on all or a portion of their “net investment income,” which includes interest,
dividends, and certain capital gains (generally including capital gains
distributions and capital gains realized on the sale of Shares). This 3.8% tax
also applies to all or a portion of the undistributed net investment income of
certain shareholders that are estates and trusts.
In
general, your distributions are subject to federal income tax for the year in
which they are paid. Certain distributions paid in January, however, may be
treated as paid on December 31 of the prior year. Distributions are generally
taxable even if they are paid from income or gains earned by the Fund before
your investment (and thus were included in the Shares’ NAV when you purchased
your Shares).
You
may wish to avoid investing in the Fund shortly before a dividend or other
distribution, because such a distribution will generally be taxable even though
it may economically represent a return of a portion of your investment.
If
the Fund’s distributions exceed its earnings and profits, all or a portion of
the distributions made for a taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will generally not be
taxable, but will reduce each shareholder’s cost basis in Shares and result in a
higher capital gain or lower capital loss when the Shares are sold. After a
shareholder’s basis in Shares has been reduced to zero, distributions in excess
of earnings and profits in respect of those Shares will be treated as gain from
the sale of the Shares.
If
you are neither a resident nor a citizen of the United States or if you are a
foreign entity, distributions (other than Capital Gain Dividends) paid to you by
the Fund will generally be subject to a U.S. withholding tax at the rate of 30%,
unless a lower treaty rate applies. Gains from the sale or other disposition of
Shares by non-U.S. shareholders generally are not subject to U.S. taxation,
unless you are a nonresident alien individual who is physically present in the
U.S. for 183 days or more per year. The Fund may, under certain circumstances,
report all or a portion of a dividend as an “interest-related dividend” or a
“short-term capital gain dividend,” which would generally be exempt from this
30% U.S. withholding tax, provided certain other requirements are met.
Different tax consequences may result if you are a foreign shareholder engaged
in a trade or business within the United States or if a tax treaty applies.
The
Fund (or a financial intermediary, such as a broker, through which a shareholder
owns Shares) generally is required to withhold and remit to the U.S. Treasury a
percentage (currently 24%) of the taxable distributions and sale proceeds paid
to any shareholder who fails to properly furnish a correct taxpayer
identification number, who has underreported dividend or interest income, or who
fails to certify that the shareholder is not subject to such
withholding.
Taxes
When Shares are Sold on the Exchange
Provided
that a shareholder holds Shares as capital assets, any capital gain or loss
realized upon a sale of Shares generally is treated as a long-term capital gain
or loss if Shares have been held for more than one year and as a short-term
capital gain or loss if Shares have been held for one year or less. However, any
capital loss on a sale of Shares held for six months or less is treated as
long-term capital loss to the extent of Capital Gain Dividends paid with respect
to such Shares. Any loss realized on a sale will be disallowed to the extent
Shares of the Fund are acquired, including through reinvestment of dividends,
within a 61-day period beginning 30 days before and ending 30 days after the
disposition of Shares. The ability to deduct capital losses may be limited.
The
cost basis of Shares of the Fund acquired by purchase will generally be based on
the amount paid for the Shares and then may be subsequently adjusted for other
applicable transactions as required by the Code. The difference between the
selling price and the cost basis of Shares generally determines the amount of
the capital gain or loss realized on the sale or exchange of Shares. Contact the
broker through whom you purchased your Shares to obtain information with respect
to the available cost basis reporting methods and elections for your account.
Taxes
on Purchases and Redemptions of Creation Units
An
AP having the U.S. dollar as its functional currency for U.S. federal income tax
purposes who exchanges securities for Creation Units generally recognizes a gain
or a loss. The gain or loss will be equal to the difference between the value of
the Creation Units at the time of the exchange and the exchanging AP’s aggregate
basis in the securities delivered, plus the amount of any cash paid for the
Creation Units. An AP who exchanges Creation Units for securities will generally
recognize a gain or loss equal to the difference between the exchanging AP’s
basis in the Creation Units and the aggregate U.S. dollar market value of the
securities received, plus any cash received for such Creation Units. The
Internal Revenue Service may assert, however, that a loss that is realized upon
an exchange of securities for Creation Units may not be currently deducted under
the rules governing “wash sales” (for an AP who does not mark-to-market its
holdings), or on the basis that there has been no significant change in economic
position. APs exchanging securities should consult their own tax advisor with
respect to whether the wash sales rule applies and when a loss might be
deductible.
