|
Semi-Annual Report
|
January 31, 2022
|
LEGG MASON
SMALL-CAP QUALITY
VALUE ETF
SQLV
| INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE |
Fund objective
The Fund seeks to track the investment results of an index composed of equity securities of small-capitalization companies that are traded in the United States.
Dear Shareholder,
We are pleased to provide the semi-annual report of Legg Mason Small-Cap Quality Value ETF for the six-month reporting period ended January 31, 2022. Please read on for Fund performance information during the Fund’s reporting period.
On March 3, 2022, The Board of Trustees of the Legg Mason Small-Cap Quality Value ETF approved changes to the Fund’s name, investment objective and principal investment strategies, including its 80% investment policy, to reflect the Fund’s new investment approach as an actively managed portfolio.
Therefore, effective on or about May 10, 2022 (the “Effective Date”), the Fund’s investment objective is to seek to achieve long-term growth of capital. In pursuing its new investment objective, the Fund will no longer seek to track the investment results of an underlying index and will instead be actively managed. The Fund will seek to achieve its investment objective using a proprietary quantitative investment strategy and security selection methodology created by the Fund’s investment sub-adviser, Royce & Associates, LP. In connection with these changes, the Fund will implement corresponding changes to its principal investment strategies and risks.
Accordingly, as of the Effective Date, the Fund will be renamed the Royce Quant Small-Cap Quality Value ETF, and the Fund’s 80% investment policy is revised as follows: Under normal market conditions, the Fund invests at least 80% of its net assets, plus borrowing for investment purposes, if any, in securities of small capitalization companies or other instruments with similar characteristics For more information, please the Fund’s prospectus supplement dated March 11, 2022.
|
II |
Legg Mason Small-Cap Quality Value ETF |
As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.franklintempleton.com. Here you can gain immediate access to market and investment information, including:
| • |
Fund net asset value and market price, |
| • |
Market insights and commentaries from our portfolio managers, and |
| • |
A host of educational resources. |
We look forward to helping you meet your financial goals.
Sincerely,
Patrick O’Connor
President and Chief Executive Officer - Investment Management President
February 28, 2022
| Legg Mason Small-Cap Quality Value ETF |
III |
For the six months ended January 31, 2022, Legg Mason Small-Cap Quality Value ETF generated a 0.97% return on a net asset value (“NAV”)i basis and 0.81% based on its market priceii per share.
The performance table shows the Fund’s total return for the six months ended January 31, 2022 based on its NAV and market price as of January 31, 2022. The Fund seeks to track the investment results of the Royce Small-Cap Quality Value Indexiii, which returned 1.40% for the same period. The Fund’s broad-based market index, the Russell 2000 Indexiv, returned -8.41% over the same time frame. The Lipper Small-Cap Core Funds Category Averagev returned -1.55% for the same period. Please note that Lipper performance returns are based on each fund’s NAV.
| Performance Snapshot as of January 31, 2022 (unaudited) | ||||
| 6 months | ||||
| Legg Mason Small-Cap Quality Value ETF: | ||||
|
$37.90 (NAV) |
0.97 | %*† | ||
|
$37.82 (Market Price) |
0.81 | %*‡ | ||
| Royce Small-Cap Quality Value Index | 1.40 | % | ||
| Russell 2000 Index | -8.41 | % | ||
| Lipper Small-Cap Core Funds Category Average | -1.55 | % | ||
The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate so shares, when sold, may be worth more or less than their original cost. Performance data current to the most recent month-end is available at www.franklintempleton.com.
Investors buy and sell shares of an exchange-traded fund (“ETF”) at market price (not NAV) in the secondary market throughout the trading day. These shares are not individually available for direct purchase from or direct redemption to the ETF. Market price returns are typically based upon the official closing price of the Fund’s shares. These returns do not represent investors’ returns had they traded shares at other times. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.
Information showing the Fund’s net asset value, market price, premiums and discounts, and bid-ask spreads for various time periods is available by visiting the Fund’s website at www.franklintempleton.com.
As of the Fund’s current prospectus dated November 29, 2021, the gross total annual fund operating expense ratio for the Fund was 0.61%.
* Total returns are based on changes in NAV or market price, respectively. Returns reflect the deduction of all Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors pay on distributions or the sale of shares.
† Total return assumes the reinvestment of all distributions, including returns of capital, if any, at NAV.
|
IV |
Legg Mason Small-Cap Quality Value ETF |
‡ Total return assumes the reinvestment of all distributions, including returns of capital, if any, at market price, which typically is based upon the official closing price of the Fund’s shares.
Looking for additional information?
The Fund’s daily NAV is available online at www.franklintempleton.com. The Fund is traded under the symbol “SQLV” and its closing market price is available on most financial websites. In a continuing effort to provide information concerning the Fund, shareholders may call 1-877-721-1926 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern time, for the Fund’s current NAV, market price and other information.
As always, thank you for your confidence in our stewardship of your assets.
Sincerely,
Patrick O’Connor
President and Chief Executive Officer - Investment Management President
February 28, 2022
RISKS: Equity securities are subject to market and price fluctuations. The Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. The Fund has significant exposure to U.S. issuers. A decrease in imports or exports, changes in trade regulations and/or an economic recession in the United States may have a material adverse effect on the U.S. economy and the securities listed on U.S. exchanges. There is no guarantee that the Fund will achieve a high degree of correlation to the index it seeks to track. The Fund does not seek to outperform the index it tracks and does not seek temporary defensive positions when markets decline or appear overvalued. If the Underlying Index is concentrated in a particular industry or industries, the Fund may focus its investments in these industries, increasing its vulnerability to market volatility. Diversification does not ensure gains or protect against market declines. Please see the Fund’s prospectus for a more complete discussion of these and other risks and the Fund’s investment strategies.
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. An index is a statistical composite that tracks a specified financial market, sector or rules-based investment process. Unlike a fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by a fund. These expenses negatively impact fund performance. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
| Legg Mason Small-Cap Quality Value ETF |
V |
Performance review (cont’d)
| i |
Net Asset Value (“NAV”) is calculated by subtracting total liabilities from total assets and dividing the results by the number of shares outstanding. |
| ii |
Market Price is determined by supply and demand. It is the price at which an investor purchases or sells shares of the Fund. The Market Price may differ from the Fund’s NAV. |
| iii |
The Royce Small-Cap Quality Value Index is a proprietary index composed of small-cap stocks trading in the United States with relatively low valuations, high profitability and high debt coverage compared with the average of stocks in the investment universe. |
| iv |
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the U.S. equity market. |
| v |
Lipper, Inc., a wholly-owned subsidiary of Refinitiv, provides independent insight on global collective investments. Returns are based on the six-month period ended January 31, 2022, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 849 funds in the Fund’s Lipper category. |
|
VI |
Legg Mason Small-Cap Quality Value ETF |
Investment breakdown (%) as a percent of total investments
| † |
The bar graph above represents the composition of the Fund’s investments as of January 31, 2022 and July 31, 2021. The composition of the Fund’s investments is subject to change at any time. |
| Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
1 |
Example
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, such as brokerage commissions paid on purchases and sales of Fund shares; and (2) ongoing costs, including management fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.
This example is based on an investment of $1,000 invested on August 1, 2021 and held for the six months ended January 31, 2022.
Actual expenses
The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.