The
Fund may include a payment of cash in addition to, or in place of, the delivery
of a basket of securities upon the redemption of Creation Units. The Fund may
sell portfolio securities to obtain the cash needed to distribute redemption
proceeds. This may cause the Fund to recognize investment income and/or capital
gains or losses that it might not have recognized if it had completely satisfied
the redemption in-kind. As a result, the Fund may be less tax efficient if it
includes such a cash payment in the proceeds paid upon the redemption of
Creation Units.
The
foregoing discussion summarizes some of the possible consequences under current
federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. You also may be subject to state and local tax on Fund
distributions and sales of Shares. Consult your personal tax advisor about the
potential tax consequences of an investment in Shares under all applicable tax
laws. For more information, please see the section entitled “Federal Income
Taxes” in the SAI.
DISTRIBUTION
The
Distributor, Quasar Distributors, LLC, a wholly owned subsidiary of Foreside
Financial Group, LLC (d/b/a ACA Group), is a broker-dealer registered with the
SEC. The Distributor distributes Creation Units for the Fund on an agency basis
and does not maintain a secondary market in Shares. The Distributor has no role
in determining the policies of the Fund or the securities that are purchased or
sold by the Fund. The Distributor’s principal address is 111 East Kilbourn
Avenue, Suite 2200, Milwaukee, Wisconsin 53202.
The
Board has adopted a Distribution and Service Plan (the “Plan”) pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Plan, the Fund is authorized to
pay an amount up to 0.25% of its average daily net assets each year for certain
distribution-related activities and shareholder services.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no plans to impose
these fees. However, in the event Rule 12b-1 fees are charged in the future,
because the fees are paid out of the Fund’s assets, over time these fees will
increase the cost of your investment and may cost you more than certain other
types of sales charges.
PREMIUM/DISCOUNT
INFORMATION
Information
regarding how often Shares traded on the Exchange at a price above (i.e.,
at
a premium) or below (i.e.,
at
a discount) the NAV per Share is available, free of charge, on the Fund’s
website at www.roundhillinvestments.com/etf/deep.
ADDITIONAL
NOTICES
Shares
are not sponsored, endorsed, or promoted by the Exchange. The Exchange makes no
representation or warranty, express or implied, to the owners of the Shares or
any member of the public regarding the ability of the Fund to track the total
return performance of the Index or the ability of the Index identified herein to
track the performance of its constituent securities. The Exchange is not
responsible for, nor has it participated in, the determination of the
compilation or the calculation of the Index, nor in the determination of the
timing of, prices of, or quantities of Shares to be issued, nor in the
determination or calculation of the equation by which Shares are redeemable. The
Exchange has no obligation or liability to owners of Shares in connection with
the administration, marketing, or trading of Shares.
The
Exchange does not guarantee the accuracy and/or the completeness of the Index or
the data included therein. The Exchange makes no warranty, express or implied,
as to results to be obtained by the Fund, owners of the Shares, or any other
person or entity from the use of the Index or the data included therein. The
Exchange makes no express or implied warranties, and hereby expressly disclaims
all warranties of merchantability or fitness for a particular purpose with
respect to the Index or the data included therein. Without limiting any of the
foregoing, in no event shall the Exchange have any liability for any lost
profits or indirect, punitive, special, or consequential damages even if
notified of the possibility thereof.
The
Adviser, the Index Provider and the Fund make no representation or warranty,
express or implied, to the owners of Shares or any member of the public
regarding the advisability of investing in securities generally or in the Fund
particularly. The Index Provider is a licensor of certain trademarks, service
marks and trade names of the Fund. The Index Provider has no obligation to take
the needs of the Fund or the owners of Shares into consideration in determining,
composing, or calculating the Index. The Index Provider is not responsible for,
and has not participated in, the determination of the timing of, prices of, or
quantities of Shares to be issued or in the determination or calculation of the
equation by which the Shares are redeemable. The Fund and the Adviser do not
guarantee the accuracy, completeness, or performance of the Index or the data
included therein and shall have no liability in connection with the Index or
Index calculation.
FINANCIAL
HIGHLIGHTS
The
financial highlights table is intended to help you understand the Fund’s
financial performance for the Fund’s five most recent fiscal years. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Cohen & Company, Ltd.,
the Fund’s independent registered public accounting firm, whose report, along
with the Fund’s financial statements, is included in the Fund’s annual report,
which is available upon request. Effective
October 23, 2020, the Index methodology changed from tracking a portfolio of
large-capitalization stocks to small-capitalization stocks. Consequently, the
information shown below reflects the Fund’s previous focus on
large-capitalization stocks and does not necessarily indicate how the Fund will
perform in the future.
Roundhill
Acquirers Deep Value ETF
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
|
|
|
|
| |
| Year
Ended August 31, |
|
| |
| 2022 |
| 2021 |
| 2020 |
| 2019 |
| 2018 |
|
| |
Net
asset value, beginning of year |
$35.52 |
| $23.25 |
| $ |
28.70 |
|
| $ |
35.63 |
|
| $ |
28.60 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
INCOME
(LOSS) FROM |
|
|
|
|
|
|
|
|
|
|
| |
INVESTMENT
OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
| |
Net
investment income (loss)(1) |
0.40 |
|
| 0.48 |
|
| 1.12 |
|
| 1.07 |
|
| 1.05 |
|
|
| |
Net
realized and unrealized |
|
|
|
|
|
|
|
|
|
|
| |
gain
(loss) on investments |
(4.13) |
|
| 12.18 |
|
| (4.84) |
|
| (7.18) |
|
| 6.86 |
|
|
| |
Total
from investment operations |
(3.73) |
|
| 12.66 |
|
| (3.72) |
|
| (6.11) |
|
| 7.91 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
DISTRIBUTIONS
TO SHAREHOLDERS: |
|
|
|
|
|
|
|
|
|
|
| |
Distributions
from: |
|
|
|
|
|
|
|
|
|
|
| |
Net
investment income |
(0.44) |
|
| (0.39) |
|
| (1.73) |
|
| (0.82) |
|
| (0.88) |
|
|
| |
Total
distributions to shareholders |
(0.44) |
|
| (0.39) |
|
| (1.73) |
|
| (0.82) |
|
| (0.88) |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Net
asset value, end of year |
$ |
31.35 |
|
| $ |
35.52 |
|
| $ |
23.25 |
|
| $ |
28.70 |
|
| $ |
35.63 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Total
return |
-10.61 |
% |
| 54.67 |
% |
| -12.95 |
% |
| -17.24 |
% |
| 27.84 |
% |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
SUPPLEMENTAL
DATA: |
|
|
|
|
|
|
|
|
|
|
| |
Net
assets at end of year (000’s) |
$ |
43,894 |
|
| $ |
47,956 |
|
| $ |
22,088 |
|
| $ |
269,810 |
|
| $ |
158,552 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
RATIOS
TO AVERAGE NET ASSETS: |
|
|
|
|
|
|
|
|
|
|
| |
Expenses
to average net assets (before fees waived) |
0.80 |
% |
| 0.80 |
% |
| 0.80 |
% |
| 0.80 |
% |
| 0.80 |
% |
|
| |
Expenses
to average net assets (after fees waived) |
0.80 |
% |
| 0.80 |
% |
| 0.27 |
% |
(2) |
0.40 |
% |
(3) |
0.48 |
% |
(4) |
| |
Net
investment income (loss) to average net assets (before fees
waived) |
1.19 |
% |
| 1.53 |
% |
| 3.14 |
% |
| 2.97 |
% |
| 2.84 |
% |
|
| |
Net
investment income (loss) to average net assets (after fees waived)
|
1.19 |
% |
| 1.53 |
% |
| 3.67 |
% |
(2) |
3.37 |
% |
(3) |
3.16 |
% |
(4) |
| |
Portfolio
turnover rate(5) |
119 |
% |
| 148 |
% |
| 143 |
% |
| 97 |
% |
| 126 |
% |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
(1)Calculated
based on average shares outstanding during the period.