Hypothetical example for comparison purposes
The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of Fund shares. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| Based on actual total return1 | Based on hypothetical total return1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Actual Total Return2 |
Beginning Account Value |
Ending Account Value |
Annualized Expense Ratio |
Expenses Paid During the Period3 |
Hypothetical Annualized Total Return |
Beginning Account Value |
Ending Account Value |
Annualized Expense Ratio |
Expenses Paid During the Period3 | |||||||||||||||||||||||||||||||||||||||||
| 0.97% | $ | 1,000.00 | $ | 1,009.70 | 0.60 | % | $ | 3.04 | 5.00 | % | $1,000.00 | $ | 1,022.18 | 0.60 | % | $ | 3.06 | |||||||||||||||||||||||||||||||||
| 1 |
For the six months ended January 31, 2022. |
| 2 |
Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
| 3 |
Expenses (net of fee waivers and/or expense reimbursements) are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 365. |
|
2 |
Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
Schedule of investments (unaudited)
January 31, 2022
Legg Mason Small-Cap Quality Value ETF
(Percentages shown based on Fund net assets)
| Security | Shares | Value | ||||||
| Common Stocks — 99.9% | ||||||||
| Communication Services — 5.3% | ||||||||
|
Entertainment — 0.3% |
||||||||
|
Sciplay Corp., Class A Shares |
4,425 | $ | 55,313 | * | ||||
|
Interactive Media & Services — 2.0% |
||||||||
|
Bumble Inc., Class A Shares |
4,710 | 138,992 | * | |||||
|
Eventbrite Inc., Class A Shares |
2,892 | 41,442 | * | |||||
|
Outbrain Inc. |
4,412 | 55,680 | * | |||||
|
TrueCar Inc. |
16,366 | 56,299 | * | |||||
|
Yelp Inc. |
2,332 | 80,547 | * | |||||
|
Total Interactive Media & Services |
372,960 | |||||||
|
Media — 2.4% |
||||||||
|
Entravision Communications Corp., Class A Shares |
9,941 | 60,243 | ||||||
|
Gray Television Inc. |
5,154 | 107,461 | ||||||
|
Loyalty Ventures Inc. |
2,727 | 79,928 | * | |||||
|
Scholastic Corp. |
2,319 | 95,125 | ||||||
|
TEGNA Inc. |
6,291 | 121,794 | ||||||
|
Total Media |
464,551 | |||||||
|
Wireless Telecommunication Services — 0.6% |
||||||||
|
Shenandoah Telecommunications Co. |
5,046 | 114,897 | ||||||
|
Total Communication Services |
1,007,721 | |||||||
| Consumer Discretionary — 16.6% | ||||||||
|
Auto Components — 0.5% |
||||||||
|
American Axle & Manufacturing Holdings Inc. |
10,932 | 88,986 | * | |||||
|
Distributors — 0.4% |
||||||||
|
Funko Inc., Class A Shares |
4,345 | 75,082 | * | |||||
|
Diversified Consumer Services — 2.7% |
||||||||
|
Grand Canyon Education Inc. |
1,141 | 95,479 | * | |||||
|
H&R Block Inc. |
5,479 | 125,250 | ||||||
|
Houghton Mifflin Harcourt Co. |
4,970 | 89,510 | * | |||||
|
Laureate Education Inc. |
8,791 | 111,206 | ||||||
|
Stride Inc. |
2,377 | 83,361 | * | |||||
|
Total Diversified Consumer Services |
504,806 | |||||||
|
Hotels, Restaurants & Leisure — 1.0% |
||||||||
|
Biglari Holdings Inc., Class B Shares |
488 | 57,828 | * | |||||
|
Golden Entertainment Inc. |
1,463 | 65,806 | * | |||||
|
Red Rock Resorts Inc., Class A Shares |
1,662 | 73,992 | ||||||
|
Total Hotels, Restaurants & Leisure |
197,626 | |||||||
|
Household Durables — 1.5% |
||||||||
|
Ethan Allen Interiors Inc. |
3,374 | 85,059 | ||||||
|
La-Z-Boy Inc. |
2,569 | 94,308 | ||||||
See Notes to Financial Statements.
| Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
3 |
Schedule of investments (unaudited) (cont’d)
January 31, 2022
Legg Mason Small-Cap Quality Value ETF
(Percentages shown based on Fund net assets)
| Security | Shares | Value | ||||||
|
Household Durables — continued |
||||||||
|
Tri Pointe Homes Inc. |
4,188 | $ | 99,716 | * | ||||
|
ZAGG Inc. CVR |
8,902 | 801 | (a)(b) | |||||
|
Total Household Durables |
279,884 | |||||||
|
Internet & Direct Marketing Retail — 1.2% |
||||||||
|
Liquidity Services Inc. |
2,258 | 42,970 | * | |||||
|
PetMed Express Inc. |
2,506 | 64,730 | ||||||
|
Revolve Group Inc. |
1,071 | 52,822 | * | |||||
|
Shutterstock Inc. |
715 | 69,333 | ||||||
|
Total Internet & Direct Marketing Retail |
229,855 | |||||||
|
Leisure Products — 0.8% |
||||||||
|
Smith & Wesson Brands Inc. |
4,243 | 72,470 | ||||||
|
Sturm Ruger & Co. Inc. |
1,355 | 91,097 | ||||||
|
Total Leisure Products |
163,567 | |||||||
|
Specialty Retail — 6.3% |
||||||||
|
Big 5 Sporting Goods Corp. |
4,032 | 79,390 | ||||||
|
Buckle Inc. |
2,239 | 84,276 | ||||||
|
Camping World Holdings Inc., Class A Shares |
3,435 | 114,042 | ||||||
|
Cato Corp., Class A Shares |
4,351 | 71,878 | ||||||
|
Conn’s Inc. |
4,696 | 113,972 | * | |||||
|
Genesco Inc. |
1,378 | 88,647 | * | |||||
|
Group 1 Automotive Inc. |
701 | 119,037 | ||||||
|
Haverty Furniture Cos. Inc. |
2,540 | 74,981 | ||||||
|
JOANN Inc. |
8,145 | 87,070 | ||||||
|
MarineMax Inc. |
1,530 | 72,002 | * | |||||
|
OneWater Marine Inc., Class A Shares |
1,380 | 71,360 | ||||||
|
Shoe Carnival Inc. |
1,968 | 67,227 | ||||||
|
Sleep Number Corp. |
1,038 | 74,217 | * | |||||
|
Zumiez Inc. |
1,648 | 74,077 | * | |||||
|
Total Specialty Retail |
1,192,176 | |||||||
|
Textiles, Apparel & Luxury Goods — 2.2% |
||||||||
|
Fossil Group Inc. |
8,066 | 89,452 | * | |||||
|
G-III Apparel Group Ltd |
3,636 | 98,790 | * | |||||
|
Kontoor Brands Inc. |
1,963 | 96,756 | ||||||
|
Movado Group Inc. |
1,852 | 68,654 | ||||||
|
Vera Bradley Inc. |
7,027 | 57,551 | * | |||||
|
Total Textiles, Apparel & Luxury Goods |
411,203 | |||||||
|
Total Consumer Discretionary |
3,143,185 | |||||||
| Consumer Staples — 1.5% | ||||||||
|
Personal Products — 1.0% |
||||||||
|
BellRing Brands Inc., Class A Shares |
2,732 | 66,551 | * | |||||
See Notes to Financial Statements.
|
4 |
Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
Legg Mason Small-Cap Quality Value ETF
(Percentages shown based on Fund net assets)
| Security | Shares | Value | ||||||
|
Personal Products — continued |
||||||||
|
Nature’s Sunshine Products Inc. |
3,104 | $ | 54,755 | |||||
|
USANA Health Sciences Inc. |
733 | 70,060 | * | |||||
|
Total Personal Products |
191,366 | |||||||
|
Tobacco — 0.5% |
||||||||
|
Vector Group Ltd. |
7,758 | 86,191 | ||||||
|
Total Consumer Staples |
277,557 | |||||||
| Energy — 2.7% | ||||||||
|
Energy Equipment & Services — 0.5% |
||||||||
|
Helix Energy Solutions Group Inc. |
27,926 | 98,579 | * | |||||
|
Oil, Gas & Consumable Fuels — 2.2% |
||||||||
|
PDC Energy Inc. |
2,138 | 126,719 | ||||||
|
SandRidge Energy Inc. |
4,506 | 51,819 | * | |||||
|
W&T Offshore, Inc. |
13,999 | 59,916 | * | |||||
|
World Fuel Services Corp. |
6,047 | 170,586 | ||||||
|
Total Oil, Gas & Consumable Fuels |
409,040 | |||||||
|
Total Energy |
507,619 | |||||||
| Financials — 25.6% | ||||||||
|
Banks — 9.5% |
||||||||
|
Ameris Bancorp |
2,025 | 99,853 | ||||||
|
Blue Ridge Bankshares Inc. |
2,734 | 49,868 | ||||||
|
Civista Bancshares Inc. |
2,423 | 58,419 | ||||||
|
Customers Bancorp Inc. |
1,353 | 78,880 | * | |||||
|
Farmers National Banc Corp. |
3,498 | 61,040 | ||||||
|
Financial Institutions Inc. |
2,141 | 69,026 | ||||||
|
First Internet Bancorp |
1,192 | 59,910 | ||||||
|
Hanmi Financial Corp. |
3,314 | 89,080 | ||||||
|
HBT Financial Inc. |
4,918 | 91,524 | ||||||
|
Heritage Financial Corp. |
3,328 | 80,737 | ||||||
|
Hilltop Holdings Inc. |
2,782 | 91,889 | ||||||
|
HomeStreet Inc. |
1,330 | 64,837 | ||||||
|
Independent Bank Corp. |
2,774 | 67,908 | ||||||
|
Macatawa Bank Corp. |
6,594 | 59,610 | ||||||
|
Mercantile Bank Corp. |
2,010 | 77,325 | ||||||
|
Mid Penn Bancorp Inc. |
1,858 | 55,461 | ||||||
|
Midland States Bancorp Inc. |
3,138 | 90,594 | ||||||
|
MidWestOne Financial Group Inc. |
2,135 | 68,171 | ||||||
|
Northeast Bank |
1,312 | 47,914 | ||||||
|
Northrim BanCorp Inc. |
1,235 | 54,266 | ||||||
|
Orrstown Financial Services Inc. |
2,283 | 56,504 | ||||||
|
South Plains Financial Inc. |
2,181 | 63,096 | ||||||
See Notes to Financial Statements.
| Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
5 |
Schedule of investments (unaudited) (cont’d)
January 31, 2022
Legg Mason Small-Cap Quality Value ETF
(Percentages shown based on Fund net assets)
| Security | Shares | Value | ||||||
|
Banks — continued |
||||||||
|
Summit Financial Group Inc. |
2,192 | $ | 61,201 | |||||
|
Umpqua Holdings Corp. |
6,365 | 129,082 | ||||||
|
Univest Financial Corp. |
2,609 | 78,609 | ||||||
|
Total Banks |
1,804,804 | |||||||
|
Capital Markets — 5.9% |
||||||||
|
Artisan Partners Asset Management Inc., Class A Shares |
2,591 | 111,957 | ||||||
|
B Riley Financial Inc. |
1,388 | 85,459 | ||||||
|
Brightsphere Investment Group Inc. |
2,820 | 60,856 | ||||||
|
Cowen Inc., Class A Shares |
2,830 | 89,654 | ||||||
|
Diamond Hill Investment Group Inc. |
370 | 69,098 | ||||||
|
Donnelley Financial Solutions Inc. |
1,605 | 59,738 | * | |||||
|
Federated Hermes Inc. |
3,215 | 106,449 | ||||||
|
GAMCO Investors Inc., Class A Shares |
2,568 | 57,806 | ||||||
|
Greenhill & Co. Inc. |
3,117 | 51,992 | ||||||
|
Oppenheimer Holdings Inc., Class A Shares |
1,764 | 74,776 | ||||||
|
Sculptor Capital Management Inc. |
3,990 | 78,204 | ||||||
|
Trinity Capital Inc. |
3,293 | 57,166 | ||||||
|
Victory Capital Holdings Inc., Class A Shares |
2,484 | 81,152 | ||||||
|
Virtu Financial Inc., Class A Shares |
4,472 | 138,319 | ||||||
|
Total Capital Markets |
1,122,626 | |||||||
|
Consumer Finance — 0.6% |
||||||||
|
Enova International Inc. |
2,593 | 104,446 | * | |||||
|
Diversified Financial Services — 0.4% |
||||||||
|
Cannae Holdings Inc. |
2,808 | 83,875 | * | |||||
|
Insurance — 4.3% |
||||||||
|
CNO Financial Group Inc. |
3,375 | 84,172 | ||||||
|
Investors Title Co. |
309 | 61,797 | ||||||
|
Mercury General Corp. |
2,384 | 130,309 | ||||||
|
National Western Life Group Inc., Class A Shares |
448 | 95,814 | ||||||
|
Safety Insurance Group Inc. |
1,135 | 93,445 | ||||||
|
Stewart Information Services Corp. |
1,300 | 92,859 | ||||||
|
Tiptree Inc. |
5,564 | 68,938 | ||||||
|
Unum Group |
7,226 | 183,396 | ||||||
|
Total Insurance |
810,730 | |||||||
|
Thrifts & Mortgage Finance — 4.9% |
||||||||
|
Flagstar Bancorp Inc. |
3,662 | 165,706 | ||||||
|
FS Bancorp Inc. |
1,554 | 51,624 | ||||||
|
Merchants Bancorp |
2,607 | 75,994 | ||||||
|
NMI Holdings Inc., Class A Shares |
4,088 | 101,137 | * | |||||
|
PennyMac Financial Services Inc. |
1,574 | 98,690 | ||||||
See Notes to Financial Statements.