(2)Effective
January 1, 2020 through June 22, 2020, the Adviser contractually agreed to waive
21 basis points (0.21%) of its management fees for the Fund. The Adviser
voluntarily waived an additional 33 basis points (0.33%) of its management fee
during the period September 1, 2019 through June 22, 2020.
(3)Effective
January 1, 2019 the Adviser contractually agreed to waive 21 basis points
(0.21%) of its management fees for the Fund until at least December 31, 2019.
The Adviser voluntarily waived an additional 33 basis points (0.33%) of its
management fee during the period from March 6, 2019 through August 31,
2019.
(4)Effective
January 1, 2018 the Adviser contractually agreed to waive 21 basis points
(0.21%) of its management fees for the Fund until at least December 31, 2018.
The Adviser voluntarily waived an additional 8 basis points (0.08%) during the
year and voluntarily reimbursed the Fund an additional $30,758.
(5)Excludes
the impact of in-kind transactions.
Roundhill
Acquirers Deep Value ETF
|
|
|
|
|
|
|
|
|
|
| |
Adviser |
Exchange
Traded Concepts, LLC
10900
Hefner Pointe Drive, Suite 400
Oklahoma
City, Oklahoma 73120 |
Index
Provider |
Acquirers
Funds, LLC
21515
Hawthorne Boulevard
Suite
200 PMB#82
Torrance,
California 90503 |
Custodian |
U.S.
Bank National Association
1555
N. Rivercenter Drive, Suite 302
Milwaukee,
Wisconsin 53212 |
Transfer
Agent, Fund Accountant and Fund Administrator |
U.S.
Bancorp Fund Services, LLC
d/b/a
U.S. Bank Global Fund Services
615
East Michigan Street
Milwaukee,
Wisconsin 53202 |
Legal
Counsel |
Morgan,
Lewis & Bockius LLP
1111
Pennsylvania Avenue, NW
Washington,
D.C. 20004-2541 |
Distributor |
Quasar
Distributors, LLC
111
East Kilbourn Avenue, Suite 2200
Milwaukee,
Wisconsin 53202 |
Independent Registered
Public Accounting Firm |
Cohen
& Company, Ltd.
342
North Water Street, Suite 830
Milwaukee,
Wisconsin 53202 |
| |
Investors
may find more information about the Fund in the following documents:
Statement
of Additional Information:
The Fund’s SAI provides additional details about the investments and techniques
of the Fund and certain other additional information. A current SAI dated
December 20, 2022 is on file with the SEC and is herein incorporated by
reference into this Prospectus. It is legally considered a part of this
Prospectus.
Annual/Semi-Annual
Reports:
Additional information about the Fund’s investments is available in the Fund’s
annual and semi-annual reports to shareholders. In the annual
report
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance.
You
can obtain free copies of these documents, request other information or make
general inquiries about the Fund by contacting the Fund at:
Roundhill
Acquirers Deep Value ETF
c/o
U.S. Bank Global Fund Services
P.O.
Box 701
Milwaukee,
Wisconsin 53201-0701
1-800-617-0004
Shareholder
reports and other information about the Fund are available:
•Free
of charge from the SEC’s EDGAR database on the SEC’s website at
http://www.sec.gov; or
•Free
of charge from the Fund’s Internet website at
www.roundhillinvestments.com/etf/deep; or
•For
a fee, by e-mail request to publicinfo@sec.gov.
(SEC
Investment Company Act File No. 811-22668)