|
6 |
Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
Legg Mason Small-Cap Quality Value ETF
(Percentages shown based on Fund net assets)
| Security | Shares | Value | ||||||
|
Thrifts & Mortgage Finance — continued |
||||||||
|
Premier Financial Corp. |
2,598 | $ | 77,550 | |||||
|
Radian Group Inc. |
5,980 | 133,892 | ||||||
|
Southern Missouri Bancorp Inc. |
1,083 | 59,890 | ||||||
|
Waterstone Financial Inc. |
3,239 | 66,140 | ||||||
|
WSFS Financial Corp. |
1,886 | 98,789 | ||||||
|
Total Thrifts & Mortgage Finance |
929,412 | |||||||
|
Total Financials |
4,855,893 | |||||||
| Health Care — 17.6% | ||||||||
|
Biotechnology — 2.7% |
||||||||
|
Alector Inc. |
2,843 | 45,090 | * | |||||
|
AnaptysBio Inc. |
1,555 | 49,713 | * | |||||
|
Anika Therapeutics Inc. |
1,346 | 42,803 | * | |||||
|
Catalyst Pharmaceuticals Inc. |
7,783 | 44,830 | * | |||||
|
CytomX Therapeutics Inc. |
6,017 | 27,678 | * | |||||
|
Eagle Pharmaceuticals Inc. |
1,141 | 52,418 | * | |||||
|
Ironwood Pharmaceuticals Inc. |
6,487 | 72,330 | * | |||||
|
Myriad Genetics Inc. |
2,865 | 75,321 | * | |||||
|
Rigel Pharmaceuticals Inc. |
14,118 | 36,142 | * | |||||
|
Vanda Pharmaceuticals Inc. |
3,806 | 57,699 | * | |||||
|
Total Biotechnology |
504,024 | |||||||
|
Health Care Equipment & Supplies — 6.1% |
||||||||
|
Accuray Inc. |
9,430 | 34,420 | * | |||||
|
AngioDynamics Inc. |
2,286 | 49,446 | * | |||||
|
Atrion Corp. |
89 | 53,882 | ||||||
|
Bioventus Inc., Class A Shares |
4,469 | 58,231 | * | |||||
|
CONMED Corp. |
614 | 84,474 | ||||||
|
Heska Corp. |
336 | 46,227 | * | |||||
|
ICU Medical Inc. |
384 | 81,930 | * | |||||
|
Inari Medical Inc. |
558 | 41,047 | * | |||||
|
Inogen Inc. |
1,717 | 51,046 | * | |||||
|
iRadimed Corp. |
796 | 31,697 | * | |||||
|
LeMaitre Vascular Inc. |
1,196 | 50,603 | ||||||
|
Meridian Bioscience Inc. |
3,394 | 70,765 | * | |||||
|
Merit Medical Systems Inc. |
1,270 | 70,422 | * | |||||
|
Natus Medical Inc. |
2,702 | 62,254 | * | |||||
|
Neogen Corp. |
1,618 | 59,008 | * | |||||
|
NuVasive Inc. |
1,543 | 80,251 | * | |||||
|
Orthofix Medical Inc. |
2,001 | 60,830 | * | |||||
|
Semler Scientific Inc. |
370 | 27,998 | * | |||||
|
Surmodics Inc. |
938 | 42,848 | * | |||||
See Notes to Financial Statements.
| Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
7 |
Schedule of investments (unaudited) (cont’d)
January 31, 2022
Legg Mason Small-Cap Quality Value ETF
(Percentages shown based on Fund net assets)
| Security | Shares | Value | ||||||
|
Health Care Equipment & Supplies — continued |
||||||||
|
Utah Medical Products Inc. |
434 | $ | 40,826 | |||||
|
Varex Imaging Corp. |
2,414 | 63,005 | * | |||||
|
Total Health Care Equipment & Supplies |
1,161,210 | |||||||
|
Health Care Providers & Services — 3.0% |
||||||||
|
Apria Inc. |
3,567 | 133,441 | * | |||||
|
Fulgent Genetics Inc. |
941 | 60,102 | * | |||||
|
National HealthCare Corp. |
1,275 | 83,385 | ||||||
|
National Research Corp. |
1,478 | 61,485 | ||||||
|
Select Medical Holdings Corp. |
3,984 | 92,548 | ||||||
|
Tivity Health Inc. |
2,708 | 68,891 | * | |||||
|
US Physical Therapy Inc. |
719 | 69,578 | ||||||
|
Total Health Care Providers & Services |
569,430 | |||||||
|
Health Care Technology — 1.0% |
||||||||
|
Computer Programs & Systems Inc. |
1,994 | 56,470 | * | |||||
|
HealthStream Inc. |
2,262 | 55,080 | * | |||||
|
NextGen Healthcare Inc. |
4,009 | 77,414 | * | |||||
|
Total Health Care Technology |
188,964 | |||||||
|
Life Sciences Tools & Services — 0.2% |
||||||||
|
Cytek Biosciences Inc. |
2,839 | 41,336 | * | |||||
|
Pharmaceuticals — 4.6% |
||||||||
|
Amphastar Pharmaceuticals Inc. |
2,700 | 62,343 | * | |||||
|
ANI Pharmaceuticals Inc. |
1,110 | 44,866 | * | |||||
|
Arvinas Inc. |
1,097 | 78,425 | * | |||||
|
BioDelivery Sciences International Inc. |
16,743 | 61,279 | * | |||||
|
Collegium Pharmaceutical Inc. |
3,188 | 56,906 | * | |||||
|
Corcept Therapeutics Inc. |
3,691 | 69,280 | * | |||||
|
Harmony Biosciences Holdings Inc. |
970 | 34,784 | * | |||||
|
Innoviva Inc. |
4,671 | 74,876 | * | |||||
|
KemPharm Inc. |
4,637 | 33,433 | * | |||||
|
Pacira BioSciences Inc. |
1,208 | 75,826 | * | |||||
|
Phibro Animal Health Corp., Class A Shares |
3,733 | 72,047 | ||||||
|
Prestige Consumer Healthcare Inc. |
1,550 | 87,498 | * | |||||
|
SIGA Technologies Inc. |
5,485 | 35,707 | * | |||||
|
Supernus Pharmaceuticals Inc. |
2,645 | 81,598 | * | |||||
|
Total Pharmaceuticals |
868,868 | |||||||
|
Total Health Care |
3,333,832 | |||||||
| Industrials — 15.5% | ||||||||
|
Aerospace & Defense — 1.4% |
||||||||
|
Aerojet Rocketdyne Holdings Inc. |
2,634 | 101,646 | ||||||
See Notes to Financial Statements.
|
8 |
Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
Legg Mason Small-Cap Quality Value ETF
(Percentages shown based on Fund net assets)
| Security | Shares | Value | ||||||
|
Aerospace & Defense — continued |
||||||||
|
Parsons Corp. |
3,051 | $ | 92,903 | * | ||||
|
Vectrus Inc. |
1,691 | 77,803 | * | |||||
|
Total Aerospace & Defense |
272,352 | |||||||
|
Building Products — 1.2% |
||||||||
|
Apogee Enterprises Inc. |
1,917 | 85,594 | ||||||
|
Insteel Industries Inc. |
1,703 | 64,424 | ||||||
|
Quanex Building Products Corp. |
3,382 | 73,694 | ||||||
|
Total Building Products |
223,712 | |||||||
|
Commercial Services & Supplies — 2.1% |
||||||||
|
ABM Industries Inc. |
2,621 | 109,269 | ||||||
|
Civeo Corp. |
3,222 | 69,499 | * | |||||
|
Ennis Inc. |
3,761 | 71,196 | ||||||
|
Healthcare Services Group Inc. |
5,601 | 101,882 | ||||||
|
Heritage-Crystal Clean Inc. |
1,829 | 52,328 | * | |||||
|
Total Commercial Services & Supplies |
404,174 | |||||||
|
Construction & Engineering — 2.0% |
||||||||
|
Comfort Systems USA Inc. |
987 | 88,613 | ||||||
|
Granite Construction Inc. |
2,599 | 93,512 | ||||||
|
Infrastructure and Energy Alternatives Inc. |
7,178 | 64,746 | * | |||||
|
MYR Group Inc. |
744 | 69,958 | * | |||||
|
Sterling Construction Co. Inc. |
2,694 | 68,454 | * | |||||
|
Total Construction & Engineering |
385,283 | |||||||
|
Electrical Equipment — 0.4% |
||||||||
|
Encore Wire Corp. |
647 | 72,910 | ||||||
|
Machinery — 3.0% |
||||||||
|
Allison Transmission Holdings Inc. |
3,242 | 123,164 | ||||||
|
Hillenbrand Inc. |
2,226 | 103,464 | ||||||
|
Mueller Industries Inc. |
1,751 | 90,457 | ||||||
|
Omega Flex Inc. |
546 | 77,510 | ||||||
|
SPX Corp |
1,450 | 75,661 | * | |||||
|
Terex Corp. |
2,359 | 98,417 | ||||||
|
Total Machinery |
568,673 | |||||||
|
Marine — 0.7% |
||||||||
|
Matson Inc. |
1,245 | 121,587 | ||||||
|
Professional Services — 2.4% |
||||||||
|
CRA International Inc. |
684 | 58,181 | ||||||
|
Forrester Research Inc. |
1,038 | 57,111 | * | |||||
|
Heidrick & Struggles International Inc. |
1,745 | 76,379 | ||||||
|
Kforce Inc. |
1,084 | 74,438 | ||||||
See Notes to Financial Statements.
| Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
9 |
Schedule of investments (unaudited) (cont’d)
January 31, 2022
Legg Mason Small-Cap Quality Value ETF
(Percentages shown based on Fund net assets)
| Security | Shares | Value | ||||||
|
Professional Services — continued |
||||||||
|
ManTech International Corp., Class A Shares |
1,506 | $ | 108,793 | |||||
|
Resources Connection Inc. |
4,272 | 74,461 | ||||||
|
Total Professional Services |
449,363 | |||||||
|
Road & Rail — 0.7% |
||||||||
|
ArcBest Corp. |
910 | 80,481 | ||||||
|
Covenant Logistics Group Inc. |
2,563 | 55,668 | * | |||||
|
Total Road & Rail |
136,149 | |||||||
|
Trading Companies & Distributors — 1.6% |
||||||||
|
Boise Cascade Co. |
1,872 | 131,452 | ||||||
|
NOW Inc. |
10,399 | 92,447 | * | |||||
|
Titan Machinery Inc. |
2,261 | 69,639 | * | |||||
|
Total Trading Companies & Distributors |
293,538 | |||||||
|
Total Industrials |
2,927,741 | |||||||
| Information Technology — 9.0% | ||||||||
|
Communications Equipment — 1.1% |
||||||||
|
Digi International Inc. |
2,442 | 54,554 | * | |||||
|
Extreme Networks Inc. |
4,930 | 62,562 | * | |||||
|
NetScout Systems Inc. |
2,876 | 90,738 | * | |||||
|
Total Communications Equipment |
207,854 | |||||||
|
Electronic Equipment, Instruments & Components — 3.6% |
||||||||
|
Benchmark Electronics Inc. |
3,667 | 88,521 | ||||||
|
CTS Corp. |
1,923 | 64,517 | ||||||
|
Kimball Electronics Inc. |
3,202 | 63,367 | * | |||||
|
Methode Electronics Inc. |
1,938 | 85,330 | ||||||
|
Plexus Corp. |
980 | 75,970 | * | |||||
|
Sanmina Corp. |
3,005 | 113,649 | * | |||||
|
TTM Technologies Inc. |
6,624 | 89,159 | * | |||||
|
Vishay Intertechnology Inc. |
5,304 | 109,846 | ||||||
|
Total Electronic Equipment, Instruments & Components |
690,359 | |||||||
|
IT Services — 0.7% |
||||||||
|
ExlService Holdings Inc. |
592 | 71,348 | * | |||||
|
Hackett Group Inc. |
2,955 | 56,559 | ||||||
|
Total IT Services |
127,907 | |||||||
|
Semiconductors & Semiconductor Equipment — 0.3% |
||||||||
|
NVE Corp. |
892 | 55,188 | ||||||
|
Software — 2.2% |
||||||||
|
CommVault Systems Inc. |
1,023 | 69,012 | * | |||||
|
Consensus Cloud Solutions Inc. |
1,892 | 107,276 | * | |||||
|
Progress Software Corp. |
1,753 | 79,779 | ||||||
See Notes to Financial Statements.
|
10 |
Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
Legg Mason Small-Cap Quality Value ETF
(Percentages shown based on Fund net assets)
| Security | Shares | Value | ||||||
|
Software — continued |
||||||||
|
Teradata Corp. |
2,037 | $ | 82,172 | * | ||||
|
Xperi Holding Corp. |
4,901 | 82,680 | ||||||
|
Total Software |
420,919 | |||||||
|
Technology Hardware, Storage & Peripherals — 1.1% |
||||||||
|
Avid Technology Inc. |
1,595 | 50,019 | * | |||||
|
Xerox Holdings Corp. |
7,467 | 157,629 | ||||||
|
Total Technology Hardware, Storage & Peripherals |
207,648 | |||||||
|
Total Information Technology |
1,709,875 | |||||||
| Materials — 4.6% | ||||||||
|
Chemicals — 2.1% |
||||||||
|
AdvanSix Inc. |
1,668 | 70,206 | ||||||
|
American Vanguard Corp. |
4,110 | 62,349 | ||||||
|
Minerals Technologies Inc. |
1,308 | 91,521 | ||||||
|
Rayonier Advanced Materials Inc. |
14,275 | 88,933 | * | |||||
|
Tredegar Corp. |
8,256 | 97,008 | ||||||
|
Total Chemicals |
410,017 | |||||||
|
Metals & Mining — 0.9% |
||||||||
|
SunCoke Energy Inc. |
13,083 | 89,618 | ||||||
|
TimkenSteel Corp. |
5,306 | 74,443 | * | |||||
|
Total Metals & Mining |
164,061 | |||||||
|
Paper & Forest Products — 1.6% |
||||||||
|
Glatfelter Corp. |
4,727 | 82,061 | ||||||
|
Sylvamo Corp. |
3,551 | 105,784 | * | |||||
|
Verso Corp., Class A Shares |
4,393 | 118,084 | ||||||
|
Total Paper & Forest Products |
305,929 | |||||||
|
Total Materials |
880,007 | |||||||
| Real Estate — 0.2% | ||||||||
|
Real Estate Management & Development — 0.2% |
||||||||
|
Douglas Elliman Inc. |
3,879 | 30,101 | * | |||||
| Utilities — 1.3% | ||||||||
|
Electric Utilities — 0.7% |
||||||||
|
Hawaiian Electric Industries Inc. |
2,963 | 125,928 | ||||||
|
Gas Utilities — 0.4% |
||||||||
|
Chesapeake Utilities Corp. |
568 | 77,367 | ||||||
|
Independent Power and Renewable Electricity Producers — 0.2% |
||||||||
|
Montauk Renewables Inc. |
4,577 | 49,386 | * | |||||
|
Total Utilities |
252,681 | |||||||
|
Total Investments before Short-Term Investments (Cost — $18,271,682) |
18,926,212 | |||||||
See Notes to Financial Statements.
| Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
11 |
Schedule of investments (unaudited) (cont’d)
January 31, 2022
Legg Mason Small-Cap Quality Value ETF
(Percentages shown based on Fund net assets)
| Security | Rate | Shares | Value | |||||||||
| Short-Term Investments — 0.1% | ||||||||||||
|
Dreyfus
Treasury Cash Management, Institutional Class |
0.010 | % | 24,088 | $ | 24,088 | |||||||
|
Total Investments — 100.0% (Cost — $18,295,770) |
18,950,300 | |||||||||||
|
Liabilities in Excess of Other Assets — (0.0)%†† |
(302 | ) | ||||||||||
|
Total Net Assets — 100.0% |
$ | 18,949,998 | ||||||||||
| †† |
Represents less than 0.1%. |
| * |
Non-income producing security. |
| (a) |
Security is valued in good faith in accordance with procedures approved by the Board of Trustees (Note 1). |
| (b) |
Security is valued using significant unobservable inputs (Note 1). |
|
Abbreviation(s) used in this schedule: | ||
| CVR | — Contingent Value Rights | |
See Notes to Financial Statements.
|
12 |
Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
Statement of assets and liabilities (unaudited)
January 31, 2022
| Assets: | ||||
|
Investments, at value (Cost — $18,295,770) |
$ | 18,950,300 | ||
|
Dividends receivable |
9,627 | |||
|
Total Assets |
18,959,927 | |||
| Liabilities: | ||||
|
Investment management fee payable |
9,929 | |||
|
Total Liabilities |
9,929 | |||
| Total Net Assets | $ | 18,949,998 | ||
| Net Assets: | ||||
|
Par value (Note 5) |
$ | 5 | ||
|
Paid-in capital in excess of par value |
20,605,456 | |||
|
Total distributable earnings (loss) |
(1,655,463) | |||
| Total Net Assets | $ | 18,949,998 | ||
| Shares Outstanding | 500,000 | |||
| Net Asset Value | $37.90 | |||
See Notes to Financial Statements.
| Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
13 |
Statement of operations (unaudited)
For the Six Months Ended January 31, 2022
| Investment Income: | ||||
|
Dividends |
$ | 185,478 | ||
| Expenses: | ||||
|
Investment management fee (Note 2) |
56,524 | |||
|
Total Expenses |
56,524 | |||
| Net Investment Income | 128,954 | |||
| Realized and Unrealized Gain (Loss) on Investments (Notes 1 and 3): | ||||
|
Net Realized Gain From Investment Transactions |
1,046,890 | |||
|
Change in Net Unrealized Appreciation (Depreciation) From Investments |
(1,101,007) | |||
| Net Loss on Investments | (54,117) | |||
| Increase in Net Assets From Operations | $ | 74,837 | ||
See Notes to Financial Statements.
|
14 |
Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
Statements of changes in net assets
|
For the Six Months Ended January 31, 2022 (unaudited) and the Year Ended July 31, 2021 |
2022 | 2021 | ||||||
| Operations: | ||||||||
|
Net investment income |
$ | 128,954 | $ | 158,928 | ||||
|
Net realized gain |
1,046,890 | 4,272,828 | ||||||
|
Change in net unrealized appreciation (depreciation) |
(1,101,007) | 2,429,356 | ||||||
|
Increase in Net Assets From Operations |
74,837 | 6,861,112 | ||||||
| Distributions to Shareholders From (Note 1): | ||||||||
|
Total distributable earnings |
(150,000) | (142,575) | ||||||
|
Decrease in Net Assets From Distributions to Shareholders |
(150,000) | (142,575) | ||||||
| Fund Share Transactions (Note 5): | ||||||||
|
Net proceeds from sale of shares (150,000 and 350,000 shares issued, respectively) |
5,811,864 | 10,982,654 | ||||||
|
Cost of shares repurchased (100,000 and 400,000 shares repurchased, respectively) |
(3,817,781) | (12,071,990) | ||||||
|
Increase (Decrease) in Net Assets From Fund Share Transactions |
1,994,083 | (1,089,336) | ||||||
|
Increase in Net Assets |
1,918,920 | 5,629,201 | ||||||
| Net Assets: | ||||||||
|
Beginning of period |
17,031,078 | 11,401,877 | ||||||
|
End of period |
$ | 18,949,998 | $ | 17,031,078 | ||||
See Notes to Financial Statements.
| Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
15 |
| For a share of
beneficial interest outstanding throughout each year ended July
31, unless otherwise noted: |
||||||||||||||||||||||||
| 20221,2 | 20211 | 20201 | 20191 | 20181 | 20171,3 | |||||||||||||||||||
| Net asset value, beginning of period | $37.85 | $22.80 | $26.21 | $30.06 | $24.95 | $25.14 | ||||||||||||||||||
| Income (loss) from operations: | ||||||||||||||||||||||||
|
Net investment income (loss) |
0.27 | 0.35 | 0.35 | 0.35 | 0.31 | (0.00) | 4 | |||||||||||||||||
|
Net realized and unrealized gain (loss) |
0.09 | 5 | 15.03 | (3.42) | (3.77) | 4.91 | (0.19) | |||||||||||||||||
|
Total income (loss) from operations |
0.36 | 15.38 | (3.07) | (3.42) | 5.22 | (0.19) | ||||||||||||||||||
| Less distributions from: | ||||||||||||||||||||||||
|
Net investment income |
(0.31) | (0.33) | (0.34) | (0.43) | (0.11) | — | ||||||||||||||||||
|
Total distributions |
(0.31) | (0.33) | (0.34) | (0.43) | (0.11) | — | ||||||||||||||||||
| Net asset value, end of period | $37.90 | $37.85 | $22.80 | $26.21 | $30.06 | $24.95 | ||||||||||||||||||
|
Total return, based on NAV6 |
0.97 | % | 67.77 | % | (11.71) | % | (11.29) | % | 20.97 | % | (0.76) | % | ||||||||||||
| Net assets, end of period (000s) | $18,950 | $17,031 | $11,402 | $10,483 | $4,509 | $2,495 | ||||||||||||||||||
| Ratios to average net assets: | ||||||||||||||||||||||||
|
Gross expenses |
0.60 | %7 | 0.60 | % | 0.60 | % | 0.60 | % | 0.60 | % | 0.60 | %7 | ||||||||||||
|
Net expenses |
0.60 | 7 | 0.60 | 0.60 | 0.60 | 0.60 | 0.60 | 7 | ||||||||||||||||
|
Net investment income (loss) |
1.37 | 7 | 1.13 | 1.46 | 1.30 | 1.12 | (0.29) | 7 | ||||||||||||||||
| Portfolio turnover rate8 | 48 | % | 99 | % | 95 | % | 87 | % | 80 | % | 0 | % | ||||||||||||
| 1 |
Per share amounts have been calculated using the average shares method. |
| 2 |
For the six months ended January 31, 2022 (unaudited). |
| 3 |
For the period July 12, 2017 (inception date) to July 31, 2017. |
| 4 |
Amount represents less than $0.005 per share. |
| 5 |
Calculation of the net gain per share (both realized and unrealized) does not correlate to the aggregate realized and unrealized losses presented in the Statement of Operations due to the timing of the sales and repurchases of Fund shares in relation to fluctuating market values of the investments of the Fund. |
| 6 |
Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
| 7 |
Annualized. |
| 8 |
Portfolio turnover excludes the value of portfolio securities received or delivered as a result of in-kind fund share transactions. |
See Notes to Financial Statements.
|
16 |
Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
Notes to financial statements (unaudited)
1. Organization and significant accounting policies
Legg Mason Small-Cap Quality Value ETF (the “Fund”) is a separate diversified investment series of Legg Mason ETF Investment Trust (the “Trust”). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company.
In September 2021, the Fund’s Board of Trustees approved changing the Fund’s fiscal year end from July 31st to March 31st.
The Fund is an exchange-traded fund (“ETF”). ETFs are funds that trade like other publicly-traded securities. The Fund is designed to track an index. Similar to shares of an index mutual fund, each share of the Fund represents an ownership interest in an underlying portfolio of securities intended to track an index. Unlike shares of a mutual fund, which can be bought from and redeemed by the issuing fund by all shareholders at a price based on net asset value (“NAV”), shares of the Fund may be directly purchased from and redeemed by the Fund at NAV solely by certain large institutional investors who have entered into agreements with the Fund’s distributor (“Authorized Participants”). Also unlike shares of a mutual fund, shares of the Fund are listed on a national securities exchange and trade in the secondary market at market prices that change throughout the day.
Shares of the Fund are listed and traded at market prices on NASDAQ. The market price for the Fund’s shares may be different from the Fund’s NAV. The Fund issues and redeems shares at NAV only in blocks of a specified number of shares or multiples thereof (“Creation Units”). Only Authorized Participants may purchase or redeem Creation Units directly with the Fund at NAV. Creation Units are issued and redeemed principally in-kind (although under some circumstances its shares are created and redeemed partially for cash). Except when aggregated in Creation Units, shares of the Fund are not redeemable securities. Shareholders who are not Authorized Participants may not redeem shares directly from the Fund at NAV.
The Fund seeks to track the investment results of the Royce Small-Cap Quality Value Index (the “Underlying Index”). The Underlying Index utilizes a proprietary methodology created and sponsored by Royce & Associates, LP (“Royce”), the Fund’s subadviser.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed,
| Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
17 |
Notes to financial statements (unaudited) (cont’d)
collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services typically use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will use the currency exchange rates, generally determined as of 4:00 p.m. (London Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Trustees.
The Board of Trustees is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Global Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Trustees, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Board of Trustees. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.
|
18 |
Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Trustees, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Trustees quarterly.
The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
| • |
Level 1 — quoted prices in active markets for identical investments |
| • |
Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| • |
Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets carried at fair value:
|
ASSETS |
||||||||||||||||
| Description | Quoted Prices (Level 1) |
Other Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | ||||||||||||
| Long-Term Investments†: | ||||||||||||||||
|
Common Stocks: |
||||||||||||||||
|
Consumer Discretionary |
$ | 3,142,384 | — | $ | 801 | $ | 3,143,185 | |||||||||
|
Other Common Stocks |
15,783,027 | — | — | 15,783,027 | ||||||||||||
| Total Long-Term Investments | 18,925,411 | — | 801 | 18,926,212 | ||||||||||||
| Short-Term Investments† | 24,088 | — | — | 24,088 | ||||||||||||
| Total Investments | $ | 18,949,499 | — | $ | 801 | $ | 18,950,300 | |||||||||
| † |
See Schedule of Investments for additional detailed categorizations. |
(b) Foreign investment risks. The Fund’s investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or may pay interest or dividends in
| Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
19 |
Notes to financial statements (unaudited) (cont’d)
foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(c) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.
(d) Distributions to shareholders. Distributions from net investment income of the Fund, if any, are declared and paid on a quarterly basis. Distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(e) Federal and other taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the “Code”), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Fund’s financial statements.
Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of July 31, 2021, no provision for income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
(f) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share.
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager and Royce & Associates, LP (“Royce”) is the Fund’s subadviser. Western Asset Management
|
20 |
Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
Company, LLC (“Western Asset”) manages the portion of the Fund’s cash and short-term instruments allocated to it. LMPFA, Western Asset, and Royce are subsidiaries of Franklin Resources, Inc. (“Franklin Resources”).
LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to the subadviser the day-to-day portfolio management of the Fund. The Fund is responsible for paying interest expenses, taxes, brokerage expenses, future 12b-1 fees (if any), acquired fund fees and expenses, extraordinary expenses and the management fee payable to LMPFA under the investment management agreement.
Under the investment management agreement and subject to the general supervision of the Fund’s Board of Trustees, LMPFA provides or causes to be furnished all investment management, supervisory, administrative and other services reasonably necessary for the operation of the Fund, including certain distribution services (provided pursuant to a separate distribution agreement) and investment advisory services (provided pursuant to separate subadvisory agreements) under a unitary fee structure. The Fund pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.60% of the Fund’s average daily net assets.
As compensation for its subadvisory services, LMPFA pays Royce monthly 90% of the management fee paid by the Fund to LMPFA, net of (i) all fees and expenses incurred by LMPFA under the investment management agreement (including without limitation any subadvisory fee paid to another subadviser to the Fund) and (ii) expense waivers, if any, and reimbursements. LMPFA pays Western Asset monthly a fee of 0.02% of the portion of the Fund’s average daily net assets allocated to Western Asset for the management of cash and other short-term instruments, net of expense waivers, if any, and reimbursements.
Franklin Distributors, LLC (“Franklin Distributors”) serves as the distributor of Creation Units for the Fund on an agency basis. Franklin Distributors is an indirect, wholly-owned broker-dealer subsidiary of Franklin Resources.
The Fund’s Board of Trustees has adopted a Rule 12b-1 shareholder services and distribution plan and under that plan, the Fund is authorized to pay service and/or distribution fees calculated at an annual rate of up to 0.25% of its average daily net assets. No service and/or distribution fees are currently paid by the Fund, and there are no current plans to impose these fees.
All officers and one Trustee of the Trust are employees of Franklin Resources or its affiliates and do not receive compensation from the Trust.
| Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
21 |
Notes to financial statements (unaudited) (cont’d)
3. Investments
During the six months ended January 31, 2022, the aggregate cost of purchases and proceeds from sales of investments (excluding in-kind transactions and short-term investments) were as follows:
| Purchases | $ | 8,991,371 | ||
| Sales | 8,864,701 |
During the six months ended January 31, 2022, in-kind transactions (Note 5) were as follows:
| Contributions | $ | 5,802,985 | ||
| Redemptions | 3,787,480 | |||
| Realized gain (loss)* | 1,399,604 |
| * |
Net realized gains on redemptions in-kind are not taxable to the remaining shareholders of the Fund. |
The in-kind contributions and in-kind redemptions shown in this table may not agree with the Fund Share Transactions on the Statement of Changes in Net Assets. This table represents the accumulation of the Fund’s daily net shareholder transactions while the Statement of Changes in Net Assets reflects gross shareholder transactions including any cash component of the transactions.
At January 31, 2022, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:
| Cost | Gross Unrealized Appreciation |
Gross Unrealized Depreciation |
Net Unrealized Appreciation |
|||||||||||||
| Securities | $ | 18,295,770 | $ | 1,569,929 | $ | (915,399) | $ | 654,530 | ||||||||
4. Derivative instruments and hedging activities
During the six months ended January 31, 2022, the Fund did not invest in derivative instruments.
5. Fund share transactions
At January 31, 2022, the Trust had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share. Fund shares are issued and redeemed by the Fund only in Creation Units or Creation Unit aggregations, where 50,000 shares of the Fund constitute a Creation Unit. Such transactions are generally on an in-kind basis, with a separate cash payment, which is a balancing cash component to equate the transaction to the net asset value per share of the Fund on the transaction date. Transactions in capital shares of the Fund are disclosed in detail in the Statement of Changes in Net Assets. Authorized Participants are subject to standard creation and redemption transaction fees to offset transfer and other transaction costs associated with the issuance and redemption of
|
22 |
Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
Creation Units. Creations and redemptions for cash (when cash creations and redemptions are available or specified) may be subject to an additional variable fee.
6. Deferred capital losses
As of July 31, 2021, the Fund had deferred capital losses of $3,132,159, which have no expiration date, that will be available to offset future taxable capital gains.
7. Recent accounting pronouncement
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB issued ASU No. 2021-01, with further amendments to Topic 848. The amendments in the ASUs provide optional temporary accounting recognition and financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered based reference rates as of the end of 2021 and 2023. The ASUs are effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has reviewed the requirements and believes the adoption of these ASUs will not have a material impact on the financial statements.
8. Other matter
The outbreak of the respiratory illness COVID-19 (commonly referred to as “coronavirus”) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and financial markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely affect the value and liquidity of the Fund’s investments, impair the Fund’s ability to satisfy redemption requests, and negatively impact the Fund’s performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Fund by its service providers.
9. Subsequent event
On February 24, 2022, Russia engaged in military actions in the sovereign territory of Ukraine. The current political and financial uncertainty surrounding Russia and Ukraine may increase market volatility and the economic risk of investing in securities in these countries and may also cause uncertainty for the global economy and broader financial markets. The ultimate fallout and long-term impact from these events are not known. The Fund will continue to assess the impact on valuations and liquidity and will take any potential actions needed in accordance with procedures approved by the Board of Trustees.
| Legg Mason Small-Cap Quality Value ETF 2022 Semi-Annual Report |
23 |
Statement regarding liquidity risk management program (Unaudited)
Each of the Funds has adopted and implemented a written Liquidity Risk Management Program (the “LRMP”) as required by Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The LRMP is designed to assess and manage each Fund’s liquidity risk, which is defined as the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors’ interests in the Fund. Each of the Funds is an exchange-traded fund (“ETF”) that is considered an “In-Kind ETF” under the Liquidity Rule, which means that the Fund satisfies requests for redemption through in-kind transfers of portfolio securities, positions, and other assets, except for a de minimis amount of cash, and publishes its portfolio holdings daily. In accordance with the Liquidity Rule, the LRMP includes policies and procedures that provide for: (1) assessment, management, and review (no less frequently than annually) of each Fund’s liquidity risk; (2) prohibiting the Fund’s acquisition of Illiquid investments that would result in the Fund holding more than 15% of its net assets in Illiquid assets. The LRMP also requires reporting to the SEC (on a non-public basis) and to the Board if the Fund’s holdings of Illiquid assets exceed 15% of the Fund’s net assets. As an In-Kind ETF, the Fund is not required to include in the LRMP policies and procedures relating to classification of portfolio holdings into four liquidity categories or establishing a highly liquid investment minimum (“HLIM”).
The Funds’ Board of Trustees approved the appointment of the Director of Liquidity Risk within the Investment Risk Management Group (the “IRMG”) as the Administrator of the LRMP. The IRMG maintains the Investment Liquidity Committee (the “ILC”) to provide oversight and administration of policies and procedures governing liquidity risk management for FT products and portfolios. The ILC includes representatives from Franklin Templeton’s Risk, Trading, Global Compliance, Legal, Investment Compliance, Investment Operations, Valuation Committee, Product Management and Global Product Strategy.
In assessing and managing each Fund’s liquidity risk, the ILC considers, as relevant, a variety of factors, including the Fund’s investment strategy and the liquidity of its portfolio investments during both normal and reasonably foreseeable stressed conditions; its short and long-term cash flow projections; and its cash holdings and access to other funding sources including the Funds’ interfund lending facility and line of credit. Because the Funds are ETFs, the ILC also considers, as relevant, (1) the relationship between the Fund’s portfolio liquidity and the way in which, and the prices and spread at which, Fund shares trade, including the efficiency of the arbitrage function and the level of active participation by market participants, including authorized participants and (2) the effect of the composition of baskets on the overall liquidity of the Fund’s portfolio.
|
24 |
Legg Mason Small-Cap Quality Value ETF |
Legg Mason
Small-Cap Quality Value ETF
Trustees
Rohit Bhagat
Deborah D. McWhinney
Anantha K. Pradeep
Jennifer M. Johnson
Chair
Investment manager
Legg Mason Partners Fund Advisor, LLC
Subadviser
Royce & Associates, LP
Custodian
The Bank of New York Mellon
Transfer agent
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
Independent registered public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Legg Mason Small-Cap Quality Value ETF
The Fund is a separate investment series of Legg Mason ETF Investment Trust, a Maryland statutory trust.
Legg Mason Small-Cap Quality Value ETF
Legg Mason Funds
620 Eighth Avenue, 47th Floor
New York, NY 10018
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov. To obtain information on Form N-PORT, shareholders can call the Fund at 1-877-721-1926.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling the Fund at 1-877-721-1926, (2) at www.franklintempleton.com and (3) on the SEC’s website at www.sec.gov.
This report is submitted for the general information of the shareholders of Legg Mason Small-Cap Quality Value ETF. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by a current prospectus.
Investors should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing.
www.franklintempleton.com
© 2022 Franklin Distributors, LLC, Member FINRA/SIPC. All rights reserved.
ETF Index Disclaimers
The Royce Small-Cap Quality Value Index (the “Underlying Index”) is created and sponsored by Royce & Associates, LP (“Royce”), the subadviser to Legg Mason Small-Cap Quality Value ETF (the “Fund”). Royce is an affiliated person of Legg Mason Partners Fund Advisor, LLC, the Fund’s manager, and the Fund. The Underlying Index is the exclusive property of Royce. Legg Mason ETF Investment Trust has entered into a license agreement with Royce to use the Underlying Index at no charge. Royce has retained Solactive AG, an unaffiliated third party, to calculate the Underlying Index. Solactive AG publishes information regarding the market value of the Underlying Index.
The Fund is not sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using the Underlying Index and/or Underlying Index trade marks or the Underlying Index Price at any time or in any other respect. The Underlying Index is calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that the Underlying Index is calculated correctly. Irrespective of its obligations towards the Fund, Solactive AG has no obligation to point out errors in the Underlying Index to third parties including but not limited to investors and/or financial intermediaries of the Fund. Neither publication of the Underlying Index by Solactive AG nor the licensing of the Underlying Index or Underlying Index trade marks for the purpose of use in connection with the Fund constitutes a recommendation by Solactive AG to invest capital in the Fund nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in the Fund.
Royce does not guarantee the accuracy and/or the completeness of the Underlying Index or any data included therein, and Royce shall not have any liability for any errors, omissions or interruptions therein. Royce makes no warranty, express or implied, as to results to be obtained by the Fund, owners of the shares of the Fund or any other person or entity from the use of the Underlying Index or any data included therein, either in connection with the Fund or for any other use. Royce makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing, in no event shall Royce have any liability for any special, punitive, direct, indirect or consequential damages (including lost profits) arising out of matters relating to the use of the Underlying Index, even if notified of the possibility of such damages.
www.franklintempleton.com
© 2022 Franklin Distributors, LLC, Member FINRA/SIPC. All rights reserved.
ETFF436861 3/22 SR22-4362